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U.S. 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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ECOMMERCIAL.COM, INC.
(Exact name of registrant as specified in charter)
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Nevada 7319 77-0511097
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
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95 Enterprise, Suite 360
Aliso Viejo, California 92656
(949) 916-8705
(Address, including ZIP code and telephone number, including area code, of
registrant's principal executive offices)
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Michael R. Friedl
Chief Financial Officer
eCommercial.com, Inc.
95 Enterprise, Suite 360
Aliso Viejo, CA 92656
Telephone (949) 916-8705
(Name, address, including ZIP code, and telephone number, including area code,
of agent for service)
Copies to:
Attention: Kevin Coyle, Esq.
Gray Cary Ware & Freidenrich LLP
400 Capitol Mall, Suite 2100
Sacramento, CA 95814
Telephone: (916) 930-3240
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Approximate date of commencement of proposed sale to the public: From time
to time 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. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act Registration Statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Amount maximum maximum Amount of
Title of each class of to be offering price aggregate registration
securities to be registered registered per unit offering price fee
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Common Stock, par value $.001 per
share............................... 1,776,909 $8 $14,215,272 $3,753
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The offering price is estimated solely for the purpose of calculating the
registration fee in accordance with Rule 457(c), using the closing price
reported by the Over-the-Counter Bulletin Board market for the common stock on
November 29, 1999, based upon the last trade of such shares which was $8 per
share.
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.
The shares offered hereby are highly speculative and involve a high degree
of risk to public investors and should be purchased only by persons who can
afford to lose their entire investment (See "Risk Factors" beginning on page
4).
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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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 offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 29, 1999
PROSPECTUS
1,776,909 Shares of Common Stock
eCommercial.com, Inc.
This prospectus (the "Prospectus") covers our registration for possible
resale of 1,776,909 shares of our common stock (the "Shares") which are
issuable upon (i) conversion of shares of series B preferred stock into shares
of our common stock, or (ii) exercise of certain warrants issued in connection
with our private offering of series B preferred stock.
We are not currently a reporting company as defined in Section 12(g) of the
Securities Exchange Act of 1934. Shortly after the filing of this Registration
Statement, we will file a Form 10 to become a reporting company under the
Exchange Act. Our Form 10 has not yet been declared effective.
Certain of our shareholders may sell up to 1,776,909 shares from time to time
in the open market or otherwise at prevailing market prices.
Our common stock is traded on the Over-the-Counter Bulletin Board market
under the symbol "ECRL". On November 29, 1999, the last reported sale price of
our common stock was $8 per share.
We will not receive any of the proceeds from the sale of the Shares. We will
bear substantially all expenses of registration of the Shares under federal and
state securities laws incurred by the sale of Shares by the selling
stockholders. We have also agreed to indemnify certain of the selling
stockholders against certain liabilities under the Securities Act. See "Use of
Proceeds," "Selling Stockholders" and "Plan of Distribution".
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Investing in our Securities involves a high degree of risk. See "Risk
Factors" beginning on page 4.
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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.
The date of this prospectus is December , 1999.
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You should rely only on the information contained or incorporated in this
prospectus. We and the selling stockholders have not authorized anyone to
provide you with information different from that contained in this prospectus.
The selling stockholders are offering to sell, and seeking offers to buy,
shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or any sale of common stock. In this prospectus, "eCommercial.com,"
"we," "us" and "our" refer to eCommercial.com, Inc. and its subsidiary.
TABLE OF CONTENTS
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Disclosure Regarding Forward-Looking Statements........................ i
Summary................................................................ 1
Risk Factors........................................................... 4
Use of Proceeds........................................................ 10
Dividends.............................................................. 10
Capitalization......................................................... 11
Dilution............................................................... 11
Plan of Distribution................................................... 12
Selected Financial Data................................................ 13
Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... 14
Business............................................................... 17
Management............................................................. 23
Certain Transactions and Relationships................................. 29
Market for Common Stock................................................ 29
Significant Stockholders............................................... 30
Selling Security Holders............................................... 31
Description of Securities.............................................. 35
Legal Matters.......................................................... 38
Experts................................................................ 38
Where You Can Find More Information.................................... 38
Financial Statements................................................... F-1
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These forward-looking statements are subject to a number
of risks and uncertainties, many of which are beyond our control. All
statements contained herein, other than statements of historical facts included
in this prospectus, including the statements under "Summary," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
"Business," regarding our business strategy, future operations, financial
position, estimated revenues, projected costs, prospects, plans and objectives
of management, as well as information concerning expected actions of third
parties are forward-looking statements. When used in this prospectus, the words
"anticipate," "intend," "estimate," "expect," "project," and similar
expressions are intended to identify forward-looking statements, although not
all forward-looking statements contain such identifying words. All forward-
looking statements speak only as of the date of this prospectus. We do not
undertake any obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise. Although we
believe that the expectations reflected in the forward-looking statements are
reasonable, we can give no assurance that such expectations will prove to be
correct. Important factors that could cause our actual results to differ
materially from our expectations ("cautionary statements") are disclosed under
"Risk Factors" and elsewhere in the prospectus. The cautionary statements
qualify all forward-looking statements attributable to us or persons acting on
our behalf.
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SUMMARY
This prospectus summary only highlights certain information contained in
this prospectus. This summary is not complete and may not contain all of the
information that is important to you in making a decision of whether or not to
invest. To fully understand us and this offering, you should read the entire
prospectus. Most importantly, you should read the "Risk Factors" beginning on
page 4.
The Company
We are a global provider of interactive marketing automation systems and
services. Interactive marketing automation is a new category of marketing that
utilizes the Internet to enable businesses to increase revenues by improving
customer relationship management.
We produce, distribute and track Internet direct marketing brochures and
campaigns based on our proprietary "eCommercial(TM)" authoring software and
patent-pending network configuration. eCommercials are highly compressed
multimedia files that combine audio, video, graphics, chat, animations and
hypertext links with integrated reporting that are sent as email attachments.
Our services include sending eCommercial messages via our network; activity
tracking and reporting systems; creative design and production services;
campaign consultation; sponsorship and promotions management; and network
services for the download of eCommercials from e-commerce websites.
Our Internet marketing solutions are primarily in two categories, both
utilizing the proprietary eCommercial technologies and network:
. Virtual Prospecting(TM): Salespeople use our "virtualprospector.com"
website to select and send electronic brochures to existing or
prospective customers.
. Internet Relationship Management: Clients build "clubs" or "networks" of
interested customers who receive eCommercials on a regular basis.
Our eCommercial.com business was founded in March 1999 and was incorporated
as a California corporation on April 9, 1999. On April 19, 1999, we merged into
Wireless Netcom, Inc., a pre-existing Nevada corporation. Our stock began
trading under the symbol "ECRL" on April 29, 1999.
Our main office is located at 95 Enterprise, Suite 360, Aliso Viejo, CA
92656, and our telephone number is (949) 916-8705. Our email address is
[email protected].
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The Offering
The shares offered in this offering are issuable upon (i) conversion of
shares of series B preferred stock into shares of our common stock, or (ii)
exercise of certain warrants issued in connection with our private offering of
series B preferred stock.
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Common stock outstanding prior to this offering:............ 9,536,623 shares
Common stock issuable on conversion of series B
preferred(1):.............................................. 1,388,073 shares
Common stock issuable on exercise of warrants(2):........... 388,836 shares
Common stock outstanding after conversion and exercise:..... 11,313,532 shares
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Use of Proceeds: We will not receive any of the proceeds of
the sale of the Shares.
Risk Factors This offering involves a high degree of
risk. See "Risk Factors" beginning on page
4.
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The number of shares that will be outstanding after this offering is based
on the number of shares outstanding on November 29, 1999 and excludes 2,400,000
shares of common stock reserved for issuance under the 1999 Stock Option Plan,
and 381,344 shares reserved for issuance upon the exercise of outstanding
warrants not included above.
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(1) Includes 125,000 shares related to shares of series B preferred that are
issuable upon exercise of an option.
(2) Includes 12,500 shares related warrants that are issuable upon exercise of
an option.
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Summary Financial Information
The following summary financial data should be read together with our
financial statements and the notes thereto included elsewhere in this
prospectus. The statement of operations data for the period ending
September 30, 1999 and the balance sheet data as of September 30, 1999 are
derived from, and are qualified by reference to, our audited financial
statements included elsewhere in this prospectus.
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For the period
from inception
(March 26, 1999) to
September 30, 1999
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Statement of Operations Data
Revenues.................................................... $ 6,250
Interest income............................................. 24,274
Total costs and expenses.................................... 2,315,070
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Net loss.................................................... $(2,284,546)
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Net loss per common share outstanding....................... $ (0.26)
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Weighted average common shares outstanding.................. 8,751,760
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September 30, 1999
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Balance Sheet Data
Current assets.............................................. $ 4,894,143
Working capital............................................. 2,351,053
Total assets................................................ 6,886,141
Total liabilities........................................... 2,543,090
Stockholders' equity........................................ 4,343,051
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RISK FACTORS
The purchase of our common stock involves substantial investment risk. You
should carefully consider the following factors and other information in this
Prospectus before deciding to invest in shares of our common stock. This
Prospectus also contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in the forward-looking statements as a result of certain factors,
including the risks described below and elsewhere in this Prospectus.
We Are A New Company And Have Experienced Losses Since Inception
Our eCommercial.com business was formed in March 1999, and we have recorded
a net loss since inception. Accordingly, we have a limited operating history on
which to base our evaluation of current business and prospects. Our prospects
must be considered in light of the risks, difficulties and uncertainties
frequently encountered by companies in an early stage of development,
particularly companies in new and rapidly evolving markets such as the market
for Internet services and advertising.
To achieve and sustain profitability, we believe we must, among other
things, (i) successfully market and sell our production services, (ii)
effectively develop new and maintain existing relationships with advertisers,
customers and advertising agencies, (iii) continue to develop and upgrade our
technology and network infrastructure, (iv) respond to competitive
developments, (v) successfully introduce enhancements to our existing products
and services to address new technologies and standards, and (vi) attract,
retain and motivate qualified personnel. Our operating results are also
dependent on factors outside of our control, such as strength of competition
and the growth of the market for our services. There is no assurance that we
will be successful in addressing these risks, and failure to do so could have a
material adverse effect on our financial performance.
Additionally, our short operating history makes it difficult to predict
future results, and there are no assurances that our revenues will increase, or
that we will achieve or maintain profitability or generate sufficient cash from
operations in future periods. We expect to incur significant losses on a
monthly basis in accordance with our financial projections and our auditors
have expressed substantial doubt that we will be able to continue as a going
concern if we are unable to generate sufficient cash flow or raise the capital
necessary to allow us to continue to meet all of our obligations as they come
due.
Our Future Revenues Are Not Easy To Predict, And Could Vary Significantly
Because of our limited operating history and the emerging nature of our
markets, we are unable to reliably forecast our revenues. We plan to
substantially increase our operating expenses in order to, among other things,
(i) expand our sales and distribution network, (ii) fund increased sales and
marketing activities, and (iii) develop and upgrade our technology. Our expense
levels are based, in part, on expected revenues, and to a large extent such
expenses are fixed, particularly in the short term. If we are unsuccessful in
generating significant revenues, we may be unable to adjust spending in time to
compensate for a revenue shortfall or we may have to forego potential revenue
generating activities, either of which could hurt our financial performance.
Our quarterly operating results may fluctuate significantly in the future as
a result of a variety of factors, many of which are outside of our control.
These factors include (i) the demand for our business services, (ii) demand for
Internet advertising, (iii) seasonal trends in Internet and advertising
placements, (iv) the advertising cycles for, or the addition or loss of,
individual advertisers, (v) the amount and timing of capital expenditures and
other costs relating to the expansion of our operations, (vi) the introduction
of new products or services by us or our competitors and (vii) general economic
conditions and economic conditions specific to the Internet, such as electronic
commerce and online media. Any one of these factors could cause our revenues
and operating results to vary significantly. In addition, as a strategic
response to changes in the competitive environment, we may from time to time
make certain pricing, service or marketing decisions or acquisitions that could
significantly hurt our operating results in a given period.
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The advertising industry is very seasonal. The extent to which Internet
advertising develops similar seasonality will impact how much our quarterly
revenues can be expected to vary. We expect our advertising sales generally to
follow the quarterly trends of traditional media advertising.
Due to all of the foregoing factors, we believe that period-to-period
comparisons of our results of operations are not necessarily meaningful and
should not be relied upon as indications of future performance. Furthermore, it
is possible that our operating results in one or more quarters will fail to
meet the expectations of securities analysts or investors. In such event, the
market price of our common stock could drop.
We're Not Sure If The Market Will Accept eCommercials
Our ability to establish and maintain a leadership position in Internet
messaging and eCommercial advertising will depend on, among other things, (i)
our marketing and sales efforts, (ii) market acceptance of our current and
future offerings, (iii) the reliability of our networks and services and (iv)
the extent to which end users are able to receive eCommercials at tolerable
download speeds, none of which can be assured. We operate in a market that is
at a very early stage of development, is rapidly evolving, and is characterized
by an increasing number of competitors. As is typical in the case of a new and
rapidly evolving industry, there is risk surrounding market acceptance of new
technologies and services. The sales cycle for our services can be lengthy. In
addition, potential customers must accept eCommercials as a viable alternative
to traditional commercial advertising. Because this market is so new, it is
difficult to predict the size of this market and its growth rate. If the market
fails to develop as we expect, our growth will be slower than expected.
Further, our success depends on the market acceptance of eCommercial
technology. For example, congestion over the Internet which causes packet loss
may interrupt eCommercial broadcasts, resulting in unsatisfying user
experiences. Due to bandwidth constraints on some corporate intranets, some
information systems managers may block reception of large files, including
email attachments and executable files. Widespread adoption of eCommercial
technology depends on overcoming these obstacles, improving audio and video
quality and educating customers and users. If our technology fails to achieve
broad commercial acceptance, our growth will be slower than expected.
The Internet is at an Early Stage of Development as an Advertising Medium
The Internet advertising market is rapidly evolving and new competitors
appear regularly. As is typical in the case of a new and rapidly evolving
industry, demand and market acceptance for recently introduced products and
services are subject to a high level of uncertainty. Most potential advertisers
and their advertising agencies have only limited experience with the Internet
as an advertising medium and have not devoted a substantial amount of their
advertising budget to Internet-based advertising. There can be no assurance
that advertisers will be persuaded to allocate portions of their budgets to
Web-based advertising or, if so persuaded, that they will find such advertising
to be effective for promoting their products and services relative to
traditional print and broadcast media.
No standards have yet been widely accepted for the measurement of the
effectiveness of Web-based advertising, and there can be no assurance that such
standards will develop sufficiently to enable Web-based advertising to become a
significant advertising medium. Acceptance of the Internet among advertisers
and advertising agencies will also depend, to a large extent, on the level of
use of the Internet by consumers and upon growth in the commercial use of the
Internet. If widespread commercial use of the Internet does not develop, or if
the Internet does not develop as an effective and measurable medium for
advertising, we will suffer.
We Must Manage Our Growth
We expect that we will grow quickly. Our growth might place a significant
strain on our managerial, operational and financial resources and systems. To
manage this growth, we must implement, improve and
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effectively utilize operational, management, marketing and financial systems,
and train and manage our employees. Many of our senior management have only
recently joined us, and are in the process of integrating as a management team.
There can be no assurance that we will be able to manage effectively the
expansion of operations or that the current personnel, systems, procedures and
controls will be adequate to support operations. Any failure to manage our
growth effectively could hurt our financial performance.
We Could Have Network and System Failures
The performance, reliability and availability of our websites and network
infrastructure is critical to our reputation and ability to attract and retain
users, advertisers and content providers. Our systems and operations are
vulnerable to damage or interruption from earthquake, fire, flood, power loss,
telecommunications failure, Internet breakdowns, break-ins, tornadoes and
similar events. We carry business interruption insurance to compensate for
losses that may occur, but we're not guaranteed that our insurance will be
enough to remove all risk of loss. Services based on sophisticated software and
computer systems often encounter development delays and the underlying software
may contain bugs that could cause system failures. Any system failure that
causes an interruption could result in a loss of customers and advertisers and
could reduce the attractiveness of our services.
We are also dependent upon web browsers, Internet service providers ("ISPs")
and online service providers ("OSPs") to provide Internet users access to our
customers, users and web sites. Users may experience difficulties due to system
failures or delays unrelated to our systems. These difficulties may hurt audio
and video quality or result in intermittent interruptions in broadcasting and
thereby slow our growth.
We Could Have Security Risks
Despite the implementation of security measures, our networks may be
vulnerable to unauthorized access, computer viruses and other disruptive
problems. Anyone who is able to circumvent security measures could steal
proprietary information or cause interruptions in our operations. ISPs and OSPs
have occasionally experienced interruptions in service as a result of the
accidental actions of users or intentional actions of hackers. We may have to
spend significant capital to protect against security breaches or to fix
problems caused by such breaches. Although we intend to implement security
measures, there can be no assurance that such measures will not be circumvented
in the future. Eliminating computer viruses and alleviating other security
problems may require interruptions, delays or cessation of service to users,
which could hurt our business.
We Depend on Short-Term Advertising Contracts
Although some companies may enter into multi-year agreements, a substantial
portion of our advertising revenues will be derived from short-term contracts.
Consequently, many of our advertising customers can stop advertising quickly
and without penalty, thereby increasing our exposure to competitive pressures.
There can be no assurance that current customers will continue to be customers,
or that we will be able to attract new customers.
We Need to be Scalable in the Number of Users We Serve
Our success depends on our ability to broadcast eCommercials to a large
number of simultaneous users. The broadcast of a high volume of data requires
sophisticated software and extensive network capability that may not be
available, thereby limiting our revenue growth.
We Depend on Continued Growth in Use of the Internet
Rapid growth in use of the Internet is a recent phenomenon and there can be
no assurance that use of the Internet will continue to grow or that a
sufficient base of users will emerge to support our business. The
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Internet may not be accepted as a viable medium for broadcasting advertising,
for a number of reasons, including (i) potentially inadequate development of
the necessary infrastructure, (ii) inadequate development of enabling
technologies, (iii) lack of acceptance of the Internet as a medium for
distributing rich media advertising and (iv) inadequate commercial support for
Web-based advertising. To the extent that Internet use continues to increase,
there can be no assurance that the Internet infrastructure will be able to
support the demands placed upon it, specifically the demands of delivering
high-quality video content.
Furthermore, user experiences on the Internet are affected by access speed.
There is no assurance that broadband access technologies will become widely
adopted. In addition, the Internet could lose its viability as a commercial
medium due to delays in the development or adoption of new standards and
protocols required to handle increased levels of Internet activity, or due to
increased government regulation. Our business could suffer if use of the
Internet grows more slowly than expected, or if the Internet infrastructure
does not effectively support the growth that does occur.
We Run the Risk of Technological Change
In the Internet industry, change occurs quickly. Such change includes
software, network hardware and bandwidth changes. If we don't keep up with
changing tastes and technologies, our growth could suffer.
We Depend on Key People
Our continued growth and development is dependent upon our ability to retain
and motivate our key employees. Competition for top people is intense and there
can be no assurance that we will be able to retain our key management and
technical employees or that we will be able to attract or retain additional
qualified technical personnel and management in the future. If we are
unsuccessful in hiring and keeping key people, our business will suffer.
We Could Face Liability for Internet Content
As a distributor of Internet advertising content, we face potential
liability for negligence, copyright, patent, trademark, defamation, indecency
and other claims based on the content of our broadcasts. Such claims have been
brought, and sometimes successfully pressed, against Internet content
distributors. Our general liability insurance may not be adequate to indemnify
us for all liability that may be imposed. Although we generally require our
customers to indemnify us for such liability, such indemnification may be
inadequate. Any imposition of liability that is not covered by insurance or by
an indemnification by a customer could harm our business.
We Could be Subject to Government Regulation and Legal Uncertainty
Although there are currently few laws and regulations directly applicable to
the Internet, it is possible that new laws and regulations will be adopted in
the United States and elsewhere covering issues such as distribution of
unsolicited email, copyrights, privacy, pricing, sales taxes and
characteristics and quality of Internet services. The adoption of restrictive
laws or regulations could slow Internet growth or expose us to significant
liabilities associated with the operation of our business, particularly if any
such restrictive laws or regulations regulate the distribution of unsolicited
email over the Internet. The application of existing laws and regulations
governing Internet issues such as property ownership, taxation, defamation and
personal privacy is also subject to substantial uncertainty. There can be no
assurance that new government laws and regulations, or the application of
existing laws and regulations, will not expose us to significant liabilities,
slow Internet growth or otherwise hurt our business.
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We Could be Impacted by Year 2000 Computer Problems
We are in the process of working with our software vendors to assure that we
are prepared for the year 2000. We have not verified that all companies we do
business with are year 2000 compliant. However, while we do not anticipate that
we will incur significant expenses to be year 2000 compliant, we can't be
completely sure. Any year 2000 compliance problem of ours, our customers or
advertisers could have a material adverse effect on the our business.
Our Stock Price Could be Volatile
Our stock price has been and is likely to continue to be highly volatile and
could be subject to wide fluctuations in response to factors such as actual or
anticipated variations in quarterly operating results, announcements, new sales
formats or new services offered by us or our competitors, changes in financial
estimates by securities analysts, conditions or trends in Internet markets and
changes in the market valuations of other Internet companies, many of which are
beyond our control. In addition, the stock market in general, and the market
for Internet-related and technology companies in particular, has experienced
extreme price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of such companies. The trading
prices of many technology companies' stocks are at or near historical highs and
reflect price/earnings ratios substantially above historical levels. There can
be no assurance that these trading prices and price/earnings ratios will be
sustained. These broad market and industry factors may materially adversely
affect the market price of our common stock, regardless of our operating
performance. In the past, following periods of volatility in the market price
of a company's securities, securities class-action litigation has often been
instituted against such company. Such litigation, if instituted, could result
in substantial costs and a diversion of management's attention and resources,
which could seriously damage our business.
Our Efforts to Protect our Intellectual Property Rights May Not Sufficiently
Protect Us
We have filed fourteen patent applications through the U.S. Patent and
Trademark Office under the Patent Cooperation Treaty designating all member
countries, including the United States, essentially all of Europe, Japan,
Korea, China, Canada and Mexico. These patent applications cover aspects of our
proprietary eCommercial authoring software and our network architecture, as
well as methods of using eCommercials and related media in marketing. We plan
to file additional patent applications in the future with respect to various
additional aspects of these and other technologies. We continue to develop
proprietary computer software. We mark our software with copyright notices, and
intend to file copyright registration applications where appropriate. We have
also filed several federal trademark registration applications for trademarks
and service marks we use. In addition, we seek to protect certain proprietary
aspects of our products through nondisclosure agreements with our employees,
contractors and other third parties. There can, however, be no assurance that
any patents, copyright registrations, or trademark registrations applied for by
us will be issued, or if issued, will sufficiently protect our proprietary
rights.
We intend to continue to seek patent protection for technologies that we
consider important to the development of our business. We also intend to rely
upon copyright, trademark, trade secrets, know-how, and continuing
technological innovations to develop and maintain a competitive advantage.
Even if the patents we apply for are granted, they do not confer on us the
right to manufacture or market products or services if such products or
services infringe on intellectual property rights held by others. While we have
reviewed prior art in connection with the preparation of our patent
applications, we have not done any comprehensive patent infringement searches.
If any third parties hold conflicting rights, we may be required to stop
making, using, or marketing one or more of our products or to obtain licenses
from and pay royalties to others, which could have a significant and material
adverse effect on us. Further, in such event, there can be no assurance that we
will be able to obtain or maintain any such license on acceptable terms at all.
We also rely substantially on certain technologies that are not patentable
or proprietary and are therefore available to our competitors. In addition,
many of the processes and much of the know-how of importance to
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our technology are dependent upon the skills, knowledge and expertise of our
technical personnel, whose skill, knowledge and experience are not patentable.
To protect our rights in these areas, we require all employees, significant
consultants and advisors to enter into confidentiality agreements under which
they agree not to use or disclose our confidential information as long as that
information remains proprietary. We also require that our employees agree to
assign to us all rights to any inventions made during their employment relating
to our activities, and not engage in activities similar to ours during the term
of their employment. There can be no assurance, however, that these agreements
will provide meaningful protection for our trade secrets, know-how or other
proprietary information in the event of any unauthorized use or disclosure of
such trade secrets, know-how or proprietary information. Further, in the
absence of patent protection, we may be exposed to competitors who
independently develop substantially equivalent technology or otherwise gain
access to our trade secrets, knowledge or other proprietary information.
There can be no assurance that these steps will be adequate, that we will be
able to secure trademark registrations for all of our marks in the United
States or other countries or that third parties will not infringe upon or
misappropriate our copyrights, trademarks, service marks and similar
proprietary rights. In addition, effective copyright and trademark protection
may be unenforceable or limited in certain countries, and the global nature of
the Internet makes it impossible to control the ultimate destination of our
broadcasts. In the future, litigation may be necessary to enforce and protect
our trade secrets, copyrights and other intellectual property rights.
We may also be subject to litigation to defend against claims of
infringement of the rights of others or to determine the scope and validity of
the intellectual property rights of others. If third parties hold trademark,
copyright or patent rights that conflict with our business, then we may be
forced to litigate infringement claims that could result in substantial costs
to us. In addition, if we were unsuccessful in defending such a claim, it could
have a negative financial impact. If third parties prepare and file
applications in the United States that claim trademarks used or registered by
us, we may oppose those applications and be required to participate in
proceedings before the United States Patent and Trademark Office to determine
priority of rights to the trademark, which could result in substantial costs to
us. An adverse outcome in litigation or privity proceedings could require us to
license disputed rights from third parties or to cease using such rights. Any
litigation regarding our proprietary rights could be costly, divert
management's attention, result in the loss of certain of our proprietary
rights, require us to seek licenses from third parties and prevent us from
selling our services, any one of which could have a negative financial impact.
In addition, inasmuch as we broadcast content developed by third parties, our
exposure to copyright infringement actions may increase because we must rely
upon such third parties for information as to the origin and ownership of such
licensed content. We generally obtain representations as to the origin and
ownership of such licensed content and generally obtain indemnification to
cover any breach of such representations; however, there can be no assurance
that such representations will be accurate or given, or that such
indemnification will adequately protect us.
As part of our confidentiality procedures, we generally enter into
agreements with our employees and consultants which limit access to and
distribution of our software, documentation and other proprietary information.
There can be no assurance that the steps taken by us will prevent
misappropriation of our proprietary information or that agreements entered into
for that purpose would be enforceable. Notwithstanding the precautions taken by
us, it might be possible for a third party to copy or otherwise obtain and use
our proprietary information without authorization. The laws of some countries
may afford us little or no effective protection of our intellectual property.
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USE OF PROCEEDS
Since the only securities being offered are those of the selling
stockholders, we will not receive any of the proceeds from the sale of the
Shares.
Proceeds from exercise of warrants of up to $3,860,688 will be used for
general working capital purposes. However, each warrant contains a cashless
exercise feature so there can be no assurances that we will receive any
proceeds from the exercise of warrants or that any warrants will be exercised
at all.
DIVIDENDS
We have not declared or paid any dividends since our inception and do not
intend to declare or pay any such dividends in the foreseeable future. Our
ability to declare and pay dividends is subject to limitations imposed by
Nevada law.
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CAPITALIZATION
The following table sets forth our total capitalization as of September 30,
1999:
. on an actual basis;
. on a pro forma basis, adjusted to reflect the completion of the private
placement of series B preferred shares, which was completed in November
1999;
. on a pro forma basis, as further adjusted, giving effect to the
conversion of all outstanding shares of series B convertible preferred
stock into 1,388,073 shares of common stock and the exercise of warrants
to purchase 388,836 shares of common stock. The exercise of all of the
warrants hereunder for cash would result in proceeds of $3,860,688. Each
warrant contains a cashless exercise feature so there can be no
assurances that we will receive any proceeds for the exercise of warrants
or that any warrants will be exercised at all.
<TABLE>
<CAPTION>
Pro Forma
Actual Pro Forma As Adjusted
----------- ----------- -----------
<S> <C> <C> <C>
Stockholders' Equity
Series B convertible preferred stock,
$0.001 par value; 2,000,000 shares
authorized; 1,085,573 shares issued
and outstanding, actual; 1,263,073
shares issued and outstanding,
pro forma; no shares issued and
outstanding, pro forma, as adjusted... $ 1,086 $ 1,263 $ --
Common stock, $0.001 par value;
20,000,000 shares authorized;
9,536,623 shares issued and
outstanding, actual and pro forma;
11,313,532 shares issued and
outstanding, pro forma, as adjusted... 9,537 9,537 11,314
Additional paid-in capital............. 7,211,449 8,614,253 12,474,427
Deficit accumulated during the
development stage..................... (2,284,546) (2,284,546) (2,284,546)
Unearned stock-based compensation...... (594,475) (594,475) (594,475)
----------- ----------- -----------
Total stockholders' equity........... $ 4,343,051 $ 5,746,032 $ 9,606,720
=========== =========== ===========
</TABLE>
DILUTION
Since we do not receive the proceeds of the sale of the Shares, we will not
experience any direct dilution. The existing common shareholders paid
substantially less per Share than the offering price of the Shares sold under
this Prospectus.
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PLAN OF DISTRIBUTION
The selling stockholders may offer their Shares at various times in one or
more of the following transactions:
1. In the over-the-counter market where our common stock is listed, or on
the NASDAQ National Market, where we intend to apply to have our common
stock listed.
2. Transactions other than in the over-the-counter market;
3. In connection with short sales of our common stock;
4. By pledgees or donees; or
5. A combination of any of the above transactions.
The selling stockholders may sell their shares at the market price
prevailing at the time of sale or at negotiated prices.
The selling stockholders may use broker-dealers to sell their Shares. If
this happens, the broker-dealers will either receive discounts or commissions
from the selling stockholders or they will receive commissions from purchasers
of Shares for whom they acted as agents.
The selling stockholders may attempt to sell all of the Shares. This could
cause the supply of Shares to exceed demand, which could drive the price of our
Shares down.
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SELECTED FINANCIAL DATA
The following summary financial data should be read together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the notes thereto included
elsewhere in this Prospectus. The Statement of Operations Data for the period
ending September 30, 1999 and the Balance Sheet Data as of September 30, 1999
are derived from, and are qualified by reference to, our audited financial
statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
For the period
from inception
(March 26, 1999)
to September 30,
1999
----------------
<S> <C>
Statement of Operations Data
Revenues.................................................... $ 6,250
-----------
Operating expenses:
Development............................................... 320,766
Production................................................ 139,674
Sales and marketing....................................... 1,060,795
General and administration................................ 684,343
Depreciation and amortization............................. 107,892
-----------
Total operating expenses................................ 2,313,470
-----------
Operating loss............................................ (2,307,220)
Interest income............................................. 24,274
Provision for income taxes.................................. (1,600)
-----------
Net loss.................................................. $(2,284,546)
===========
Net loss per common share outstanding....................... $ (0.26)
===========
Weighted average common shares outstanding.................. 8,751,760
===========
</TABLE>
<TABLE>
<CAPTION>
September 30,
1999
-------------
<S> <C>
Balance Sheet Data
Cash and cash equivalents...................................... $4,744,741
Working capital................................................ 2,351,053
Total assets................................................... 6,886,141
Total liabilities.............................................. 2,543,090
Stockholders' equity........................................... 4,343,051
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ substantially from
those anticipated in these forward-looking statements as a result of many
factors, including those set forth under "Risk Factors" and elsewhere in this
Prospectus. The following discussion should be read together with our financial
statements and related notes included elsewhere in this Prospectus.
Overview
Our revenues are derived from the production and delivery of Internet direct
marketing brochures and campaigns developed for each customer utilizing the
proprietary eCommercial technology and patent-pending network. eCommercial
production services include theme development, eCommercial design and layout,
video production, special effects, hyperlink recommendations, hyperlink page
design and creation, reporting and sales cycle consultation. We have also
developed email subscriber programs to promote subscriber registration and to
sponsor advertising coordination, and we offer demographic and list development
as part of our direct marketing programs.
Revenues are recognized when the services are rendered or eCommercials
delivered. Customers are generally billed in advance of production and delivery
of eCommercials.
We generate revenues from production fees, for delivery and tracking of
eCommercials, and for consulting. In addition, we may generate revenues from
corporate sponsorships and from revenue-sharing arrangements with our clients.
We currently sell our products and services through a direct sales force and
are developing a network of resellers.
Results of Operations
For the period from March 26, 1999 (inception) to September 30, 1999,
revenues from eCommercial broadcast services totaled $6,250, as we focused on
developing our technologies and increasing our ability to serve customers.
Our net loss of $2,284,546 can be attributed to development, marketing and
selling, and general and administrative expenses incurred during the Company's
development stage.
Development expenses consist primarily of salaries and related expenses for
design engineers and other technical personnel, including consultants, and were
focused on continued advancements in eCommercial technology and the creation of
the eComNetwork. Total costs through September 30, 1999 amounted to $320,766.
We charge all research and development expenses to operations as incurred. We
believe that continued investment in research and development is critical to
our long-term success. Accordingly, we expect that our research and development
expenses will increase in future periods.
Production efforts focused on developing the eComStudio, which included
building a team of creative people and producing initial eCommercials and
related websites, in addition to building our own website, eCommercial.com, and
creating in-house marketing and support collateral materials. Total costs
through September 30, 1999 amounted to $139,674.
Sales and marketing expenses through September 30, 1999 amounted to
$1,060,795 and consisted primarily of salaries and related expenses for
developing our direct and reseller organizations, as well as marketing expenses
designed to create and promote brand awareness for eCommercials. Included in
this amount is a non-cash charge of $240,000, which represents the value of the
common stock issued upon the
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signing of a strategic partnership with Lockheed Martin Corporation, and a non-
cash charge of $78,780, which represents compensation expense related to the
issuance of stock options. We intend to pursue aggressive selling and marketing
campaigns and to expand our reseller organization, continue branding efforts
and identifying strategic partners. We therefore expect that our sales and
marketing expenses will increase in future periods.
General and administrative costs of $684,343 through September 30, 1999
primarily included salaries and related expenses for administrative, finance
and human resources personnel, professional fees and other corporate expenses
related to establishing our operations. Included in this amount is a non-cash
charge of $86,455, which represents compensation expense related to the
issuance of stock options. We expect that, in support of our continued growth
and our operations as a public company, general and administrative expenses
will increase in the foreseeable future.
Recent Financing
In November 1999, we completed a private placement offering of 1,263,073
shares of series B preferred stock at $8 per share. Gross proceeds amounted to
$10,104,584. The shares were sold to approximately 185 accredited investors.
Net proceeds to us, after selling commissions of $819,242 and direct offering
costs of $121,869, totaled $9,163,473, of which $1,402,981 was received after
September 30, 1999. We intend to use the net proceeds in our continuing
operations.
Liquidity and Sources of Capital
As of September 30, 1999, we had current assets of $4,894,143 and current
liabilities of $2,543,090. This represents working capital of $2,351,053.
Current liabilities included $2,200,412 of liabilities acquired in
acquisitions, of which $1,800,000 is reserved to pay the judgment in the Voxel
matter. One of our significant shareholders, who is also an officer and
director, has agreed to repay to us in common stock or cash, at his option, any
amounts we must pay to the plaintiffs in this matter. See "Business--Legal
Proceedings."
For the period from inception (March 26, 1999) to September 30, 1999, we
used $2,013,188 of cash for operating activities, and growing the
organizational infrastructure necessary to be able to service our customers.
During the same period, $1,263,133 of cash was used in investing activities,
primarily for acquisitions of fixed assets used to expand our technology
infrastructure and the eComNetwork. $8,021,062 was provided by financing
activities, primarily from issuances of common and preferred stock.
Our Plan of Operation for the Next Twelve Months
While we expect to begin generating significant revenues during the next
twelve months, it is likely that we will need to pursue additional funding in
order to continue the development of our technology infrastructure and add to
our capacity to provide services to our customers. We expect the number of
employees to increase during that time.
There can be no assurance that additional equity or debt financing, if
required, will be available on terms that are acceptable, or at all.
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Year 2000
There is significant concern that certain computer programs and computers
are not presently configured to recognize the year 2000 or succeeding years.
This defect in computer functions could have a serious adverse impact upon our
industry and other industries if various computer programs and applications
cease to function or function erroneously as we approach the year 2000. We
expect the year 2000 compliance problems we may face to fall within three
general categories:
1) Our own information technology ("IT").
2) Failure or malfunction in non-IT systems due to their computer
components such as telephone systems, security systems, etc.
3) Failure among third party service providers.
We believe that we have addressed our year 2000 problems related to our own
IT systems and have determined that our existing, as well as in-development,
internal hardware and software will function past the year 2000 without
modification. We have also addressed our non-IT systems and believe that these
systems also will function past the year 2000, without modification. We do not
believe that there are any feasible plans to adjust operations to potential
industry-wide problems, such as may occur with third party service providers,
suppliers or outsource consultants. We will deal with those problems when and
if they arise on a case-by-case basis.
Expenses incurred by us related to the year 2000 issue for the period from
March 26, 1999, (inception) to September 30, 1999, were not significant.
Amounts to be spent during the remainder of 1999 and the beginning of 2000 are
also not expected to be significant.
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BUSINESS
Overview
We are a global provider of interactive marketing automation systems and
services. Interactive marketing automation is a new category of marketing that
utilizes the Internet to enable businesses to increase revenues by improving
customer relationship management.
We produce, distribute and track Internet direct marketing brochures and
campaigns based on our proprietary "eCommercial(TM)" authoring software and
patent-pending network configuration. eCommercials are highly compressed
multimedia files that combine audio, video, graphics, chat, animations and
hypertext links with integrated reporting that are sent as email attachments.
We have filed 14 patent applications to protect various proprietary methods and
technologies used to deliver, transact and track eCommercials. Our services
include sending eCommercial messages via our network; activity tracking and
reporting systems; creative design and production services; campaign
consultation; sponsorship and promotions management; and network services for
the download of eCommercials from e-commerce websites.
Our Internet marketing solutions are primarily in two categories, both
utilizing the proprietary eCommercial technologies:
. Virtual Prospecting(TM): Salespeople use our "virtualprospector.com"
website to select and send electronic brochures to prospective customers.
. Internet Relationship Management: Clients build "clubs" or "networks" of
interested customers who receive eCommercials on a regular basis.
Internet marketing has traditionally been passive in nature, requiring the
Internet user to type in a web address before reaching the desired information
offered by a web page. eCommercial.com focuses on Internet direct marketing as
opposed to marketing via direct mail, print media, radio or television. Our
revenue comes from product and/or service promotions to individuals or affinity
groups, primarily the email lists of our customers or members.
Rapid technological innovation has created a richer Internet environment
capable of delivering rich interactive multimedia content. An eCommercial is an
independent executable file (.exe) that consists of a graphic background,
compressed video and audio files, and interactive web links. Customers can
choose between different video and audio compression levels and graphic data
types to be put into the eCommercial, depending on their marketing objective. A
typical file for an eCommercial ranges in size from 200 to 500 kilobytes.
eCommercials are delivered as email attachments through our specialized
network of high-bandwidth servers. An eCommercial requires no specialized
software (including a web browser) for receipt or play. eCommercials are self-
contained files that enable email recipients to simply "click" on the
attachment icon to begin viewing, or to save the file for later viewing.
Due to the visual and audio content, eCommercial introductions are more
personalized and compelling than traditional static text-oriented email
messages. The proactive nature of email also enables e-commerce companies to
"reach out" and deliver messages promoting their products or services directly
to a targeted audience, while enabling the individual recipients to interact
directly with the eCommercial.
We use our own proprietary eCommercial authoring software and complementary
third party technologies to produce Internet-based direct response advertising
campaigns. These campaigns are modeled on proven and accepted marketing
principles. Any business that is currently implementing traditional (non-
Internet) direct response advertising campaigns or is attempting to market on
the Internet is a prospective customer of ours.
Industry Background
The Internet. The Internet has grown explosively in recent years, and is
rapidly changing the face of business. Some key Internet statistics include:
. Access: The number of Americans going online jumped from 45 million to 63
million in the last year alone, according to a recent study by America
Online and Roper Starch Worldwide.
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. Use: Email is the most widely used Internet application, with the number
of emailboxes expected to increase from 240 million worldwide in 1998 to
590 million in 2003, according to International Data Corporation.
. Commerce: The amount of merchandise sold over the Internet is expected to
increase from $43 billion in 1998 to $1.3 trillion in 2003, according to
Forrester Research.
. Advertising: Internet advertising is expected to grow from $1 billion in
1998 to $33 billion in 2003, according to Forrester Research.
This growth has been spurred by developments such as easy-to-use Web
browsers, the availability of inexpensive multimedia PCs and Internet access,
the adoption of more robust network architectures, and the emergence of
compelling Web-based content and commerce applications. The proliferation of
email accounts has enabled businesses to use email as the primary means to
proactively communicate with their customers online. For example, email is
often used to confirm electronic transactions and to notify customers of
important new developments or product offerings.
Much of the Internet's rapid evolution towards becoming a mass medium can be
attributed to the accelerated pace of technological innovation, which has
expanded the Web's capabilities and improved users' experiences. Most notably,
the Internet has evolved from a mass of static, text-oriented Web pages and
email services to a much richer environment, capable of delivering graphical,
interactive and multimedia content.
Direct Marketing. Direct marketing, always a significant portion of overall
advertising spending, is becoming a significant force on the Internet. Some key
statistics:
. Overall: Businesses and other organizations spent approximately $285
billion on general advertising in 1998, of which 56% or $160 billion was
spent on direct marketing, according to the Direct Marketing Association.
. Internet-based: In 2002, Forrester Research estimates that direct
marketing will make up 60% of all Internet advertising, up from 15% in
1998.
Email marketing allows businesses to cost-effectively target online
customers through customized email campaigns. Email did not initially gain wide
acceptance as a marketing tool because of concerns regarding privacy and
unsolicited communication. With the recent advent of permission-based email,
where individuals sign up or "opt-in" to receive information from specific
sources on topics of interest to them, email has become an increasingly
important direct marketing tool. Email campaigns offer significant advantages
over traditional direct mail, including reduced cost, more rapid delivery, and
a greater degree of personalization. Further, response rates for direct email
campaigns can be much higher than for traditional direct mail campaigns.
Products and Services
Our technology has significant advantages over Internet-based content
delivery. Internet users can interact with the broadcast content and can view
and respond to an eCommercial when convenient, rather than requiring online
viewing. In addition, our technologies allow us to provide highly specific
feedback on the effectiveness of each campaign to our customers.
Our competitive advantage arises from our proprietary authoring software,
patent-pending Internet distribution network, and campaign tracking systems.
Rather than providing real-time multimedia content delivery services similar to
that which is provided by companies like Broadcast.com, in which users must
have an online connection to the content provider, we deliver eCommercials in a
manner that allows end users to view them at their leisure. The following is a
list of our revenue sources:
eCommercial Production. eCommercial production is managed by our eComStudio
production unit. Sound and video production is as complex as the client
requires, and can involve simple editing or more elaborate on-location filming
or special effects.
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Campaign Consultation. Campaign design and implementation is managed by
eComStudio. Consultation charges vary depending on the size, scope and length
of a given campaign.
eCommercial Network Deliveries. eCommercials are typically delivered as
email attachments and are the responsibility of our eComNetwork business unit.
eCommercial delivery is generally handled in one of three ways:
. Broadcast to a subscriber base
. Sent individually using our Virtual Prospector(TM) system
. Downloaded from e-commerce and other web sites.
In any case, eCommercial delivery pricing depends on the file size of the
eCommercial and the number of eCommercials sent.
eCommercial Activity Tracking and Reporting. Activity tracking and reporting
is handled by our eComTracker unit. Pricing for this service is based upon the
number of email addresses tracked, the level of detail captured, reporting
features and campaign duration.
eCommercial Merchandise Sales Revenue-Sharing. Sales of products or services
through eCommercials may result in variable commission revenues to us depending
on the product or service being sold.
eCommercial Ad Sponsorship Revenue-Sharing. In certain cases, our customers
choose to sell or have us sell sponsorship ads on their eCommercial. Each
eCommercial can support multiple sponsorships. All customer sponsorships are
subject to revenue sharing with us.
Business Strategy
We believe that eCommercials provide distinct advantages over more
traditional methods of advertising. Companies who desire to use the Internet to
promote or sell products and services have a turnkey solution available to them
through our team of web programmers, content designers, product managers and
network engineers.
One of the principal advantages of an eCommercial direct-response
advertising program is the comprehensive, informative nature of eCommercials.
An eCommercial is an executable file (giving it the same functional capability
of a standard Windows program), and each eCommercial has its own unique
identification number, allowing advanced campaign tracking and reporting.
eComTracker software reports on activity by number of video plays, click-
throughs, jump page activity, lead capture and sales transactions.
Traditional direct marketing programs, which typically include direct mail,
print media ads, or broadcast media ads, can produce "Information Gaps" for
intended recipients that impede the selling process. Information Gaps occur
when the prospective customer requires more information to make a purchasing
decision. A recipient of an eCommercial receives a compelling multimedia
presentation and is led through the sales process seamlessly (via interactive
web links), minimizing friction points and gaps, resulting in shorter selling
cycles, a lower selling cost, and increased marketing effectiveness.
Sales and Marketing
Our key marketing objective is to brand ourselves as the leading Internet
direct marketing network. To achieve this objective, we have a national team of
sales people and are pursuing direct sales and sales via resellers to market
leaders in several industries, including, but not limited to:
. Entertainment
. Electronic Commerce web sites
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. Telecommunications
. Financial Services
. Travel
. Computer Hardware/Software
. Industrial Products
. Government
Strategic Relationships
Currently, we have a strategic relationship agreement with Lockheed Martin
Integrated Business Solutions (IBS), a leading systems integrator, which
provides for joint marketing and service delivery efforts and allows us to
utilize Lockheed Martin in establishing and managing e-commerce projects.
We are currently negotiating several additional strategic relationships,
primarily with technology companies that provide products or services which
enhance the functionality or marketing of our technologies.
Intellectual Property
We regard our copyrights, trademarks, trade secrets and similar intellectual
property as critical to our success, and we rely on a combination of copyright
and trademark laws, trade secret protection, confidentiality and non-disclosure
agreements and contractual provisions with our employees and with third parties
to establish and protect our proprietary rights.
Patents and Proprietary Technology
We have filed fourteen patent applications through the U.S. Patent and
Trademark Office under the Patent Cooperation Treaty designating all member
countries, including the United States, essentially all of Europe, Japan,
Korea, China, Canada and Mexico. These patent applications cover aspects of our
proprietary eCommercial authoring software and our network architecture, as
well as methods of using eCommercials and related media in marketing. We plan
to file additional patent applications in the future with respect to various
additional aspects of these and other technologies. We continue to develop
proprietary computer software. We mark our software with copyright notices, and
intend to file copyright registration applications where appropriate. We have
also filed several federal trademark registration applications for trademarks
and service marks we use. In addition, we seek to protect certain proprietary
aspects of our products through nondisclosure agreements with our employees,
contractors and other third parties. There can, however, be no assurance that
any patents, copyright registrations, or trademark registrations applied for by
us will be issued, or if issued, will sufficiently protect our proprietary
rights.
We intend to continue to seek patent protection for technologies that we
consider important to the development of our business. We also intend to rely
upon copyright, trademark, trade secrets, know-how, and continuing
technological innovations to develop and maintain a competitive advantage.
Government Regulation
Although there are currently few laws and regulations directly applicable to
the Internet, it is likely that new laws and regulations will be adopted in the
United States and elsewhere covering issues such as broadcast license fees,
copyrights, privacy, pricing, sales taxes and characteristics and quality of
Internet services. The adoption of restrictive laws or regulations could slow
Internet growth. The application of existing laws and regulations governing
Internet issues such as property ownership, libel and personal privacy is also
subject to substantial uncertainty. There can be no assurance that current or
new government laws and regulations, or the application of existing laws and
regulations (including laws and regulations governing issues such as property
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ownership, taxation, defamation and personal injury), will not expose us to
significant liabilities, slow Internet growth or otherwise hurt us financially.
We currently do not collect nor do we intend to collect sales or other taxes
with respect to the sale of services or products in states and countries where
we believe we are not required to do so. We do collect sales and other taxes in
the states in which we have offices and believe we are required by law to do
so. One or more states or countries have sought to impose sales or other tax
obligations on companies that engage in online commerce within their
jurisdictions. A successful assertion by one or more states or countries that
we should collect sales or other taxes on products and services, or remit
payment of sales or other taxes for prior periods, could have a material
adverse effect on our business, results of operations and financial condition.
The Communications Decency Act of 1996 (the "CDA") was enacted in 1996.
Although those sections of the CDA that, among other things, proposed to impose
criminal penalties on anyone distributing "indecent" material to minors over
the Internet were held to be unconstitutional by the U.S. Supreme Court, there
can be no assurance that similar laws will not be proposed and adopted.
Although we do not currently distribute the types of materials that the CDA may
have deemed illegal, the nature of such similar legislation and the manner in
which it may be interpreted and enforced cannot be fully determined, and
legislation similar to the CDA could subject us to potential liability, which
in turn could have an adverse effect on our business, financial condition and
results of operations. Such laws could also damage the growth of the Internet
generally and decrease the demand for our products and services, which could
adversely affect our business, results of operations and financial condition.
Competition
Although asynchronous messaging is a rapidly emerging Internet marketing
technology, the market for Internet advertising services is highly competitive
and we expect that competition will continue to intensify. We compete with (i)
online services, other Web site operators and advertising networks, as well as
traditional media such as television, radio and print, for a share of
advertisers' total advertising budgets and (ii) local radio and television
stations and national radio and television networks for sales of advertising
spots. There can be no assurance that we will be able to compete successfully
or that the competitive pressures faced by us will not harm us financially.
We believe that the principal competitive factors for attracting advertisers
include the number of users accessing the advertising message, the demographics
of our users, our ability to deliver focused advertising, and interactivity and
the overall cost-effectiveness and value of advertising offered by us. We
believe that the number of companies selling Web-based advertising and the
available inventory of advertising space have recently increased substantially.
Accordingly, we may face increased pricing pressure for the sale of
advertisements. Reduction in our advertising revenues would have a negative
financial impact.
We also compete for traditional media advertising sales with national radio
and television networks, as well as local radio and television stations. Local
radio and television content providers and national radio and television
networks may have larger and more established sales organizations than us.
These companies may have greater name recognition and more established
relationships with advertisers and advertising agencies than us. Such
competitors may be able to undertake extensive marketing campaigns, obtain a
more attractive inventory of ad spots, adopt more aggressive pricing policies
and devote substantially more resources to selling advertising inventory.
Research and Development
We have developed several proprietary technologies which are used in a
variety of Internet-related products and services. These products and services
are continually being enhanced to meet the needs of the Internet advertiser and
retailer. The Research and Development department is organized by area of
interest including Multimedia Development, Database Development, Web
Development, and Networking. Each
21
<PAGE>
development area requires highly specialized individuals with extensive
backgrounds in their respective disciplines.
Through September 30, 1999, we had incurred $320,766 of research and
development expenses in the engineering of our software tools and the
eComNetwork.
Facilities
Our headquarters and production facilities are in Aliso Viejo, California
with a sales office in San Clemente, California. Our monthly rent for these
facilities totals $10,388. The leases for these facilities terminate when we
move into our permanent 12,000 square foot office space at 101 Enterprise,
Suite 340, Aliso Viejo, California 92656, planned for December 1999. The base
rent for the permanent headquarters is $29,642 per month. This lease expires in
November 2004.
We also lease an office in Cupertino, California at a current monthly rent
of $10,091, a portion of which will be subleased to an unrelated party. This
lease expires September 1, 2004.
In addition, effective December 1, 1999, we will be opening an office in New
York City, in space we will be subleasing for $2,883 per month. We anticipate
that we will require additional space within the next 12 months and that
suitable additional space will be available on commercially reasonable terms,
although there can be no assurance in this regard. We do not own any real
estate.
Legal Proceedings
Although we have not become a party to any material legal proceeding since
eCommercial.com was founded, we are named as a defendant in a lawsuit filed in
connection with an Asset Purchase Agreement, dated November 25, 1998, pursuant
to which our predecessor, Wireless Netcom had proposed to acquire the assets of
Voxel, Inc. On October 27, 1999, the trial judge granted a summary judgment
motion in favor of the plaintiffs in the amount of $1.8 million. We plan to
request reconsideration of the summary judgment decision and aggressively
pursue a resolution of this matter.
Pursuant to an indemnity agreement, one of our significant shareholders, who
is also an officer and director, has agreed to reimburse to us in common stock
or cash, at his option, any amounts we must pay to the plaintiffs. Accordingly,
we have included the entire amount with acquired liabilities as of September
30, 1999, and will record any reductions in the balance due or amounts received
in repayment as additional paid-in capital at the time such amounts are
received.
Employees
As of October 31, 1999, we had 41 full-time employees. None of our employees
is subject to a collective bargaining agreement and we believe that our
relations with our employees are good.
22
<PAGE>
MANAGEMENT
Directors and Executive Officers
The directors and executive officers of the company, their respective ages
and positions with us are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Thomas J. Blakeley...... 40 Chief Executive Officer, President, Chairman of the Board
Mark Grundy............. 38 Chief Operating Officer, Executive Vice President, Director
Eric A. McAfee.......... 37 Executive Vice President, Corporate Secretary, Director
John Troiano............ 29 Director
Michael R. Friedl....... 36 Chief Financial Officer, Treasurer
Rick McEwan............. 35 Executive Vice President of Engineering
Michael Briola.......... 29 Vice President, Creative Director
Ross Teasley............ 36 Vice President of Marketing
</TABLE>
Thomas J. Blakeley, 40, CEO, President and Chairman of the Board. Mr.
Blakeley founded eCommercial.com, and currently serves as President, Chief
Executive Officer and Chairman of the Board. Prior to joining us, Mr. Blakeley
was involved with several companies producing leading edge Internet products.
As director of marketing and sales for San Diego-based Cubic Videocomm, Mr.
Blakeley was responsible for the introduction of CVideo-Mail, one of the first
video email products and currently one of the most popular video email programs
in the retail software industry. In 1992, Mr. Blakeley founded Travel Edge
Solutions, a company that developed the first Internet-based airline
reservation processing system. Mr. Blakeley served as the Vice President of
marketing and sales for QSA Technology in 1983, and was responsible for the
introduction of the airline industry's first PC-based airline reservation
systems for United Airlines, Trans World Airlines and Texas Air's SystemOne
starting in 1985.
Mark Grundy, 38, Executive Vice President, Chief Operating Officer and
Director. Mr. Grundy joined the Company in May 1999 as Executive Vice
President, Chief Operating Officer and a director. In 1990, he founded
Destination America, Inc. a company that provided English language tours of the
United States. Mr. Grundy served as President of Destination America from its
inception until joining eCommercial.com in May 1999. From 1981 to 1990, he
developed sales and marketing strategies for Americantours International, Inc.,
the largest wholesale inbound travel company in the United States, where he
served as Vice President, Sales and Marketing.
Eric A. McAfee, 37, Executive Vice President and Director. Mr. McAfee is the
co-founder of eCommercial.com and currently serves as Executive Vice President,
Corporate Secretary and a Director of the company. Mr. McAfee is also a
principal at Berg McAfee Companies, a Silicon Valley venture capital
partnership based in Cupertino, California, with investments in Internet,
software and telecommunications companies. Mr. McAfee currently serves on the
board of directors of several companies, including Breakthrough Software, an e-
commerce software company. Prior to joining us, Mr. McAfee founded several
other companies, including PC-card manufacturer New Media Corporation and
Global Digital Technologies, an Internet software company which provides the
San Jose Mercury News, Los Angeles Times and other newspapers with system
software for Internet applications. Mr. McAfee has also served for six years as
a member of the Board of Directors of the California Manufacturer's
Association. Mr. McAfee is a graduate of Fresno State University with a B.S. in
Management (with an emphasis in statistics) and the Stanford Graduate School of
Business Executive Program.
John Troiano, 29, Director. Mr. Troiano, who joined our Board in November
1999, is the Managing Director of @ONEX LLC, a significant shareholder of the
Company. @ONEX LLC is wholly-owned by Onex Corporation, Canada's ninth largest
company. Mr. Troiano has led Onex' strategic investments in a number of
23
<PAGE>
areas, particularly e-commerce and the Internet. He has also initiated and
developed value creation ideas in a number of other industry sectors where Onex
may now invest, specifically telecommunications, financial services and
consumer products. Before joining Onex, he was employed by Donaldson, Lufkin &
Jenrette in both the Investment Banking and Merchant Banking Groups. He also
worked in corporate finance for Gleacher & Co. in New York. Mr. Troiano
received his B.S. in Economics (summa cum laude) from the Wharton School,
University of Pennsylvania; and his M.B.A. from the Harvard Graduate School of
Business Administration.
Michael R. Friedl, CPA, 36, Chief Financial Officer. Mr. Friedl joined the
company as Chief Financial Officer and Treasurer in May 1999. Prior to joining
us, Mr. Friedl served as President of DialRight Software, Inc., a database
utility company he co-founded and a company for which he continues to serve as
a member of its board of directors. Prior to joining DialRight, Mr. Friedl was
the Chief Financial Officer of V-Systems, Inc., a software company that spun
out DialRight as a separate venture. From 1995 to 1997, Mr. Friedl served as
Chief Financial Officer for publicly-held Grip Technologies, Inc., an Irvine,
California, manufacturer of golf club components. From 1993 to 1995, Mr. Friedl
served as Corporate Controller for New Media Corporation, a high-tech
manufacturing company. From 1986 to 1993, Mr. Friedl worked in public
accounting, most recently for Arthur Andersen & Co. where he served as an Audit
Manager. Mr. Friedl is a graduate of Kent State University and is a Certified
Public Accountant licensed in Ohio and California.
Richard R. McEwan, 35, Executive Vice President of Engineering. Mr. McEwan
joined the company in April 1999 as Vice President of Engineering. Prior to
joining us, Mr. McEwan served as President, CEO, and a co-founder of Zap
International, a video compression technology company which was acquired by the
Company in April 1999. Prior to co-founding Zap International, Mr. McEwan was a
manager with Fourth Communications Network from 1993 through 1998, where he
managed the development of Internet systems for the hotel industry based on
Microsoft Windows NT Server, Windows 3.1/95, and NT Workstation as well as the
database systems for statistical gathering for all of Fourth Communications'
Internet-related advertising and commerce information. Prior to joining Fourth
Communications, Mr. McEwan ran his own consulting business where he created
custom sales information databases for various organizations including Agenda
Sales Inc., Pilot Pen Corporation, and Media and Creative Services. Before
entering the consulting field, Mr. McEwan spent over eight years in several
technical and marketing duties for technology companies such as SuperMac
Technology, RasterOps Corporation, and Ramtek Corporation.
Michael Briola, 29, Vice President, Creative Director. Mr. Briola joined the
company in April 1999 as Vice President, Creative Director. Prior to joining
us, Mr. Briola founded and served as Vice President of Marketing and a director
of Zap International, where he played a major role in the development of the
Zap Media Messenger technology. Prior to his work at Zap International, Mr.
Briola co-founded Cameo International (now AnTares Systems) where he served as
Vice President of Technology and Marketing. Prior to founding Cameo, Mr. Briola
was responsible for the North American launch of MegaChips Corporation, a
$200 million Japanese semiconductor design firm specializing in audio/video
codec and systems technologies. Previously, Mr. Briola served as Technical
Sales Director, Professional Products Division for InVision Interactive, Inc.
and was responsible for developing and maintaining sales channels in the United
States and abroad. From 1993 to 1996, Mr. Briola maintained a consulting
practice dedicated to supplying high-end computer-based multimedia design and
production equipment where he designed facilities and equipment systems for
clients such as Texas Instruments, J.C. Penny, Sonic Media, West End Post, and
Dallas Sound Labs.
Ross Teasley, 36, Vice President of Marketing. Mr. Teasley joined the
company as Vice President of Marketing in August 1999. Prior to joining us, Mr.
Teasley developed many of the unique, integrated marketing programs at
Autobytel.com, including broadcast television campaigns, affiliate marketing,
and rich-media programs. During his tenure there, Autobytel.com brand awareness
increased to the seventh most recognized e-commerce brand on the Internet. In
1993, Mr. Teasley co-founded HyperHead New Media, an award-winning content
publishing venture to produce CD-ROMs and Internet-based publications for the
music, sports and entertainment industries. Clients included Warner Brothers
Records, Sony Music, the Motion Picture Corp. of
24
<PAGE>
America, Young & Rubicam, Cole & Weber, and National Video Subscriptions-TV.
Prior to that, Mr. Teasley co-founded Infoscan, Inc., a publishing, data
conversion and information management consultancy which supplied complex,
artificial intelligence knowledge based systems to clients like the U.S.
Library of Congress, Ford Motor Company, EuroDisney, the Central Intelligence
Agency and Unisys. Mr. Teasley graduated from the University of Michigan with
a dual-concentration honors degree in Slavic Languages and East European
History.
Other Significant Employees
Other significant employees of the company, their respective ages and
positions with us are as follows:
<TABLE>
<S> <C> <C>
Serge Herring................. 50 Vice President of Research & Development
Adrian Turcotte............... 48 Vice President of Media Development
Edward Roberts................ 33 Vice President of Information Technologies
</TABLE>
Serge Herring, 50, Vice President of Research & Development. Mr. Herring
joined the company in April 1999 as Director of Program Development, and was
named Vice President of Research & Development in November 1999. Prior to
joining us, Mr. Herring was Senior Software Engineer for Zap International, a
video compression technology company which was acquired by the company in
April 1999. Prior to Zap International, Mr. Herring worked in research and
development for Innovacom, Inc., a video compression company serving the
broadcast industry. Prior to Innovacom, he worked as a Principle Engineer for
Intellect Electronics, Inc., a developer of point-of-sale terminals for the
retail and banking industries.
Adrian Turcotte, 48, Vice President of Media Development. Mr. Turcotte
joined the company as Vice President of Media Development in April 1999. Mr.
Turcotte's professional experience includes success in many different areas of
the Computer Services and Entertainment industries. His knowledge of
international consumer markets has contributed to the worldwide success of
Odyssey Productions where, as Executive Producer of the immensely popular and
critically acclaimed "Mind's Eye Series", he coordinated the business side of
feature film production and marketing. As a founder of Test Drive, Inc., Mr.
Turcotte was involved in the development of the first "try before you buy"
electronic software distribution and sales system. Test Drive was later
acquired by R.R. Donnelley. Previously, he was involved with marketing and
sales of the world's first dial-up access to airline reservation systems at
QSA Technology. Mr. Turcotte holds a Master's Degree from UCLA.
Edward Roberts, 33, Vice President of Information Technologies. Mr. Roberts
joined the company as Director of Information Technologies in May 1999, and
was named Vice President of Information Technologies in August 1999. Prior to
joining us, Mr. Roberts was the technical lead for the planning and deployment
of the worldwide implementation of Microsoft Windows NT and Microsoft Exchange
for Ingram Micro, Inc., a $22 billion computer distributor. Mr. Roberts' prior
experience also includes six years in the U.S. Navy working with Computers and
Radio Communications, and service as the Regional Systems Manager for
Intergraph Corporation, managing the internal systems for 12 offices in a 7-
state area. Mr. Roberts has also created two successful Microsoft-based
systems consulting practices, the first with an Orange County-based value-
added reseller and then with Inacom Corporation, the leading supplier of
hardware and software technologies to Fortune 1000 companies. Mr. Roberts'
professional activities include service as President of the Orange County
Microsoft NT Users Group, co-author of Que's "Special Edition Using Microsoft
Exchange Server 4.0", guest speaker at SoftBank Expo's Windows NT Intranet
Solutions on "Exchange Tuning and Optimization" and "Supporting Nomadic Users
in an NT Environment." Mr. Roberts is also the Messaging/Collaboration Track
chair for the IDG WorldExpo/Microsoft Windows 2000 Conference and Expo in San
Francisco.
25
<PAGE>
Executive Compensation
The following table sets forth the total compensation for each of our most
highly compensated executive officers whose total salary and bonus for the year
ended September 30, 1999 would have exceeded $100,000 on an annualized basis
(collectively, the "Named Executive Officers"):
Summary Compensation Table
<TABLE>
<CAPTION>
Name and Principal Position Salary Bonus Options
- --------------------------- -------- ------- -------
<S> <C> <C> <C>
Thomas Blakeley, Chief Executive Officer(1)............ $178,000 $ -- --
Mark Grundy, Chief Operating Officer(1)................ 168,000 10,000 225,000
Eric A. McAfee, Executive Vice President(1)............ 172,000 -- --
Michael Friedl, Chief Financial Officer................ 110,000 3,000 100,000
Deborah Olinto, Vice President of Sales(2)............. 130,000 -- 100,000
Ross Teasley, Vice President of Marketing.............. 120,000 -- 85,000
</TABLE>
- --------
(1) Effective October 1, 1999, we entered into employment contracts with these
executives specifying levels of compensation, duties and cause for
termination.
(2) Effective October 2, 1999, Ms. Olinto left the company. No severance was
paid, and all of her options were forfeited.
Fiscal 1999 Stock Option Grants to Executives
The following table sets forth for each of the Named Executive Officers
certain information concerning stock options granted during fiscal 1999.
<TABLE>
<CAPTION>
% of Exercise
Name and Principal Position Options Total Price Expiration
- --------------------------- ------- ----- -------- ----------
<S> <C> <C> <C> <C>
Thomas Blakeley, Chief Executive
Officer............................... -- -- -- --
Mark Grundy, Chief Operating Officer... 175,000(1) 8% $ 1 2005
50,000(2) 2 8 2005
Eric A. McAfee, Executive Vice
President............................. -- -- -- --
Michael Friedl, Chief Financial
Officer............................... 100,000(3) 5 1 2004
Deborah Olinto, Vice President of
Sales................................. 100,000(4,5) 5 8 2005
Ross Teasley, Vice President of
Marketing............................. 85,000(4) 4 8 2005
</TABLE>
- --------
(1) This option was granted in April 1999 and vests one-third in April 2000
with the remainder vesting quarterly over the following two years.
(2) This option was granted in September 1999 and vests one-third in September
2000 with the remainder vesting quarterly over the following two years.
(3) This option was granted in April 1999. 60,000 shares of which are
immediately vested, 40,000 shares of which vest one-third in April 2000
with the remainder vesting quarterly over the following two years.
(4) These options were granted in August 1999 and vest one-third in August 2000
with the remainder vesting quarterly over the following two years.
(5) Effective October 2, 1999, Ms. Olinto left the company. No severance was
paid, and all of her options were forfeited.
26
<PAGE>
Stock Option Exercises And Year-End Value Table
The following table reflects the number of shares covered by both
exercisable and non-exercisable stock options as of September 30, 1999 for the
Named Executive Officers. Values for "in-the-money" options represent the
spread between the exercise price of existing options and the market value for
our common stock on September 30, 1999, which was $8.125 per share.
<TABLE>
<CAPTION>
Value of
Options Outstanding In-the-Money Options
------------------------- -------------------------
Name and Principal
Position Exercisable Unexercisable Exercisable Unexercisable
- ------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Thomas Blakeley, Chief
Executive Officer........ -- -- -- --
Mark Grundy, Chief
Operating Officer........ -- 225,000 -- $1,603,125
Eric A. McAfee, Executive
Vice President........... -- -- -- --
Michael Friedl, Chief
Financial Officer........ 60,000 40,000 $427,500 285,000
Deborah Olinto, Vice
President of Sales(1).... -- 100,000 -- 12,500
Ross Teasley, Vice
President of Marketing... -- 85,000 -- 10,625
</TABLE>
- --------
(1) Effective October 2, 1999, Ms. Olinto left the company. No severance was
paid, and all of her options were forfeited.
Compensation of Directors
We may reimburse directors for reasonable expenses pertaining to attending
meetings, including travel, lodging and meals but we do not pay directors for
their service as directors, as all of our directors are either executive
officers or significant shareholders.
Employment Agreements
As of September 30, 1999, each of the Named Executive Officers was a party
to a Change in Control Agreement with us, which provides for payment of one
year salary to the executive if we are acquired by another company and he (or
she) loses his (or her) job.
In addition, effective October 1, 1999, we entered into three-year
employment contracts with Messrs. Blakeley, Grundy and McAfee, setting forth
terms of their employment, as follows:
<TABLE>
<CAPTION>
Year Base Salary Bonus(1)
---- ----------- --------
<S> <C> <C> <C>
Thomas Blakeley, Chief Executive Officer........... 2000 198,000 3.7%
2001 248,000
2002 298,000
Mark Grundy, Chief Operating Officer............... 2000 178,000 1.9%
2001 228,000
2002 278,000
Eric A. McAfee, Executive Vice President........... 2000 182,000 2.4%
2001 232,000
2002 282,000
</TABLE>
- --------
(1) Bonus is based upon a percentage of operating income.
Each of these employment agreements provides for payment in the amount of
two years salary if we terminate their employment. In addition, each contract
provides a $1 million life insurance policy, a car allowance of $750 per month,
and a car down payment reimbursement of $5,000 every two years.
27
<PAGE>
Stock Option Plans
Our Board of Directors adopted our 1999 Stock Option Plan (the "Plan") in
April 1999. The Plan was established to furnish incentives for employees,
consultants and other participants to continue their service to us. We reserved
2,400,000 shares of common stock for issuance upon exercise of options granted
under the Plan, which have vesting schedules up to 3 years. However, in the
event we undergo a change in control, as defined in the Plan, all unvested
options immediately become fully vested.
As of November 5, 1999, 2,191,500 options to purchase our Shares at exercise
prices ranging from $1 to $8 had been issued under the Plan. Our Board of
Directors administers the Plan. We intend to issue additional options or other
incentives to attract and retain qualified management and directors. Such plans
and incentives could have a dilutive effect on our common stock.
Indemnification of Directors and Officers
Our Bylaws provide for indemnification of our directors, officers and
employees as follows: Any person made a party to an action, suit or proceeding,
by reason of the fact that he/she, his/her testator or intestate representative
is or was a director, officer or general manager of the Corporation, or of any
Corporation in which he/she served as such at the request of the Corporation,
shall be indemnified by the Corporation against the reasonable expenses,
including attorney's fees, actually and necessarily incurred by him/her in
connection with any appeal therein, except in relation to matters as to which
it shall be adjudged in such action, suit or proceeding, or in connection with
any appeal therein that such officer, director or general manager is liable for
negligence or misconduct in the performance of his/her duties.
Our Bylaws further state that the foregoing right of indemnification shall
not be deemed exclusive of any other rights to which any officer or director or
general manager may be entitled apart from the provisions of this section.
The amount of indemnity to which any officer, director or general manager
may be entitled shall be fixed by the board of directors, except that in any
case where there is no disinterested majority of the board available, the
amount shall be fixed by arbitration pursuant to the then existing rules of the
American Arbitration Association. In the event that whatever liability
insurance is procured for the protection of the company, its officers,
directors or management, then the indemnification shall not exceed the maximum
percent of policy coverage procured. We have also entered into indemnification
agreements with each of our directors.
28
<PAGE>
CERTAIN TRANSACTIONS AND RELATIONSHIPS
Certain executive officers and directors of the company are former
shareholders of eCommercial.com, Inc., a California corporation ("eCommercial
California"). Pursuant to the terms of the Merger Agreement dated as of April
19, 1999, between us and the shareholders of eCommercial California, those
executive officers and directors acquired an aggregate of 4,000,000 shares of
our common stock in exchange for their eCommercial California shares.
In September 1999, the Company entered into a non-cancelable five-year
sublease for a satellite office in Cupertino, California. The sublease calls
for minimum monthly rental payments ranging from $10,091 per month at the start
of the lease and gradually increasing to $13,358 per month by the end of the
lease. The sublessor is a company related to Clyde Berg, a significant
stockholder and Eric McAfee, an officer, director and significant stockholder.
The sublease terms are identical to the terms of the sublessor's lease with the
landlord, and are favorable to the terms we would have been able to acquire on
our own.
MARKET FOR COMMON STOCK
The principal United States market for our common stock is the OTC Bulletin
Board. Our common stock began trading on the OTC Bulletin Board on April 29,
1999. The high and low bid prices for shares of our common stock for each
quarter since April 29, 1999 were as follows:
<TABLE>
<CAPTION>
Low High
----- ----
<S> <C> <C>
Quarter ended June 30, 1999:.................................. 6 1/2 16
Quarter ended September 30, 1999:............................. 7 10
</TABLE>
- --------
Source: www.otcbb.com
These quotations represent inter-dealer prices, without retail mark-up,
markdown or commission, and may not represent actual transactions. On October
31, 1999, there were approximately 250 holders of record of our common stock
and 185 holders of record of our preferred stock.
29
<PAGE>
SIGNIFICANT STOCKHOLDERS
The following sets forth certain information as of October 31, 1999 (the
"Reference Date") with respect to the beneficial ownership of our common stock,
(i) by each person known by us to own beneficially more than five percent of
our common stock, (ii) by each executive officer and director, and (iii) by all
officers and directors as a group. Unless otherwise indicated, all persons have
sole voting and investment powers over such shares, subject to community
property laws. As of the Reference Date, there were 9,536,623 shares of common
stock and 1,231,823 shares of preferred stock outstanding.
<TABLE>
<CAPTION>
Number of Percent
Name and Address of Owner(1) Shares(2) of Class
---------------------------- --------- --------
<S> <C> <C>
Thomas J. Blakeley, CEO, President, Chairman............... 2,000,000 21.0%
Mark Grundy, COO, EVP, Director............................ 120,000 1.2
Eric A. McAfee, EVP, Corporate Secretary, Director......... 2,036,567 21.4
John Troiano, Director(3).................................. 24,500 0.3
c/o @ONEX LLC, 712 Fifth Avenue, 40th Floor
New York, NY 10019
Michael R. Friedl, CFO, Treasurer.......................... 60,000 0.6
Ross Teasley, VP, Marketing................................ -- --
All directors and executive officers taken as a group...... 4,431,733 44.7
Clyde Berg................................................. 933,333 9.8
10050 Bandley Drive
Cupertino, CA 95014
@ONEX LLC(4)............................................... 525,000 5.2
712 Fifth Avenue, 40th Floor
New York, NY 10019
Joseph McCarthy............................................ 480,000 5.0
PO Box 361256
Milpitas, CA 95036-1256
</TABLE>
- --------
(1) Except as otherwise noted, the address for each person is c/o
eCommercial.com, Inc., 95 Enterprise Suite 360, Aliso Viejo, CA 92656.
(2) Unless otherwise noted, we believe that all persons named in the table have
sole voting and investment power with respect to all shares of common stock
listed as beneficially owned by them. A person is deemed to be the
beneficial holder of securities that can be acquired within 60 days from
the Reference Date upon the exercise of warrants or options. Each
beneficial owner's percentage ownership is determined by including shares,
underlying options or warrants which are exercisable currently, or within
60 days following the Reference Date, and excluding shares underlying
options and warrants held by any other person.
(3) Mr. Troiano is a manager of @ONEX LLC. He disclaims beneficial ownership of
shares owned by @ONEX LLC.
(4) @ONEX LLC is wholly-owned by Onex Corporation. Mr. Gerald W. Schwartz is
the Chief Executive Officer of Onex Corporation and owns stock having a
majority of the voting power of Onex Corporation's outstanding stock. Onex
Corporation and Mr. Schwartz may also be deemed beneficial owners of the
shares owned by @ONEX LLC. The business address of Onex Corporation and Mr.
Schwartz is 161 Bay Street, Toronto, Ontario M5J 2S1, Canada.
30
<PAGE>
SELLING SECURITY HOLDERS
The stockholders who may from time to time offer their Shares for sale
pursuant to this prospectus are as follows:
<TABLE>
<CAPTION>
Shares Owned Shares Being
Prior to Offered Pursuant Shares Owned
this to this Pursuant After the
Name of Selling Stockholder(1) Offering(2) to this Prospectus Offering(3)
- ------------------------------ ------------ ------------------ ------------
<S> <C> <C> <C>
@ONEX LLC(4)..................... 525,000 525,000 --
Alfred Abiouness................. 11,000 11,000 --
Richard Aghababian............... 6,188 6,188 --
Altech Packaging Co.............. 3,300 3,300 --
American High Growth Equities.... 18,563 18,563 --
Barclay M. Armitage.............. 3,713 3,713 --
William Barclay Trust............ 4,950 4,950 --
Barrington Barisic............... 1,444 1,444 --
Linda Bassin..................... 3,300 3,300 --
Jerome & Stuart Bercun........... 2,475 2,475 --
Valery Berger.................... 13,750 13,750 --
Bill Berkley..................... 4,950 4,950 --
Bill & Claudia Berkley........... 6,188 6,188 --
Paul D. Berkley.................. 2,475 2,475 --
Paul & Judith Berkman............ 6,188 6,188 --
Gregory Beyerl................... 6,188 6,188 --
Edwin R. Bindseil................ 4,400 4,400 --
Kostaki Bis...................... 3,713 3,713 --
BNB Associates c/o Ben Bollag.... 6,875 6,875 --
Michael Bollag................... 6,875 6,875 --
Richard Bowe..................... 3,300 3,300 --
Steven Braccini.................. 12,375 12,375 --
Alan & Cathy Buraghi............. 1,238 1,238 --
Ronald Buzard.................... 2,200 2,200 --
B V H Holdings c/o Ronald
Krinick......................... 4,400 4,400 --
John Byram....................... 34,375 34,375 --
Sean Cahill...................... 5,500 5,500 --
Car Cap, Co, LLC c/o Richard
Carney.......................... 11,413 11,413 --
James Carr....................... 3,300 3,300 --
Addie B. Carroll................. 1,856 1,856 --
Susan Carroll.................... 1,375 1,375 --
Richard Casari................... 2,475 2,475 --
Francis Cheong................... 1,238 1,238 --
Timothy & Nadine Cherney......... 2,475 2,475 --
Robert & Phyllis Ching........... 3,988 3,988 --
Robert Ching Trust............... 4,125 4,125 --
Raymond & Ellen Chow............. 4,950 4,950 --
James & Caren Cobb............... 22,000 22,000 --
Marc Cohen....................... 1,650 1,650 --
Del Coleman (Rose Inc.).......... 42,350 42,350 --
Thomas C. Coleman & Donna K.
Norell.......................... 2,200 2,200 --
Tom Coleman IRA.................. 6,875 6,875 --
James F. Corcoran................ 9,900 9,900 --
Edmund Cranch.................... 6,600 6,600 --
Robert W. Crawford............... 3,713 3,713 --
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Shares Owned Shares Being
Prior to Offered Pursuant Shares Owned
this to this Pursuant After the
Name of Selling Stockholder(1) Offering(2) to this Prospectus Offering(3)
- ------------------------------ ------------ ------------------ ------------
<S> <C> <C> <C>
Jonathan Cress IRA............... 3,300 3,300 --
Scott Crowther................... 3,300 3,300 --
Brad Danforth.................... 2,475 2,475 --
Harvey Deckert................... 6,188 6,188 --
Daniel Denihan................... 9,900 9,900 --
Albert Digangi................... 2,475 2,475 --
David B. Doft.................... 2,750 2,750 --
Jacob Doft....................... 5,500 5,500 --
John P. Donohue.................. 7,425 7,425 --
Yakov Dumanis.................... 3,300 3,300 --
Glenn & Dorothy Egli............. 2,475 2,475 --
Clifford A. & Helen Falkenau..... 2,200 2,200 --
Tim Farrell...................... 2,475 2,475 --
Aaron Feder...................... 1,856 1,856 --
Dale S. Feinblatt & Jack
Feinblatt....................... 4,400 4,400 --
Lloyd Fields..................... 3,713 3,713 --
Kevin Fight...................... 9,281 9,281 --
Michael Finnell.................. 3,438 3,438 --
Jacob & Elizabeth Fish........... 4,813 4,813 --
Fred Foulkes..................... 2,475 2,475 --
Matthew Frank.................... 2,200 2,200 --
Henry Fredericks................. 11,000 11,000 --
Phil Fresen...................... 2,063 2,063 --
Stanley Friedlander.............. 3,300 3,300 --
Keith Gaeddert................... 3,713 3,713 --
Tim Gannon....................... 2,475 2,475 --
Theodore Gardocki Trust.......... 13,338 13,338 --
Kent Garlinghouse c/o Shadow
Capital......................... 8,800 8,800 --
Mark Geller...................... 2,475 2,475 --
Richard E. Gerzof................ 37,125 37,125 --
Elliot Goldberg.................. 2,475 2,475 --
Stanley Goldberg................. 11,000 11,000 --
Steven Graves.................... 6,188 6,188 --
Sean Green....................... 3,713 3,713 --
Paul & Linda Gridley............. 3,438 3,438 --
R.G. Hildreth Jr................. 2,750 2,750 --
Daryl & Joan Hill................ 5,500 5,500 --
Douglas & Alexis Hogue........... 3,300 3,300 --
Andrew Howard.................... 1,238 1,238 --
Donald R. Howren Jr.............. 4,400 4,400 --
Roger Husted..................... 6,188 6,188 --
David Ivers...................... 4,950 4,950 --
JAOR c/o James Jacobs............ 5,500 5,500 --
Art Jenkins...................... 3,300 3,300 --
Colleen Jenkins.................. 1,100 1,100 --
Irwin & Ruth Kabat............... 1,320 1,320 --
Leo G. & Merle Kailas............ 3,300 3,300 --
Robert Kantor.................... 12,375 12,375 --
Gerald Kay....................... 2,200 2,200 --
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Shares Owned Shares Being
Prior to Offered Pursuant Shares Owned
Name of Selling this to this Pursuant After the
Stockholder(1) Offering(2) to this Prospectus Offering(3)
- --------------- ------------ ------------------ ------------
<S> <C> <C> <C>
Peter Kellner........... 13,750 13,750 --
Jerry Kessler........... 1,650 1,650 --
Raji Khabbaz............ 1,650 1,650 --
Norman O. King.......... 3,300 3,300 --
Aaron Kirzner........... 2,200 2,200 --
Harvey Kohn............. 16,500 16,500 --
Jeffrey Kohn............ 2,200 2,200 --
Leonard Korets.......... 7,700 7,700 --
Lyudmila Korets......... 2,475 2,475 --
Walter Koschak.......... 6,875 6,875 --
Raymond Kralovic........ 11,000 11,000 --
Ronald & Elizabeth
Krinick................ 3,300 3,300 --
David & Catherine
Langlois............... 5,500 5,500 --
Barbara Lazarus......... 1,856 1,856 --
Eddie E. Lee............ 11,000 11,000 --
Michael Limberg......... 5,500 5,500 --
Morris Macy............. 3,713 3,713 --
Martin Madorsky & Judith
Richard................ 6,188 6,188 --
Dante & Jeanine Maffeo.. 1,238 1,238 --
Judy Marcucilli......... 3,300 3,300 --
Robert Margolin......... 2,063 2,063 --
James A. Martens........ 9,900 9,900 --
Raina Massand........... 1,650 1,650 --
Robert Mattei........... 1,238 1,238 --
Adam McAfee(5).......... 28,050 28,050 --
George McDonnell........ 3,713 3,713 --
John McNierney.......... 3,713 3,713 --
Aris Melissarratos...... 6,188 6,188 --
James Milgard........... 13,613 13,613 --
Allen Moore............. 4,400 4,400 --
Samuel Morse............ 3,300 3,300 --
Dave Mosenson........... 2,888 2,888 --
Peter Moser............. 11,000 11,000 --
Robert & Barbara
Myerson................ 3,713 3,713 --
Barry F. Nathanson...... 12,375 12,375 --
Jules Ness.............. 2,475 2,475 --
Allen Notowitz.......... 3,713 3,713 --
Jerry Novack............ 4,400 4,400 --
Adam & Sherri Ocner..... 9,625 9,625 --
Peter & Rosemary
O'Neill................ 11,000 11,000 --
Walter O'Neill.......... 3,713 3,713 --
Bertram Ordan........... 1,238 1,238 --
Anthony Pasco........... 688 688 --
Simon & Adina Pelman.... 3,713 3,713 --
Jonathan Plate.......... 3,713 3,713 --
Donald Poinsette........ 3,713 3,713 --
Point West Ventures..... 34,375 34,375 --
Paul Potamianos......... 6,600 6,600 --
John & Norma Price...... 2,200 2,200 --
Privet Row, Inc......... 34,375 34,375 --
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Shares Owned Shares Being
Prior to Offered Pursuant Shares Owned
this to this Pursuant After the
Name of Selling Stockholder(1) Offering(2) to this Prospectus Offering(3)
- ------------------------------ ------------ ------------------ ------------
<S> <C> <C> <C>
Sheldon Rabin.................... 9,213 9,213 --
Sol Rabinipour................... 5,500 5,500 --
Edward Raskin.................... 11,000 11,000 --
Marsha & Barry Reiss............. 2,200 2,200 --
Stacey Richards.................. 1,650 1,650 --
Edwin W. Richardson.............. 3,300 3,300 --
Kevin Riegelsberger.............. 6,875 6,875 --
Margaret Rogers.................. 13,750 13,750 --
Romar Fabrics Corp............... 3,300 3,300 --
John Rose........................ 6,875 6,875 --
David Rosensaft & Debra
Braverman....................... 22,000 22,000 --
Steven Rubel..................... 6,188 6,188 --
Pairoj Ruktanonichai............. 6,188 6,188 --
Richard Santulli c/o Executive
Jet............................. 11,000 11,000 --
David Schneider.................. 3,713 3,713 --
Thomas Schoenauer................ 2,475 2,475 --
Joel Schoenfeld.................. 3,713 3,713 --
Howard Shapiro................... 2,475 2,475 --
Michael L. Shinn................. 6,188 6,188 --
Alexander Slobin................. 3,300 3,300 --
Glenn H. Spears.................. 12,375 12,375 --
Jerold Stern..................... 13,200 13,200 --
Cindy Stewart.................... 16,775 16,775 --
Joseph & Sandra Stewart.......... 3,713 3,713 --
Melissa Stewart.................. 16,775 16,775 --
Sandra Stewart................... 3,438 3,438 --
Ronald Sumner.................... 4,400 4,400 --
David J. Tadych.................. 3,300 3,300 --
Trude Taylor..................... 6,875 6,875 --
Bruce Toll....................... 55,000 55,000 --
John Troiano(4).................. 16,500 16,500 --
William D. Turner................ 1,238 1,238 --
Harry Vidger..................... 3,713 3,713 --
Samuel Watts..................... 2,475 2,475 --
Joel & Sandra Wenacur............ 4,331 4,331 --
Susan & Theodore Wenacur......... 4,950 4,950 --
Dean Willard..................... 3,713 3,713 --
Stanton & Jennifer Williams...... 6,188 6,188 --
Xanadu Associates LLC............ 12,375 12,375 --
Alkis P. Zingas.................. 12,375 12,375 --
Simon Zunamon.................... 6,188 6,188 --
</TABLE>
- --------
(1) Each selling stockholder has sole voting and investment power with respect
to the Shares beneficially owned by such selling stockholder. All share
amounts reflect beneficial ownership determined pursuant to Rule 13d-3
under the Exchange Act. Unless otherwise indicated, each selling
stockholder beneficially owns less than 1% of our outstanding common stock.
(2) The Shares listed herein include only the shares issuable upon conversion
of the series B convertible preferred stock and upon exercise of the series
B warrants and options.
(3) Assumes all of the Shares of common stock beneficially owned by the selling
stockholders and registered hereunder are sold.
(4) Prior to this offering, @ONEX LLC beneficially owns 5.2% of our outstanding
common stock. John Troiano, a manager of @ONEX LLC, is a member of our
board of directors. Mr. Troiano disclaims beneficial ownership of any
shares held by @ONEX LLC.
(5) Adam McAfee is a brother of Eric McAfee, a director, officer and
significant stockholder.
34
<PAGE>
DESCRIPTION OF SECURITIES
We are authorized to issue up to 20,000,000 shares of common stock, par
value $.001 per share, and 2,000,000 shares of preferred stock, par value $.001
per share. We have designated 1,750,000 shares as series B preferred stock. As
of November 5, 1999, there were issued and outstanding 9,536,623 shares of
common stock, 1,231,823 shares of series B preferred stock, options to purchase
2,191,500 shares of common stock and warrants to purchase 740,965 shares of
common stock.
Common Stock
Common stockholders are entitled to one vote per share. Subject to the
preferences of outstanding preferred stock, common stockholders are entitled to
receive dividends, if and when they are declared by our Board of Directors. If
we go out of business and are liquidated, common stockholders will receive
their proportionate share of our assets that are available to be distributed,
after all other debts have been paid and the Preferred stockholders receive
their distribution. The common shares have no preemptive, subscription or
conversion rights nor may we redeem them.
Series A Preferred Stock
All shares of Series A Preferred Stock issued by our predecessor, Wireless
Netcom, were converted into shares of common stock upon the merger with
eCommercial California.
Series B Preferred Stock
The following is a brief summary of the rights, preferences, privileges and
restrictions and limitations of the series B preferred Stock (the "Series B
Preferred"):
Dividends. Dividends will be payable to holders of Series B Preferred when
and if declared by our Board of Directors and will be non-cumulative. No
dividends (other than those payable solely in common stock) will be declared or
paid with respect to shares of common stock for any fiscal year until dividends
in the aggregate amount of at least $0.90 per share (as adjusted for any stock
splits or recapitalizations) have been paid or declared and set apart with
respect to the Series B Preferred during such fiscal year.
Optional Conversion. The shares of Series B Preferred held by any holder may
be converted into shares of common stock at any time upon the stockholder's
election. The total number of shares of common stock into which a share of
Series B Preferred may be converted shall be determined by dividing the
purchase price of $8.00 by the conversion price applicable to the conversion of
the Series B Preferred (the "Conversion Price"). The Conversion Price is
currently equal to the purchase price, resulting in a conversion ratio of one-
to-one, but will be adjusted in the event of stock splits, stock dividends,
recapitalizations and similar events occurring with respect to our capital
stock. The Conversion Price will also be subject to adjustment in the event of
certain dilutive issuances of our capital stock.
Automatic Conversion. The shares of Series B Preferred will be automatically
converted into shares of common stock at the then-effective Conversion Price
upon (i) the effective date of a firm commitment, underwritten public offering
of common stock pursuant to an effective registration statement under the
Securities Act, other than a registration relating solely to a transaction
under Rule 145 of the Securities Act (or any successor thereto) or to any of
our employee benefit plans, generating aggregate proceeds to the Company of not
less than $15,000,000 (after deducting underwriters' discounts and all expenses
relating to the offering) and with a per share offering price (prior to
underwriters' discounts and expenses) of not less than $15.00 per share, as
such per share price may be adjusted to reflect stock subdivisions,
combinations or dividends with respect to such shares, or (ii) the date
specified by affirmative vote or written consent or agreement of the holders of
not less than two-thirds (2/3) of the then-outstanding shares of Series B
Preferred.
35
<PAGE>
Antidilution Protection. If at any time while any shares of Series B
Preferred are outstanding we issue any capital stock (which includes options to
acquire our capital stock and instruments convertible into our capital stock)
without consideration or for consideration per share with a value less than the
then-effective Conversion Price, then the Conversion Price shall be adjusted
concurrently with such issue to a price (calculated to the nearest cent)
determined by multiplying such Conversion Price by a fraction, the numerator of
which shall be the number of shares of common stock outstanding immediately
prior to such issue (on a fully diluted basis) plus the number of shares of
common stock which the aggregate consideration received by us for the newly-
issued capital stock would purchase at the Conversion Price in effect
immediately prior to such issue, and the denominator of which shall be the
number of shares of common stock outstanding immediately prior to such issue
(on a fully diluted basis) plus the number of additional shares of capital
stock so issued; provided, however, that no such adjustment to the Conversion
Price shall be made with respect to (i) issuances to our employees,
consultants, officers and directors pursuant to stock purchase or stock option
plans or agreements or other incentive stock arrangements approved by our Board
of Directors, (ii) issuances as consideration in connection with mergers,
acquisitions or other business combinations, or (iii) issuances in connection
with strategic investments, licensing arrangements or debt or equipment
financings approved by our Board of Directors.
Voting Rights. Holders of shares of Series B Preferred are entitled to vote
on all matters submitted to a vote of our stockholders. Each share of Series B
Preferred entitles the holder to that number of votes equal to the number of
shares of common stock into which such share of Series B Preferred is
convertible as of the record date established for the vote of our stockholders.
Fractional votes will not, however, be permitted, and any fractional voting
rights resulting from the above formula (after aggregating all shares of common
stock into which shares of Series B Preferred held by each holder could be
converted) will be rounded to the nearest whole number (with one-half being
rounded upward). Except with respect to the two seats on the Board of Directors
allocated to the purchasers of the Series B Preferred or as required by law,
the Series B Preferred will vote together with the common stock and not as a
separate class.
Protective Covenants. So long as shares of Series B Preferred remain
outstanding and for such further period as may be required by law, we will not,
without first obtaining the affirmative vote or written consent of the holders
of at least a majority of the then outstanding Series B Preferred voting
separately as a class (i) sell, convey or otherwise dispose of all or
substantially all of our assets, merge with or consolidate the Company into
another entity, or engage in any other form of corporate reorganization or
recapitalization that would require the vote of our shareholders under
applicable law; (ii) increase the number of authorized shares of Series B
Preferred (except as a result of a stock split or combination); (iii) effect an
exchange, reclassification or cancellation of all or a part of the shares of
Series B Preferred (except as a result of a stock split or combination); (iv)
effect an exchange, or create a right of exchange, of all or part of the shares
of another class into shares of Series B Preferred; (v) alter or change the
rights, preferences, privileges and restrictions of the Series B Preferred;
(vi) authorize or issue shares of any class of stock having any rights,
preferences or privileges superior to any such right, preference or privilege
of the Series B Preferred; (vii) authorize or issue shares of stock of any
class or any bonds, debentures, notes or other obligations convertible into or
exchangeable for, or having option rights to purchase, any shares of our stock
having any rights, preferences or privileges superior to any right, preference
or privilege of the Series B Preferred; or (viii) reclassify any other
outstanding shares of stock into shares having any right, preference or
privilege superior to any such preference or priority of the Series B
Preferred.
Stock Dividends, Subdivisions and Consolidations. In the event we declare or
pay any dividend on the common stock payable in shares of common stock, or
effect a subdivision or consolidation of the outstanding shares of common stock
into a greater or lesser number of shares of common stock, then the number of
shares of common stock issuable upon conversion of the Series B Preferred shall
be adjusted accordingly.
No Impairment. We will not, by amendment of the Certificate of Incorporation
or through any reorganization, 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
36
<PAGE>
performed by us with respect to the Series B Preferred but will at all times in
good faith assist in the carrying out of all the provisions of the Certificate
of Incorporation relating to conversion and in the taking of all such action as
may be necessary or appropriate in order to protect the conversion rights of
the holders of the Series B Preferred against impairment.
Redemption. Shares of Series B Preferred are not redeemable by us.
Liquidation Preference. In the event of any liquidation, dissolution or
winding up of the Company, either voluntary or involuntary, the holders of the
Series B Preferred shall be entitled to receive, prior and in preference to any
distribution to the holders of the common stock, the amount of $8.00 (or as
such amount shall be adjusted to reflect subdivisions and combinations of
shares and stock dividends) for each share of Series B Preferred then held by
them plus an amount equal to all accrued and unpaid dividends (the "Liquidation
Amount"). If upon occurrence of any such liquidation, dissolution or winding up
the assets and funds available for distribution among the holders of the Series
B Preferred shall be insufficient to permit the payment of the full Liquidation
Amount, then such assets and funds shall be distributed ratably among the
holders of the Series B Preferred in proportion to their respective holdings of
Series B Preferred. After full payment of the Liquidation Amount has been made
to the holders of the Series B Preferred, our remaining assets if any, shall be
distributed ratably among the holders of the common stock.
A liquidation, dissolution or winding up of the company shall be deemed to
be occasioned by, or to include, (i) a consolidation, merger or reorganization
of the company with or into any other corporation or entity in which the
holders of our outstanding capital stock immediately before that consolidation,
merger or reorganization do not retain a majority of the voting power in the
surviving corporation immediately thereafter, or (ii) a sale, conveyance or
disposition of all or substantially all of our assets.
Registration Rights. Subject to certain restrictions set forth in the
Investors' Rights Agreement issued in connection with the Series B Preferred
Shares, if at any time we file a registration statement, other than a
registration relating solely to a corporate reorganization or other transaction
on Form S-4 (or any successor thereto) or to any employee benefit plan of the
Company with the Commission, the holders of our Series B Preferred Shares and
the holders of the Share Subscriber Warrants and the Shares of the common stock
issuable on conversion of the Series B Preferred Shares or upon exercise of the
Share Subscriber Warrants (the "Registrable Securities") will be entitled to
include any of the Registrable Securities held by such persons in such
registration up to a maximum of three such "piggy-back" registrations and no
more than one such registration in any twelve-month period. In the event that
any of such registrations are underwritten, the number of shares of Registrable
Securities that the holders thereof may include in such a piggyback
registration may be reduced if the underwriters of such registration determine
that market factors require such a reduction.
Subject to certain restrictions set forth in the Investors' Rights
Agreement, at any time after the expiration of one (1) year following the
closing of the initial underwritten public offering of our common stock, the
holders of Registrable Securities will be entitled to request that we file a
registration statement on Form S-3 with the Commission covering the shares of
Registrable Securities held by such holders, provided that the aggregate amount
of Registrable Securities to be registered on such Form S-3 shall have an
aggregate price to the public of not less than $1,000,000. In the event that
any of such registrations are underwritten, the number of shares of Registrable
Securities that the holders thereof may include in such a Form S-3 registration
may be reduced if the underwriters of such registration determine that market
factors require such a reduction.
In the event that all Registrable Securities are not sold in our initial
public offering, the holders of Registrable Securities not sold may be required
to execute "lock-up" agreements pursuant to which they will agree not to
transfer or otherwise dispose of any Registrable Securities for a period of up
to 180 days from the date of commencement of such initial public offering
without the prior written consent of the managing underwriter of such offering.
37
<PAGE>
Warrants
We have outstanding warrants to purchase common stock at from $0.10 to
$11.25 per share, expiring at various dates through October 2004. The warrants
for shares registered under this Registration Statement include warrants for
138,836 shares issuable at $8 per share expiring at various dates from August
through November 2001, and 250,000 shares issuable at $7 per share expiring in
October 2004.
Shares Eligible for Sale
Sales of a substantial number of shares of common stock in the public market
could adversely affect the market price for our common stock. The number of
shares of common stock available for sale in the public market is limited by
restrictions under the Securities Act of 1933, as amended (the "Securities
Act"). As of November 5, 1999, there were 9,536,623 shares of common stock
outstanding, of which 7,448,920 were "restricted shares" under the Securities
Act and 2,087,703 were freely tradable subject to the restrictions and
conditions of SEC Rule 144. In addition, as of November 5, 1999, there were
outstanding warrants to purchase 757,680 shares of our common stock and options
to purchase 2,191,500 shares of our common stock.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock is RTT Transfers, Inc.
LEGAL MATTERS
The validity of the issuance of our securities will be passed upon for us by
Gray Cary Ware & Freidenrich, LLP, Sacramento, California. Certain partners of
Gray Cary Ware & Freidenrich, LLP own an aggregate of 4,000 shares of our
stock.
EXPERTS
The financial statements appearing in this Prospectus have been audited by
Grant Thornton LLP, independent certified public accountants, to the extent and
for the periods set forth in their report appearing elsewhere herein, and are
included in reliance upon such report given upon the authority of said firm as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed, with the Securities and Exchange Commission, a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered hereby. This prospectus does not contain all of the information in the
registration statement, the exhibits and schedules. For more information about
our common stock and us, please refer to the registration statement, exhibits
and schedules. Statements made in this prospectus as to the contents of any
contract, agreement or other documents referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the registration statement, reference is made to the exhibit
for a more complete description of the matter involved.
The registration statement, exhibits and schedules may be inspected without
charge and copied at the public reference facilities maintained by the SEC in
Room 1024, 450 Fifth Street, NW, Washington, D.C. 20549, and at the SEC's
regional offices located at Citicorp Center, 500 West Madison, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New
York 10048. Copies of such material may be obtained from such offices upon the
payment of the fees prescribed by the SEC. The SEC phone number is 1-800-SEC-
0330.
In addition, the SEC maintains a website that contains registration
statements, reports, proxy and other information regarding registrants that
file electronically with the Securities and Exchange Commission. The address
for the website is http://www.sec.gov.
38
<PAGE>
eCommercial.com, Inc. and Subsidiary
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants......................... F-2
Financial Statements:
Consolidated Balance Sheet, September 30, 1999........................... F-3
Consolidated Statement of Operations, Period from Inception (March 26,
1999) to September 30, 1999............................................. F-4
Consolidated Statement of Changes in Stockholders' Equity, Period from
Inception (March 26, 1999) to September 30, 1999........................ F-5
Consolidated Statement of Cash Flows, Period from Inception (March 26,
1999) to September 30, 1999............................................. F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
eCommercial.com, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of
eCommercial.com, Inc. and Subsidiary (a development stage company) as of
September 30, 1999, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the period from inception (March 26,
1999) through September 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of
eCommercial.com, Inc. and Subsidiary as of September 30, 1999, and the
consolidated results of their operations and their consolidated cash flows for
the period from inception (March 26, 1999) through September 30, 1999 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note B, the Company
has a very limited operating history, is in the development stage, and has
generated losses since its inception on March 26, 1999. If the Company is not
successful in generating revenues sufficient to cover costs, it will need to
raise additional capital to fund operations. These factors raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans regarding those matters also are described in Note B. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Grant Thornton LLP
Reno, Nevada
October 25, 1999 (Except for Note H,
as to which the date is November 5, 1999)
F-2
<PAGE>
eCommercial.com, Inc. and Subsidiary
(a development stage company)
CONSOLIDATED BALANCE SHEET
September 30, 1999
<TABLE>
<S> <C>
ASSETS
------
Current Assets:
Cash............................................................ $ 4,744,741
Accounts receivable............................................. 25,500
Prepaid expenses................................................ 108,961
Other current assets............................................ 14,941
-----------
Total current assets.......................................... 4,894,143
Cash, Pledged..................................................... 233,890
Fixed Assets, at cost, net of accumulated depreciation of
$58,463.......................................................... 936,336
Intangible Assets, at cost, net of accumulated amortization of
$49,429.......................................................... 744,797
Deposits.......................................................... 76,975
-----------
$ 6,886,141
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable and accrued liabilities........................ $ 312,178
Customer deposits............................................... 30,500
Acquired liabilities............................................ 2,200,412
-----------
Total current liabilities..................................... 2,543,090
-----------
Stockholders' Equity:
Series B Convertible Preferred Stock, $0.001 par value;
2,000,000 shares authorized; 1,085,573 shares issued and
outstanding; $8,684,584 aggregate liquidation preference....... 1,086
Common Stock, $0.001 par value; 20,000,000 shares authorized;
9,536,623 shares issued and outstanding........................ 9,537
Additional paid-in capital...................................... 7,211,449
Deficit accumulated during the development stage................ (2,284,546)
Unearned stock-based compensation............................... (594,475)
-----------
4,343,051
-----------
$ 6,886,141
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
eCommercial.com, Inc. and Subsidiary
(a development stage company)
CONSOLIDATED STATEMENT OF OPERATIONS
For the period from inception (March 26, 1999) to September 30, 1999
<TABLE>
<S> <C>
Revenues...................................................... $ 6,250
-----------
Operating expenses:
Development................................................. 320,766
Production.................................................. 139,674
Sales and marketing......................................... 1,060,795
General and administration.................................. 684,343
Depreciation and amortization............................... 107,892
-----------
2,313,470
-----------
Operating loss................................................ (2,307,220)
Interest income............................................... 24,274
Provision for income taxes.................................... (1,600)
-----------
Net loss.................................................. $(2,284,546)
===========
Basic and diluted loss per share.............................. $ (0.26)
===========
Shares used in computation of basic and diluted loss per
share........................................................ 8,751,760
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
eCommercial.com, Inc. and Subsidiary
(a development stage company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
For the period from inception (March 26, 1999)
to September 30, 1999
<TABLE>
<CAPTION>
Deficit
Series B Accumulated Unearned
Preferred Stock Common Stock Additional During the Stock-
----------------- -------------------- Paid-In Subscriptions Development Based
Shares Amount Shares Amount Capital Receivable Stage Compensation Total
---------- ------ ----------- ------- ----------- ------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March
26, 1999....... -- $ -- -- $ -- $ -- $ -- $ -- $ -- $ --
Sale of common
stock, net of
issuance
costs.......... -- -- 4,000,000 4,000 595 -- -- -- 4,595
Issuance of
common stock
for acquisition
of Zap
International,
Inc............ -- -- 2,640,000 2,640 -- -- -- -- 2,640
Reclassifications
of $.001 common
stock.......... -- -- (6,640,000) (6,640) (595) -- -- -- (7,235)
Issuance of
$.001 common
stock in
connection with
reclassification
of equity...... -- -- 8,758,033 8,758 595 -- -- -- 9,353
Assumption of
liabilities and
subscription
receivable in
connection with
recapitalization.. -- -- -- -- (2,570,000) (47,000) -- -- (2,617,000)
Sale of common
stock, net of
issuance
costs.......... -- -- 475,118 475 941,929 -- -- -- 942,404
Issuance of
common stock
pursuant to
exercise of
warrants....... -- -- 233,613 234 23,123 -- -- -- 23,357
Issuance of
common stock at
a discount as
compensation
for services... -- -- 39,859 40 54,028 -- -- -- 54,068
Issuance of
common stock as
compensation
for services... -- -- 30,000 30 239,970 -- -- -- 240,000
Sales of
preferred
stock, net of
issuance
costs.......... 1,085,573 1,086 -- -- 7,759,406 -- -- -- 7,760,492
Compensation
expense on
option and
warrant
grants......... -- -- -- -- 167,923 -- -- -- 167,923
Unearned
compensation on
option and
warrant
grants......... -- -- -- -- 594,475 -- -- (594,475) --
Collection of
subscriptions
receivable..... -- -- -- -- -- 47,000 -- -- 47,000
Net loss........ -- -- -- -- -- -- (2,284,546) -- (2,284,546)
---------- ------ ----------- ------- ----------- -------- ----------- --------- -----------
Balance,
September 30,
1999........... 1,085,573 $1,086 9,536,623 $ 9,537 $ 7,211,449 $ -- $(2,284,546) $(594,475) $ 4,343,051
========== ====== =========== ======= =========== ======== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
eCommercial.com, Inc. and Subsidiary
(a development stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the period from inception (March 26, 1999)
to September 30, 1999
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss........................................................ $(2,284,546)
Adjustments to reconcile net loss to net cash used in
operations:
Depreciation and amortization................................. 107,892
Non-cash charges due to stock issuances....................... 294,068
Non-cash charges due to stock option and warrant grants....... 167,923
Increase in accounts receivable............................... (24,500)
Increase in prepaid expenses.................................. (98,743)
Increase in other current assets.............................. (14,941)
Increase in deposits.......................................... (76,975)
Decrease in accounts payable and accrued liabilities.......... (113,866)
Increase in customer deposits................................. 30,500
-----------
Net cash used in operations................................. (2,013,188)
-----------
Cash flows from investing activities:
Increase in cash--pledged....................................... (233,890)
Cash acquired in acquisition.................................... 2,898
Purchases of fixed assets....................................... (987,915)
Purchases of patents and trademark.............................. (44,226)
-----------
Net cash used in investing activities....................... (1,263,133)
-----------
Cash flows from financing activities:
Principal payments on notes payable............................. (756,786)
Payment received on subscriptions receivable.................... 47,000
Proceeds from issuance of Convertible Preferred stock........... 7,760,492
Proceeds from issuance of common stock.......................... 970,356
-----------
Net cash provided by financing activities................... 8,021,062
-----------
Net Increase in Cash.............................................. 4,744,741
Cash, March 26, 1999.............................................. --
-----------
Cash, September 30, 1999.......................................... $ 4,744,741
===========
Cash paid for income taxes........................................ $ --
===========
Cash paid for interest............................................ $ --
===========
Supplemental disclosure of noncash investing and financing
activities:
The Company acquired its subsidiary (Zap International, Inc.)
for 2,640,000 shares of common stock........................... $ 2,640
===========
Assumption of liabilities in connection with recapitalization... $(2,570,000)
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
eCommercial.com, Inc. and SubsidiaryInc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
Note A--The Company and Summary of Significant Accounting Policies
eCommercial.com, Inc., a Nevada corporation ("eCommercial.com" or the
"Company"), is engaged in the business of producing electronic
"eCommercials(TM)" in the form of highly compressed multimedia files that
combine audio, video, graphics, hypertext links and chat with integrated
reporting. eCommercials are delivered to targeted customers of companies
marketing via the Internet.
The Company was founded on March 26, 1999 and incorporated as
eCommercial.com, Inc., a California corporation, on April 9, 1999.
On April 16, 1999, the Company acquired all of the outstanding common stock
of Zap International, ("Zap"), in exchange for 2,640,000 shares of Common
Stock. The transaction was recorded using the purchase method of accounting
(see Note E). Pro forma disclosures are not meaningful as Zap did not have
significant operations.
On April 19, 1999, Wireless Netcom, Inc. (a Nevada corporation) acquired all
of the outstanding shares of the Company. For accounting purposes, the
acquisition is treated as a recapitalization with the Company as the acquirer
(a reverse acquisition). Pro forma information is not presented since the
transaction is not a business combination (see Note E).
1. Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. All significant intercompany balances and
transactions have been eliminated.
2. Revenue Recognition
The Company's revenues are derived from the production and delivery of
eCommercials as a part of comprehensive direct-response advertising campaigns
developed for each of its customers. eCommercials are delivered to targeted
email subscribers through email subscriber programs utilizing the Company's
unique personalization technology. The Company's eCommercial production
services include theme development, eCommercial design and layout, video
production, special effects, link recommendations, hyperlink page design and
creation, reporting and sales cycle consultation. The Company also has
developed email subscriber programs to promote subscriber registration and to
sponsor advertising coordination. The Company also offers demographic and list
development as part of its direct marketing programs. Revenue for all of the
Company's services is recognized when the services are rendered or eCommercials
delivered.
Customers are generally billed in advance of production and delivery of
eCommercials. Accordingly, customer deposits include the customer prepayments
less the portion of service that has been completed.
3. Product Development
Costs incurred in the development of new products and enhancements to
existing products are charged to expense as incurred.
4. Depreciation and Amortization
Property and equipment, including leasehold improvements, are stated at cost
and depreciated using the straight-line method over the estimated useful lives
of the assets, generally two to five years. Goodwill, patents,
F-7
<PAGE>
eCommercial.com Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and trademarks are included in intangible assets and carried at cost less
accumulated amortization, which is being provided on a straight-line basis over
the economic lives of the respective assets, generally seven years. The Company
periodically evaluates the recoverability of its long-lived assets based on
expected undiscounted cash flows and recognizes impairments, if any, based on
expected discounted future cash flows.
5. Income Taxes
Income taxes are computed using the asset and liability method. Under the
asset and liability method, deferred income tax assets and liabilities are
determined based on the differences between the financial reporting and tax
bases of assets and liabilities and are measured using the currently enacted
tax rates and laws. A valuation allowance is provided for the amount of
deferred tax assets that, based on available evidence, are not expected to be
realized.
At September 30, 1999, the Company has a deferred tax asset of approximately
$342,000 resulting from net operating loss for the period March 26, 1999
through September 30, 1999. The Company has provided for a valuation allowance
of $342,000 at September 30, 1999. The Provision for Income taxes on the
accompanying Consolidated Statement of Operations represents the minimum
California franchise tax.
6. Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation." Under APB 25, compensation
expense is recognized over the vesting period based on the difference, if any,
on the date of grant between the fair value of the Company's stock and the
amount an employee must pay to acquire the stock.
7. Basic and Diluted Net Income (Loss) Per Share
Basic net income (loss) per share is computed using the weighted average
number of common shares outstanding during the period. Diluted net income
(loss) per share is computed using the weighted average number of common and
common equivalent shares outstanding during the period. Common equivalent
shares consist of the incremental common shares issuable upon conversion of
convertible preferred stock (using the if-converted method) and shares issuable
upon the exercise of stock options and warrants (using the treasury stock
method). Common equivalent shares for the period from inception (March 26,
1999) to September 30, 1999 were excluded from the computation as their effect
was anti-dilutive (see Note H).
8. 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,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.
9. Cash and Cash Equivalents
All highly liquid instruments with an original maturity of three months or
less are considered cash equivalents, those with original maturities greater
than three months and current maturities less than twelve months from the
balance sheet date are considered short-term investments, and those with
maturities greater than twelve months from the balance sheet date are
considered long-term investments.
F-8
<PAGE>
eCommercial.com Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Cash and Cash Equivalents--continued
As of September 30, 1999, the Company had a Certificate of Deposit account
that was pledged to collateralize an irrevocable letter of credit related to
the lease for the Company's headquarters. The letter of credit amount will
decrease by 50% in December 2000 and expire in December 2001. The pledged cash
is carried as a long-term asset on the accompanying consolidated balance sheet.
10. Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentration of credit risk consist primarily of cash, cash equivalents, and
accounts receivable. Substantially all of the Company's cash and cash
equivalents are held in one financial institution. As of September 30, 1999,
the carrying amount of cash in bank was $4,978,631, and the bank balance was
$5,239,321, of which $100,000 was FDIC insured. Accounts receivable are
typically unsecured and are derived from revenues earned from customers
primarily located in the United States. The Company performs ongoing credit
evaluations of its customers and will maintain reserves for potential credit
losses as the need arises.
11. Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
130, "Reporting Comprehensive Income," which has been adopted by the Company.
SFAS 130 establishes standards for reporting comprehensive income and its
components in a financial statement. Comprehensive income as defined includes
all changes in equity (net assets) during a period from non-owner sources.
Examples of items to be included in comprehensive income, which are excluded
from net income, include foreign currency translation adjustments and
unrealized gains and losses on available-for-sale securities. As none of these
components have impacted the Company, adjustments for comprehensive income have
not been made to the accompanying consolidated financial statements.
12. Segments
In June 1997, the FASB issued SFAS 131, "Disclosures About Segments of an
Enterprise and Related Information," which 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 Company
believes that it does not operate in more then one segment.
13. Fair Value of Financial Instruments
The fair value of financial instruments approximates their carrying amounts.
14. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133), and in July 1999 issued Financial
Accounting Standard No. 137,"Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133, an
Amendment of FASB Statement No. 133" (SFAS 137). SFAS 137 delayed the effective
date for SFAS 133 to fiscal years beginning after June 15, 2000. The Company
does not believe that this statement will have a material effect on its
financial position or results of operations.
F-9
<PAGE>
eCommercial.com Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note B--Realization of Assets
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As shown in the
accompanying financial statements, the Company incurred a net loss of
$2,284,546 for the period ended September 30, 1999 and had no significant
revenues. The future of the Company is dependent upon its ability to generate
sufficient cash flows from revenues to cover operating costs. Until such time,
however, the Company expects to seek financing through a combination of private
placements and/or public offerings. There is no assurance, however, that such
plans will be completed or, if completed, will generate sufficient funds to
enable the Company to meet its obligations as they come due. The accompanying
consolidated financial statements do not include any adjustments relating to
the recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue as a going concern.
Note C--Fixed Assets
Fixed assets, at cost, consist of the following, at September 30, 1999:
<TABLE>
<S> <C>
Computer equipment............................................... $668,361
Office equipment................................................. 10,723
Furniture and fixtures........................................... 118,246
Software......................................................... 21,451
--------
818,781
Less accumulated depreciation.................................... (58,463)
--------
760,318
Construction in progress......................................... 176,018
--------
$936,336
========
Note D--Intangible Assets
Intangible assets consist of the following, at September 30, 1999:
Patents and trademarks........................................... $ 44,226
Goodwill......................................................... 750,000
--------
794,226
Less accumulated amortization.................................... (49,429)
--------
$744,797
========
</TABLE>
Note E--Commitments and Contingencies
1. Operating Leases
In June 1999, the Company entered into a non-cancelable five-year operating
lease for its primary facilities in Aliso Viejo, California. The Company
currently occupies temporary facilities which are leased for minimum monthly
rental payments of $6,713 per month through November 1999. When the permanent
office space is occupied, rent expense will increase to $29,642 per month
through May 2002 and $30,878 per month through the remaining term of the lease,
which expires in November 2004. The lease contains a five-year renewal option
from the date of expiration.
In addition to the lease mentioned above, the Company entered into a lease
for additional temporary facilities in August 1999. The lease, as extended,
calls for minimum monthly rental payments of $3,675 per
F-10
<PAGE>
eCommercial.com Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
month until December 15, 1999, at which time the Company expects to be
occupying the primary facilities described above.
In September 1999, the Company entered into a non-cancelable five-year
sublease for a satellite office in Cupertino, California. The lease calls for
minimum monthly rental payments ranging from $10,091 per month at the start of
the lease and gradually increasing to $13,358 per month by the end of the
lease. The sublessor is a company related to two significant stockholders, one
of whom is an officer and director of the Company. The sublease terms are
identical to the terms of the sublessor's lease with the landlord, and are
favorable to the terms the Company would have been able to acquire on its own.
The minimum lease payments for operating leases for the years ending
September 30 are as follows:
<TABLE>
<S> <C>
Year ending September 30,
2000....................................................... $ 459,896
2001....................................................... 506,972
2002....................................................... 518,305
2003....................................................... 529,629
2004....................................................... 519,668
Thereafter................................................. 61,755
----------
$2,596,225
==========
</TABLE>
Rent expense for the period from inception (March 26, 1999) to September
30, 1999 amounted to $43,148.
2. Legal Proceedings
From time to time the Company is subject to legal proceedings and claims in
the ordinary course of business, including claims of alleged infringement of
trademarks, copyrights and other intellectual property rights. Except as
described below, the Company is not currently aware of any legal proceedings
or claims that the Company believes will have, individually or in the
aggregate, a material adverse effect on the Company's consolidated financial
position or results of operations.
The Company has been named as a defendant in an action seeking damages,
(the "Voxel Claim") in connection with an Asset Purchase Agreement, dated as
of November 25, 1998, pursuant to which Wireless Netcom, Inc. had proposed to
acquire the assets of Voxel, Inc. The Company has accrued $1.8 million in
estimated damages as a portion of the liabilities assumed during the
recapitalization (see Note J).
Note F--Acquisition
1. Acquisition of Zap International, Inc.
On April 16, 1999, the Company completed the acquisition of all outstanding
shares of Zap International, Inc. ("Zap"), for 2,640,000 shares of Common
Stock. Zap was a software company which had developed technology that enabled
generation of highly compressed multimedia files that combine audio, video,
graphics and hypertext links, and form the foundation of eCommercials. The
acquisition was accounted for as a purchase. Under the purchase method of
accounting, the purchase price is allocated to the assets acquired and
liabilities assumed based on their estimated fair values at the date of the
acquisition. Zap is now a wholly owned subsidiary of the Company.
F-11
<PAGE>
eCommercial.com Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The total purchase price of the acquisition was $2,640, which is 2,640,000
shares at a value of $.001. The purchase price was allocated to the assets
acquired and liabilities assumed based on their estimated fair values. Goodwill
has resulted from the excess costs over fair value of net assets acquired.
<TABLE>
<S> <C>
Goodwill........................................................ $ 750,000
Tangible assets acquired........................................ 1,000
Liabilities assumed............................................. (748,360)
---------
$ 2,640
=========
</TABLE>
Goodwill is being amortized on a straight-line basis over seven years.
Amortization expense of goodwill was $49,107 for the period from inception
(March 26, 1999) to September 30, 1999.
2. Recapitalization
On April 19, 1999, Wireless Netcom, Inc. (a Nevada corporation) acquired all
of the outstanding common stock of the Company. For accounting purposes, the
acquisition is treated as a recapitalization with the Company as the acquirer
(a reverse acquisition). Pro forma information is not presented since the
transaction is not a business combination. The founding stockholders of
eCommercial.com., Inc. exchanged their common stock for 6,640,000 shares of
common stock (approximately 76% of the outstanding common stock) of Wireless
Netcom, Inc. In connection with the recapitalization, Wireless Netcom, Inc.
changed its name to eCommercial.com, Inc., and the Company assumed liabilities
of $2,570,000.
At the time of the recapitalization described above, Wireless Netcom had
178,502 common stock warrants outstanding. The exercise price of the warrants
was $0.10 per share, and they generally expire on May 15, 2000.
Note G--Strategic Alliances
In July 1999, the Company entered into a strategic alliance with Lockheed
Martin ("Lockheed"), whereby, Lockheed and the Company will work together to
serve mutual customers. Lockheed was issued 30,000 shares of common stock as
part of the agreement, for which the Company recognized a non-cash charge of
$240,000.
Note H--Stockholders' Equity
1. Series B Convertible Preferred Stock
As of September 30, 1999, the Company had issued 1,085,573 shares of Series
B Preferred Stock for $8 per share in a private placement which closed in
November 1999 (see Note J). Net proceeds were $7,760,492.
Dividends are payable to holders of Series B Preferred Stock when and if
declared by the Company and will be non-cumulative. No dividends (other than
those payable solely in Common Stock) will be declared or paid with respect to
shares of Common Stock until dividends in the aggregate amount of at least
$0.90 per share have been paid or declared on the Series B Preferred.
Holders of shares of Series B Preferred are entitled to vote on all matters
submitted to a vote of the stockholders. Each share of Series B Preferred
entitles the holder to the number of votes equal to the number of shares of
Common Stock into which the Series B Preferred is convertible as of the record
date established for the vote of the stockholders.
F-12
<PAGE>
eCommercial.com Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Each share of Series B Preferred may be converted into one share of common
stock at any time upon the stockholder's election. The shares of Series B
Preferred will be automatically converted into shares of common stock upon (i)
the effective date of a firm commitment, underwritten public offering of common
stock pursuant to an effective registration statement under the Securities Act,
other than a registration relating solely to a transaction under Rule 145 of
the Securities Act or to any employee benefit plan of the Company, generating
aggregate proceeds to the Company of not less than $15,000,000 (after deducting
underwriters' discounts and all expenses relating to the offering) and with a
per share offering price (prior to underwriters' discounts and expenses) of not
less than $15.00 per share, as such per share price may be adjusted to reflect
stock subdivisions, combinations or dividends with respect to such shares, or
(ii) the date specified by affirmative vote or written consent or agreement of
the holders of not less than two-thirds ( 2/3) of the then outstanding shares
of Series B Preferred.
In the event of liquidation, the holders of the Series B Preferred shall be
entitled to receive, prior to and in preference to any distributions to the
holders of common stock, $8.00 per share of Series B Preferred plus any accrued
but unpaid dividends if and when declared by the Board of Directors.
In connection with the private placement of Series B Preferred stock,
warrants to purchase 341,251 shares of common stock at $8 per share were
granted to investors and the placement agent. These warrants expire in August
2001.
If the Company fails to file a registration statement with the SEC by
November 30, 1999, the holders of the Series B preferred shares and related
warrants will be entitled to receive an additional number of preferred shares
and warrants equal to 5% of the shares and warrants purchased in the offering.
2. Common Stock
Upon initial incorporation, the Company issued 4,000,000 shares of common
stock with a par value of $0.001 to its founders at par. It subsequently issued
475,118 shares in a private placement. Net proceeds from both transactions were
$946,999.
During the period from inception (March 26, 1999) to September 30, 1999, a
total of 233,613 shares of common stock were issued upon warrant exercises.
Total proceeds amounted to $23,357.
During the period from inception (March 26, 1999) to September 30, 1999, a
total of 69,859 shares were issued as compensation for services. The Company
recorded compensation expense in the amount of $294,068. Such amounts are
inclusive of the shares issued to Lockheed (see Note G).
3. Warrants
At the time of its acquisition of Zap, warrants to purchase 5,200 shares of
common stock at $5 per share were granted to a former Zap creditor. These
warrants expire in April 2004. In connection with the issuance of the warrants,
the Company recognized an expense of $1,508, which was the fair value of the
warrants at the time of issuance.
In connection with the private placement of common stock, warrants to
purchase 183,500 shares were granted at exercise prices ranging from $0.10 per
share and $0.50 per share, and expire in May 2000.
Warrants to purchase 15,000 shares of common stock at $11.25 per share have
been granted to a customer. They expire in May 2001. In connection with the
issuance of the warrants, the Company recognized an expense of $25,950, which
was the fair value of the warrants at the time of issuance.
F-13
<PAGE>
eCommercial.com Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of September 30, 1999, a total of 476,340 warrants are outstanding, with
exercise prices ranging from $0.10 to $11.25 and expiring at various times
through April 2004.
4. Options
In April 1999, the Company adopted the 1999 Stock Option Plan (the "Plan").
The Plan reserves 2,400,000 shares of common stock for grants to employees.
Pursuant to the consummation of the reverse merger of Wireless Netcom, the
Company assumed and discontinued the Wireless Netcom 1997 Stock Option Plan
(the "Wireless Plan"). There were no outstanding options under the Wireless
Plan.
Under the Plan, incentive stock options may be granted to employees,
directors, and officers of the Company and non-qualified stock options and
stock purchase rights may be granted to consultants, employees, directors, and
officers of the Company. Options granted under the Plan are for periods not to
exceed ten years and must be issued at prices not less than 100% and 85%, for
incentive and nonqualified stock options, respectively, of the fair market
value of the stock on the date of grant, as determined by the Board of
Directors. Options granted to shareholders who own greater than 10% of the
outstanding stock are for periods not to exceed five years and must be issued
at prices not less than 110% of the fair market value of the stock on the date
of grant, as determined by the Board of Directors. Options granted under the
Stock Plan generally vest 33% after the first year of service and ratably each
quarter over the remaining twenty-four month period.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, but applies Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for its plans.
If the Company had elected to recognize compensation cost on the fair market
value at the grant dates for awards under the stock option plan, consistent
with the method prescribed by SFAS No. 123, net income and income per share
would have been changed to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Period ended
September 30, 1999
------------------
<S> <C>
Net loss--As reported................................... $(2,284,546)
Pro forma............................................. (2,434,063)
Basic and diluted loss per share--As reported........... (0.26)
Pro forma............................................. (0.28)
</TABLE>
The fair value of the Company's stock options was estimated as of the grant
date using the Black-Scholes option pricing model with the following weighted
average assumptions for the period ended September 30, 1999: dividend yield of
0.0%, expected volatility of 50%, risk free interest rate of 6.5%, and an
expected holding period from 1 to 3 years. The following table summarizes
activity under the Company's stock option plan for the year ended September 30,
1999:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price
--------- --------
<S> <C> <C>
Outstanding at inception (March 26, 1999)............ -- --
Granted.............................................. 2,131,500 $3.08
Exercised.......................................... -- --
Forfeited/expired.................................. (61,000) 1.11
--------- -----
Outstanding at September 30, 1999.................... 2,070,500 3.13
========= =====
Weighted average fair value of options granted during
1999................................................ $ 1.03
=========
</TABLE>
F-14
<PAGE>
eCommercial.com Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999
<TABLE>
<CAPTION>
Stock Options Stock Options
Outstanding Exercisable
----------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Range of Contractual Exercise Exercise
Exercise Prices Shares Life Price Shares Price
--------------- --------- ----------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
$1.00 to $4.00 1,503,000 5.0 $1.20 359,666 $1.33
$7.00 to $10.00 567,500 5.6 8.26 31,000 8.65
--------- -------
2,070,500 5.1 $3.08 390,666 $1.91
========= =======
</TABLE>
Through September 30, 1999, the Company recorded compensation expense in the
amount of $167,923 related to certain stock options and warrants. Approximately
$594,000 remains to be amortized over the remaining vesting periods of the
options.
Note I--Employment Contracts
The Company has employment agreements and arrangements with certain
executive officers. The agreements generally continue until terminated by the
executive or the Company, and provide for severance payments under certain
circumstances. As of September 30, 1999, if all of the employees under these
contracts were to be terminated by the Company, the Company's liability would
be approximately $1.3 million.
Note J--Subsequent Events
In November 1999, the Company completed the private placement of Series B
Convertible Preferred Stock. Subsequent to September 30, 1999, the Company
issued 177,500 shares and 293,840 warrants for net proceeds of $1,402,981,
including $1,000,000 received from Onex, as described below. The total offering
netted $9,163,473 after expenses.
In October 1999, the Company entered into a strategic investment agreement
with @ONEX LLC, ("Onex"). Under the terms of the agreement, Onex made a
$1,000,000 investment into the private placement of Series B Convertible
Preferred Stock, and has the option to invest another $1,000,000 under the same
terms. The option expires on March 31, 2000. Further, Onex received warrants to
purchase 250,000 shares of common stock at the price of $7 per share.
Effective October 1, 1999, the Company implemented a 401(k) Profit Sharing
Plan (the "Plan") for its full-time employees. Each participant in the Plan may
elect to contribute from 1% to 17% of his or her annual compensation to the
Plan. The Company does not yet make matching contributions. However, at its
option, the Company may match employee contributions at a rate of 25%, up to 6%
of the Employee's salary. Employee contributions are fully vested, whereas
vesting in matching Company contributions occurs at a rate of 33.3% per year of
employment.
In connection with the Voxel, Inc. claim on October 27, 1999, the court
ruled in favor of the plaintiffs and awarded them $1.8 million in damages. The
Company intends to appeal the decision.
F-15
<PAGE>
PART II:
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13: Other Expenses of Issuance and Distribution
The estimated expenses payable in connection with the issuance and
distribution of the securities being registered are as follows:
<TABLE>
<S> <C>
SEC registration fee................................................ $ 3,753
Legal fees and expenses............................................. 40,000
Accounting fees and expenses........................................ 30,000
Printing and engraving expense...................................... 15,000
Transfer agent fees and expenses.................................... 2,500
Miscellaneous....................................................... 2,500
-------
TOTAL............................................................. $93,753
=======
</TABLE>
Except for the SEC registration fee, the above amounts are estimated.
Item 15: Recent Sales of Unregistered Securities
Transactions prior to April 1999 were initiated by Wireless Netcom and its
predecessor company, Rubicon Sports. In connection with the merger of Wireless
Netcom and eCommercial California in April 1999, all preferred shares and
convertible debt balances were converted into common stock. As of November 12,
1999, we have only series B preferred stock and common stock outstanding.
On May 23, 1997, we undertook a private debt offering of $130,000 (the
"Bridge Financing"), pursuant to the exemption from registration provided by
Rule 506 of the Act. The Bridge Financing related to the sale of Promissory
Common Shares (the "Bridge Common Shares"). The Bridge Common Shares had a term
of six (6) months, bear simple interest at the rate of 8.5% per annum, payable
at maturity. Investors in the Bridge Financing were issued warrants to purchase
an aggregate of 5,000 shares of our common stock ("Bridge Financing Investor
Warrants"). Bridge Financing Investor Warrants are exercisable for a term of
three (3) years at an exercise price of the lesser of (i) $.10 per share, or
(ii) 50% of the initial public offering price of the common stock. The Bridge
Common Shares were secured by our assets as evidenced by the filing of a
Financing Statement pursuant to the Uniform Commercial Code. In addition, the
Placement Agent received warrants to purchase 5,000 shares of common stock,
exercisable on terms equivalent to the Bridge Financing Investor Warrants. The
Bridge Common Shares have been paid in full.
In June 1997, we undertook a private offering of 9% Series A Cumulative
Convertible Preferred Stock ("Series A Preferred") at the price of $2.50 per
share. The June 1997 Offering was made pursuant to the exemptions from
registration provided by Rule 506 of Regulation D and Section 4(2) of the Act
and applicable Blue Sky laws. We sold 892,400 shares of Series A Preferred and
received gross proceeds of $2,231,000. We issued warrants to purchase 7,428
shares of common stock at a price of $0.10 in connection with this Offering.
Concurrent with the merger of Wireless Netcom and eCommercial California, all
Series A Preferred shares were converted into 743,658 shares of our common
stock.
II-1
<PAGE>
In June 1998, we undertook a private offering of non-interest bearing
Promissory Notes (the "Notes") maturing twelve (12) months from the date of
issuance. Originally, the Notes were convertible into common stock by each
investor no earlier than thirty (30) days following commencement of trading of
our common stock on the OTC Bulletin Board. We received subscriptions totaling
$500,000. Concurrent with the merger of Wireless Netcom and eCommercial
California, these Notes were converted into 166,667 shares of our common stock.
In July 1998, we undertook a private offering of 6% Convertible Promissory
Notes maturing twelve (12) months from the date of issuance. Originally, the
Notes were convertible into common stock thirty (30) days following
commencement of trading of our common stock on the OTC Bulletin Board. The
number of shares into which the Notes were convertible was determined by
dividing the dollar amount of such amount by the preceding five (5) day average
closing bid price of the Shares, discounted by twenty percent (20%), as quoted
on the OTC Bulletin Board. Concurrent with the merger of Wireless Netcom and
eCommercial California, these Notes were converted into 166,667 shares of our
common stock.
In April 1999, we undertook a private placement of our common stock, at a
price of from $1 to $4 per share ("April 1999 Offering"). The April 1999
Offering was made pursuant to the exemptions from registration provided by
Section 4(2) of the Act, and Rule 505 promulgated thereunder, and the
applicable blue sky laws. We received proceeds of $942,404 and issued 475,118
shares of common stock thereunder. The April 1999 Offering closed in May 1999.
In July 1999, we undertook a private placement of our Series B Preferred
Stock, at a price of $8 per share ("July 1999 Offering"). The July 1999
Offering was made pursuant to the exemptions from registration provided by
Section 4(2) of the Act, and Rule 505 promulgated thereunder, and the
applicable Blue Sky laws. We received proceeds of $9,163,463 and issued
1,263,073 shares of Series B Preferred Stock and 622,591 warrants thereunder.
We also issued an option to purchase an additional 125,000 shares of Series B
Preferred at $8.00 per share, expiring March 31, 2000. The July 1999 Offering
closed in November 1999.
Item 16: Index To Exhibits and Financial Statement Schedules
<TABLE>
<CAPTION>
Exhibit
No Title
------- -----
<C> <S>
3.1 Articles of Incorporation of the Registrant
3.2* Amended and Restated Bylaws of the Registrant
4.1 Investor Rights Agreements
4.2* Form of Registrant's Specimen Common Stock Certificate
4.3* Form of Registrant's Series B Preferred Stock Certificate
4.4 Form of Common Stock Warrants
4.5 Certificate of Designation--Series B Preferred
5.1* Opinion on Legality
10.1 Stock Purchase Agreement, dated as of April 16, 1999 between the
Company and Shareholders of Zap International
10.2 Merger Agreement, dated as of April 19, 1999, between Wireless Netcom,
Inc. and the shareholders of eCommercial.com, Inc.
10.3 Employment Agreement--Thomas Blakeley
10.4 Employment Agreement--Mark Grundy
10.5 Employment Agreement--Eric A. McAfee
10.6 Form of Change in Control Executive Retention Agreement
10.7 Registrant's 1999 Stock Option Plan
10.8 Agreement between Registrant and Eric McAfee regarding Voxel
10.9 Form of Indemnification Agreement between Registrant and each of its
directors
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No Title
------- -----
<C> <S>
10.10 Lease Agreement--Aliso Viejo, CA
10.11* Sublease Agreement--Cupertino, CA
10.12 Strategic Relationship Agreement between Registrant and ONEX Ventures
LLC.
10.13 Strategic Relationship Agreement between Registrant and Lockheed
Martin Corporation
23.1 Consent of experts
23.2* Consent of Counsel (see Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- --------
* to be filed by Amendment
Item 17: Undertakings
We hereby undertake to:
1. File, during any period in which we offer or sell securities, a post-
effective amendment to this Registration Statement to:
(a) Include any prospectus required by Section 10(a)(3) of the
Securities Act.
(b) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information set forth in
the Registration Statement.
(c) Include any additional or changed material information on the plan
of distribution;
2. For determining liability under the Act, treat each post-effective
amendment as a new registration of the securities offered, and the offering of
such securities at that time to be the initial bona fide offering; and
3. File a post effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
4. Provide certificates in such denominations and registered in such names
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 company
pursuant to the foregoing provisions, or otherwise, the company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the company of expenses incurred or paid by a
director, officer or controlling person of the company in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
For the purpose of determining any liability under the Securities Act, the
company will treat 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 Company pursuant to Rule 424(b)(1), or (4),
or 497(h) under the Securities Act as part of this Registration Statement as of
the time the Securities and Exchange Commission declares it effective.
For the purpose of determining any liability under the Securities Act, we
will treat such post-effective amendment that contains a form of prospectus as
a new Registration Statement for the securities offered therein, and treat the
offering of the securities at that time as the initial bona fide offering of
those securities.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-1 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Aliso Viejo, State of California, on November 30,
1999.
eCommercial.com, Inc.
/s/ Thomas J. Blakeley
By: _________________________________
Thomas J. Blakeley
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Thomas J. Blakeley, Mark Grundy, and Michael R.
Friedl and each of them, his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and any subsequent
registration statements pursuant to Rule 462 of the Securities Act of 1933, and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that each said
attorney-in-fact, or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has exercised this power of
attorney as of the date indicated.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Thomas J. Blakeley Chairman of the Board November 30, 1999
____________________________________ Chief Executive Officer
Thomas J. Blakeley President (Principal
Executive Officer)
/s/ Mark Grundy Chief Operating Officer November 30, 1999
____________________________________ Executive Vice President
Mark Grundy Director
/s/ Eric A. McAfee Executive Vice President November 30, 1999
____________________________________ Secretary, Director
Eric A. McAfee
/s/ Michael R. Friedl Chief Financial Officer November 30, 1999
____________________________________ Treasurer (Principal
Michael R. Friedl Finance and Accounting
Officer)
/s/ John Troiano Director November 30, 1999
____________________________________
John Troiano
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No Description
------- -----------
<C> <S>
3.1 Articles of Incorporation of the Registrant
3.2* Amended and Restated Bylaws of the Registrant
4.1 Investor Rights Agreements
4.2* Form of Registrant's Specimen Common Stock Certificate
4.3* Form of Registrant's Series B Preferred Stock Certificate
4.4 Form of Common Stock Warrants
4.5 Certificate of Designation--Series B Preferred
5.1* Opinion on Legality
10.1 Stock Purchase Agreement, dated as of April 16, 1999 between the
Company and Shareholders of Zap International
10.2 Merger Agreement, dated as of April 19, 1999, between Wireless Netcom,
Inc. and the shareholders of eCommercial.com, Inc.
10.3 Employment Agreement--Thomas Blakeley
10.4 Employment Agreement--Mark Grundy
10.5 Employment Agreement--Eric A. McAfee
10.6 Form of Change in Control Executive Retention Agreement
10.7 Registrant's 1999 Stock Option Plan
10.8 Agreement between Registrant and Eric McAfee regarding Voxel
10.9 Form of Indemnification Agreement between Registrant and each of its
directors
10.10 Lease Agreement--Aliso Viejo, CA
10.11* Sublease Agreement--Cupertino, CA
10.12 Strategic Relationship Agreement between Registrant and ONEX Ventures
LLC.
10.13 Strategic Relationship Agreement between Registrant and Lockheed
Martin Corporation
23.1 Consent of experts
23.2* Consent of Counsel (see Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- --------
* to be filed by Amendment
<PAGE>
EXHIBIT 3.1
CERTIFIED COPY OF CORPORATE RESOLUTIONS
---------------------------------------
I, Martin Casper Korn, Secretary of Access Ventures, Inc., a Nevada
corporation, hereby certify that the following is a true and correct copy of
resolutions duly adopted by the Board of Directors of said corporation by
unanimous written consent on December 1, 1995, and that said resolutions have
not been modified or rescinded and are still in full force and effect:
RESOLVED: That it is deemed advisable, in the judgment of the Board of
Directors of ACCESS VENTURES, INC. that the Articles of Incorporation be amended
and restated to read as follows:
RESTATED
ARTICLES OF INCORPORATION
OF
RUBICON SPORTS, INC.
Rubicon Sports, Inc., a corporation organized under the laws of the state
of Nevada, certifies as follows:
I.
CORPORATE NAME
--------------
The name of the corporation shall be: RUBICON SPORTS, INC. The former name
of the corporation was ACCESS VENTURES, INC.
II.
CORPORATE BUSINESS
------------------
The nature, object and purpose of the business to be transacted, promoted,
carried on, or engaged in by the corporation shall be any and all lawful
business or other lawful activity.
III.
DIRECTORS
---------
The business of the corporation shall be managed by the Board of Directors
which shall consist of not less than three (3) Directors, all of whom shall be
of full age and at least one of whom shall be a citizen of the United States,
except that, in cases where all the shares of the corporation are owned
beneficially and of record by either one or two stockholders, the
<PAGE>
number of Directors may be less than three (3) but not less than the number of
stockholders. Unless otherwise provided in the articles of incorporation, or an
amendment thereof, it shall not be necessary for Directors to be stockholders.
The name and post office address of the present Board of Directors,
consisting of three (3) Directors, are as follows:
NAME ADDRESS
---- -------
DAVID LAUGHLIN 774 Mays Blvd, Suite #10
Incline Village, NV 89451
MARTIN CASPAR KORN 774 Mays Blvd, Suite #10
Incline Village, NV 89451
ERIC A. McAFEE 11251 La Verada Drive
North Tustin, CA 92705
IV.
POWERS OF THE DIRECTORS
-----------------------
In furtherance, and not in limitation, of the powers conferred by statute,
the Board of Directors is expressly authorized:
Subject to the by-laws, if any, adopted by the stockholders, to make,
alter or amend the by-laws of the corporation.
To fix the amount to be reserved as working capital over and above its
capital stock paid in; to authorize and cause to be executed mortgages and
liens upon the real and personal property of this corporation.
From time to time, to determine whether, and to what extent, and at
what times and places, and under what conditions and regulations, the
accounts and books of this corporation (other than the original or
duplicate stock ledger), or any of them, shall be open to inspection of
stockholders, and no stockholder shall have any right of inspecting any
account, book, or document of this corporation except as conferred by
statute, unless authorized by a resolution of the stockholders or
Directors.
By resolution, or resolutions, passed by a majority of the whole
Board, to designate one or more committees, each committee to consist of
one or more of
<PAGE>
the Directors of the corporation, which, to the extent provided in said
resolution, or resolutions, or in the by-laws of the corporation, shall
have, and may exercise the powers of the Board of Directors in the
management of the business affairs of the corporation, and may have power
to authorize the seal of the corporation to be affixed to all papers which
may require it. Such committee, or committees, shall have such name, or
names, as may be stated in the by-laws of the corporation, or as may be
determined by resolution adopted by the Board of Directors.
Pursuant to the affirmative vote of the stockholders, of at least a
majority of the stock issued and outstanding, having voting power, given at
a stockholders' meeting duly called for that purpose, or when authorized by
the written consent of the holders of at least a majority of the voting
stock issued and outstanding, the Board of Directors shall have power and
authority at any meeting, to sell, lease or exchange all of the property
and assets of this corporation, including its goodwill and its corporate
franchises, upon such terms and conditions as its Board of Directors deems
expedient and for the best interest of the corporation.
This corporation may, in its by-laws, confer powers upon its Directors in
addition to the foregoing, and in addition to the powers and authorities
expressly conferred upon them by statute.
V.
INDEMNIFICATION
---------------
Each director and officer, whether or not then in office, shall be
indemnified by the corporation against all costs and expenses reasonably
incurred by or imposed upon him in connection with or resulting from any action,
suit or proceeding to which he may be made a party by reason of his being or
having been a director or officer of the corporation, except in relation to
matters as to which a recovery shall be had against him by reason of his having
been finally adjudged in such action, suit or proceeding to have been derelict
in the performance of his duties as such director or officer pursuant to NRS
78.140 and NRS 78.145.
VI.
CUMULATIVE VOTING
-----------------
In accordance with Nevada Revised Statute 78.360, in the election of
Directors of the corporation the principle of cumulative voting shall apply. In
any such election, each stockholder entitled to vote shall have votes equal to
the number of his/her shares with voting rights multiplied by the number of
<PAGE>
Directors to be elected. He/She may divide and distribute his/her votes, as so
calculated, among any two or more candidates for the directorships to be filled,
or he may cast all his votes for a single candidate. A stockholder may, if he
desires, cast fewer than all the votes to which he is entitled at an election of
Directors, but his ballot shall be invalid if the total votes shown thereon are
in excess of the total number of votes to which he is entitled.
At any such election the candidates receiving the highest number of votes,
up to the number of Directors to be chosen, shall stand elected, and an absolute
majority of the votes cast is not a prerequisite to the election of any
candidate to the Board of Directors.
VII.
STOCK, DISTRIBUTIONS AND SECURITIES
-----------------------------------
The corporation shall have the power to issue one class or kind of stock,
or two or more classes or kinds of stock, any of which may be stock with par
value or stock without par value, with full or limited voting powers or without
voting powers and with such designations, preferences and relative,
participating, optional, or other special rights, or qualifications,
limitations, or restrictions thereof, as shall be stated and expressed in the
articles of incorporation, or in any amendment thereto, or in the resolution or
resolutions providing for the issue of such stock adopted by the Board of
Directors as hereinabove provided.
The rights of holders of any stock issued by the corporation and the power
and authority of the corporation thereto shall be governed by NRS 78.195 through
and inclusive of NRS 78.3778.
VIII.
AUTHORIZED CAPITAL STOCK
------------------------
The total authorized capital stock of this corporation is ten million
(10,000,000) shares of stock, each share of stock having a par value of one
tenth of one cent (one mill). Each share shall have one vote. However, such
other classes of stock may be issued from time to time pursuant to Article VII.
IX.
ASSESSMENT OF SHARES
--------------------
The capital stock of the corporation, after the amount of the subscription
price has been paid in money, property, or services, as the Directors shall
determine, shall not be subject to
<PAGE>
assessment to pay the debts of the corporation, nor for any other purpose, and
no stock issued as fully paid up shall ever be assessable or assessed, and the
articles of incorporation shall not be amended in this particular.
X.
REGISTERED AGENT
----------------
The registered agent of the corporation is D. G. MENCHETTI. The address of
the registered agent and the registered office of the corporation is 341 Ski
Way, Suite 103, Post Office Box 7100, Incline Village, Nevada 89452.
XI.
LIABILITY OF OFFICERS AND DIRECTORS
-----------------------------------
The liability of officers and Directors for damages for breach of their
fiduciary duties to the corporation and stockholders is limited to acts or
omissions which involve intentional misconduct, fraud or a knowing violation of
the law, or, the payment of dividends in violation of NRS 78.300.
XII.
CORPORATE RESERVATION
---------------------
The corporation reserves the right to amend, alter, change, or repeal any
provision contained in these articles of incorporation, in the manner now or
hereinafter prescribed by statute or by these articles of incorporation, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
RESOLVED FURTHER: That written consent of each stockholder otherwise
entitled to vote be obtained in accordance with NRS 78.320(2) for the purpose of
approving the foregoing Amendment and Restatement of Articles of Incorporation.
RESOLVED FURTHER: That in accordance with NRS 78.207(1) the no par value
shares held by the stockholders of record be exchanged on a two thousand (2,000)
new shares of one mill par value stock for every twenty five (25) existing
shares of no par value stock basis, effective upon the filing date of this
certificate required by NRS 78.207(4).
I further hereby certify that the following is true and correct copy of a
resolution duly adopted by the stockholders of the corporation on December 1,
1995, by unanimous written consent and that said resolution has not been
modified or rescinded and is still in force and effect:
<PAGE>
RESOLVED: That the Articles of Incorporation of ACCESS VENTURES, INC. be
amended and restated in the manner set forth in the December 1, 1995, resolution
of the Board of Directors.
In accordance with NRS 78.403(1), the former Articles of Incorporation are
being altered or amended in the following respects:
1. Article I: The name of the corporation is being changed;
2. Article II: Resident agent and office is are being changed;
3. Article IV(a): The number of authorized shares is being changed from
25,000 to 10,000,000 and the existing class of stock is being changed from no
par value to par value of one tenth of one cent (one mill);
4. Article V(b): The named Directors and their authorized number are
being changed and a provision setting forth in general terms their powers is
being added
5. Article VI: The reference to the initial incorporation is being
deleted;
6. A provision for indemnification of Directors is being added;
7. Shareholder voting is being changed to cumulative voting;
8. A provision for reservation of corporate rights is being added.
I further certify that said corporation is duly organized and existing and
has the power to take the action called for by the aforesaid resolutions.
In accordance with NRS 78.207(4), it is hereby further certified that:
(1) The current number of authorized shares is Twenty Five Thousand, no
par value, of the sole class and series of existing shares of stock;
(2) After the filing of the restated Articles of Incorporation of Rubicon
Sports, Inc. the number of authorized shares will be ten million (10,000,000)
with each share having a par value of one tenth of one cent (one mill);
(3) That for every existing 25 shares of stock of no par
<PAGE>
value 2,000 share of the new class and series one mill par value stock will be
issued and exchanged;
(4) There is no provision for the issuance of fractional shares, or for
the payment of money or the issuance of scrip to stockholders otherwise entitled
to a fraction of a share and no outstanding shares are affected thereby;
(5) That no shareholder approval of this transaction is required; and
(6) This change is effective upon filing of this certificate.
IN WITNESS WHEREOF, I accordingly have hereunto set my hand and seal this
fourth day of December, 1995.
_____________________________
MARTIN CASPAR KORN, SECRETARY
STATE OF ________________)
: ss.
COUNTY OF _______________)
On this fourth day of December, 1995, personally appeared before me,
___________________________, a Notary Public, Martin Korn, personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person
whose name is subscribed to the above instrument, who acknowledged to me that he
executed the above instrument in his authorized capacity as President of Rubicon
Sports, Inc. and that by his signature on the instrument, he, and/or the entity
upon the behalf of which he acted, executed the instrument.
_______________________________
NOTARY PUBLIC
IN WITNESS WHEREOF, I accordingly have hereunto set my hand and seal this
fourth day of December, 1995.
<PAGE>
__________________________
DAVID LAUGHLIN,PRESIDENT
STATE OF ________________)
: ss.
COUNTY OF _______________)
On this fourth day of December, 1995, personally appeared before me,
___________________________, a Notary Public, DAVID LAUGHLIN, personally known
to me (or proved to me on the basis of satisfactory evidence) to be the person
whose name is subscribed to the above instrument, who acknowledged to me that he
executed the above instrument in his authorized capacity, as President of
Rubicon Sports, Inc. and that by his signature on the instrument, he, and/or the
entity upon the behalf of which he acted, executed the instrument.
_______________________________
NOTARY PUBLIC
<PAGE>
EXHIBIT 4.1
INVESTORS' RIGHTS AGREEMENT
This Investors' Rights Agreement (this "Agreement") is made and entered
into as of __________ __, 1999, by and between eCommercial.com, Inc., a Delaware
corporation (the "Company") and the persons listed on the signature pages
attached hereto (collectively the "Investors" and each individually an
"Investor").
R E C I T A L S:
- - - - - - - -
A. WHEREAS, the Investors have agreed to purchase shares of the Company's
Series B Preferred Stock, $.001 par value per share (the "Shares"), pursuant to
the terms of certain Subscription Agreements entered into by and between the
Company and the Investors (each, a "Subscription Agreement" and collectively,
the "Subscription Agreements");
B. WHEREAS, pursuant to the terms of the Subscription Agreements, the
Company has agreed to issue to the Investors warrants (the "Warrants") to
purchase the number of shares of the Company's Common Stock, $.001 par value per
share ("Common Stock"), equal to ten percent (10%) of the aggregate number of
Shares purchased by such Investor (the "Warrant Shares");
C. WHEREAS, pursuant to the terms of the Subscription Agreements, the
Company has agreed to grant the Investors certain rights relating to the Warrant
Shares and the shares of Common Stock issuable upon conversion of the Shares;
and
D. WHEREAS, the Company and the Investors wish to set forth the terms of
such rights in this Agreement as the sole agreement between the Company and the
Investors with respect thereto.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Definitions
-----------
As used in this Agreement, the following terms shall have the following
respective meanings:
1.1 "Commission" shall mean the Securities and Exchange Commission or any
----------
other U.S. federal agency at the time administering the Securities Act.
1.2 "Common Stock" shall mean shares of the Company's Common Stock, $.001
------------
par value per share.
1.3 "Conversion Shares" shall mean the shares of Common Stock issued or
-----------------
issuable upon conversion of the Shares.
1.4 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
1.5 "Holder or Holders" shall mean each of the Investors listed on the
-----------------
signature pages attached hereto (and their transferees as permitted by Section
2.10) holding Registrable Securities.
<PAGE>
1.6 "Initiating Holders" shall mean Holders who in the aggregate hold
------------------
greater than fifty percent (50%) of the Registrable Securities.
1.7 "Minimum Registration" shall mean a registration having an aggregate
--------------------
offering price (prior to underwriters' discounts and expenses) of not less than
$5,000,000.
1.8 "Other Holders" shall mean holders of Company securities, other than
-------------
the Holders, proposing to distribute their securities pursuant to a registration
under Section 2 of this Agreement.
1.9 "Registrable Securities" shall mean (i) the Conversion Shares, (ii)
----------------------
the Warrant Shares, and (iii) any Common Stock issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of, the Shares, excluding in all cases, however, any Registrable
Securities that have been sold to or through a broker or dealer or underwriter
in a public distribution or a public securities transaction or which have been
sold in a private transaction in which the transferor's rights under this
Agreement are not assigned.
1.10 The terms "register," "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
1.11 "Registration Expenses" shall mean all expenses, except as otherwise
---------------------
stated below, incurred by the Company in complying with Sections 2.1, 2.2 and
2.3 hereof, including, without limitation, all registration, qualification and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company, accounting fees, blue sky fees and the expense of any special
audits incident to or required by any such registration (but excluding the
compensation of regular employees of the Company which shall be paid in any
event by the Company and excluding the fees and expenses of any counsel for any
Holder.).
1.12 "Securities" shall mean Common Stock or the Shares.
----------
1.13 "Securities Act" shall mean the Securities Act of 1933, as amended,
--------------
or any similar United States federal statute and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
1.14 "Selling Expenses" shall mean all underwriting discounts, selling
----------------
commissions and stock transfer taxes applicable to the Registrable Securities
registered by the Holders.
1.15 "Shares" shall mean the Company's Series B Preferred Stock, $.001 par
------
value per share.
1.16 "Subscription Agreements" shall mean the Subscription Agreements
-----------------------
entered into between the Company and the Investors in connection with the
purchase of the Shares.
1.17 "Warrants" shall mean the warrants to purchase shares of Common Stock
--------
issued to the Investors pursuant to the terms of the Subscription Agreements.
1.18 "Warrant Shares" shall mean the shares of Common Stock issued or
--------------
issuable upon exercise of the Warrants.
<PAGE>
2. Registration Rights.
--------------------
2.1 Automatic Registration.
----------------------
(a) Filing Registration Statement. As soon as practicable following
-----------------------------
the final closing of the offering of the Shares, the Company shall prepare and
file with the Commission a registration statement registering for resale to the
public the Registrable Securities. Notwithstanding the foregoing, in the event
the Company fails to file such registration statement on or before November 30,
1999, the Company shall issue to each holder of Registrable Securities, without
additional consideration, additional Shares and Warrants equal to 5% of the
Shares and Warrants held by such holder.
(b) Best Efforts. The Company agrees to use its best efforts to
------------
effect such registration, qualification or compliance (including, without
limitation, appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations issued
under the Securities Act and any other governmental requirements or
regulations) as may be so requested and as would permit or facilitate the sale
and distribution the Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities.
2.2 Company Registration.
--------------------
(a) Notice of Registration. If at any time or from time to time the
----------------------
Company shall determine to register any of its securities for its own account
other than (i) a registration relating solely to employee benefit plans or
(ii) a registration relating solely to a Commission Rule 145 transaction, the
Company will:
(i) promptly give to each Holder written notice thereof; and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests made within twenty (20) days after receipt of such written notice from
the Company by any Holder.
Notwithstanding the foregoing, the Company shall be obligated to effect in the
aggregate only three (3) such registrations pursuant to this Section 2.2 and no
more than only one (1) such registration in any twelve month period.
(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 2.2(a)(i). In such event the right of any Holder to
registration pursuant to Section 2.2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable Securities
in the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall, together with the
Company and the Other Holders, if any, enter into an underwriting agreement in
customary form with the managing underwriter selected for such underwriting by
the Company. Notwithstanding any other provision of this Section 2.2, if the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter may limit the
number of shares of Registrable Securities to be included in such registration
without requiring any limitation in the number of shares to be registered on
behalf of the Company. The Company shall so advise all Holders and Other
<PAGE>
Holders and the number of shares that may be included in the registration and
underwriting by all Holders and Other Holders shall be allocated among them,
as nearly as practicable, first, to the Company, second, among the Holders of
----- ------
Registrable Securities in proportion to the respective amounts of Registrable
Securities held by such Holders at the time of filing of the registration
statement, and, third, among the Other Holders in proportion to the number of
-----
shares proposed to be included in such registration by such Other Holders. To
facilitate the allocation of shares in accordance with the above provisions,
the Company may round the number of shares allocated to any Holder or Other
Holder to the nearest one hundred (100) shares. If any Holder or Other Holder
disapproves of the terms of any such underwriting, such holder may elect to
withdraw therefrom by written notice to the Company and the managing
underwriter. Any securities excluded or withdrawn from such underwriting shall
be withdrawn from such registration.
(c) Right to Terminate Registration. The Company shall have the right
-------------------------------
to terminate or withdraw any registration initiated by it under this Section
2.2 prior to the effectiveness of such registration whether or not any Holder
has elected to include Registrable Securities in such registration.
2.3 Registration on Form S-3.
------------------------
(a) Request for Registration. If at any time after the expiration of
------------------------
one (1) year following the closing of the initial underwritten public offering
of the Company any Holder or Holders request in writing that the Company file
a registration statement on Form S-3 under the Securities Act (or any
successor form to Form S-3) for a public offering of shares of the Registrable
Securities the reasonably anticipated aggregate price to the public of which
would exceed $1,000,000, and the Company is a registrant entitled to use Form
S-3, the Company shall use its best efforts to cause such Registrable
Securities to be registered for the offering on such form and to cause such
Registrable Securities to be qualified in such jurisdictions as the Holder or
Holders may reasonably request. The substantive provisions of Section 2.2(b)
shall be applicable to each registration initiated under this Section 2.3.
(b) Limitations. Notwithstanding the foregoing, the Company shall not
-----------
be obligated to take any action pursuant to this Section 2.3: (i) in any
particular jurisdiction in which the Company would be required to execute a
general consent to service of process in effecting such registration,
qualification or compliance unless the Company is already subject to service
in such jurisdiction and except as may be required by the Securities Act; (ii)
during the period starting with the date sixty (60) days prior to the Company's
estimated date of filing of, and ending on the date six (6) months immediately
following, the effective date of any registration statement pertaining to
securities of the Company (other than a registration of securities in a Rule
145 transaction or with respect to an employee benefit plan), provided that
the Company is actively employing in good faith all reasonable efforts to
cause such registration statement to become effective; or (iii) if the Company
shall furnish to such Holder a certificate signed by the President of the
Company stating that in the good faith judgment of the Board of Directors it
would be seriously detrimental to the Company or the Investors as a whole for
registration statements to be filed in the near future, then the Company's
obligation to use its best efforts to file a registration statement shall be
deferred for a period not to exceed ninety (90) days from the receipt of the
request to file such registration by such Holder, provided, however, that the
Company shall not utilize this right more than once in any twelve (12) month
period.
2.4 Expenses of Registration.
------------------------
<PAGE>
(a) Registration Expenses. The Company shall bear all Registration
--------------------
Expenses incurred in connection with all registrations pursuant to Section 2.1
and Section 2.2. The Holders of the Registrable Securities shall bear all
Registration Expenses in connection with all registrations pursuant to Section
2.3.
(b) Selling Expenses. Unless otherwise stated in Section 2.4(a), all
----------------
Selling Expenses and Registration Expenses relating to securities registered
on behalf of the Holders shall be borne by the Holders pro rata on the basis
of the number of shares so registered.
2.5 Registration Procedures. In the case of each registration effected by
-----------------------
the Company pursuant to this Agreement, the Company will:
(a) keep each Holder advised in writing as to the initiation of each
registration, qualification and compliance and as to the completion thereof;
(b) as soon as practicable, prepare and file with the Commission a
registration statement with respect to such securities and use its best efforts
to cause such registration statement to become and remain effective until the
earlier of (i) one hundred twenty (120) days or (ii) the distribution described
in the Registration Statement has been completed; provided, however, that (i)
such 120-day period shall be extended for a period of time equal to the period
the Holder refrains from selling any securities included in such registration at
the request of the managing underwriter; (ii) in the case of any registration of
Registrable Securities on Form S-3 which are intended to be offered on a
continuous or delayed basis, such 120-day period shall be extended, if
necessary, to keep the registration statement effective until all such
Registrable Securities are sold, provided that Rule 415, or any successor rule
under the Securities Act, permits an offering on a continuous or delayed basis,
and, provided further, that applicable rules under the Securities Act governing
the obligation to file a post-effective amendment permit, in lieu of filing a
post-effective amendment which (I) includes any prospectus required by Section
10(a)(3) of the Securities Act or (II) reflects facts or events representing a
material or fundamental change in the information set forth in the registration
statement, the incorporation by reference of information required to be included
in (I) and (II) above to be contained in periodic reports filed pursuant to
Section 13 or 15(d) of the Exchange Act in the registration statement; and (iii)
in the case of an automatic registration under section 2.1, the Company shall
keep such registration statement effective until the earlier of all the
Registrable Securities have been sold thereunder or all Registrable Securities
thereunder are available for sale pursuant to Rule 144(k) or any successor rule;
(c) furnish to the Holders participating in such registration and to
the underwriters of the securities being registered such reasonable number of
copies of the registration statement, preliminary prospectus, final prospectus
and such other documents as such underwriters may reasonably request in order to
facilitate the public offering of such securities;
(d) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(e) in the event of an underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing
<PAGE>
underwriter of such offering. Each Holder participating in such underwriting
shall also enter into and perform its obligations under such an agreement;
(f) notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of material fact or omits to state
a material fact required to be stated therein or necessary to make the
statements made therein not misleading in the light of the circumstances then
existing; and
(g) provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
2.6 Indemnification.
---------------
(a) By Company. The Company will indemnify each Holder, each of its
----------
officers and directors and partners, and each person controlling such Holder
within the meaning of Section 15 of the Securities Act, with respect to which
registration, qualification or compliance has been effected pursuant to this
Agreement, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act and each
Investor and its officers, directors and partners and each person controlling
such Investor within the meaning of Section 15 of the Securities Act, against
all expenses, claims, losses, damages or liabilities, joint or several, (or
actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, offering circular or other
document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, or any violation by the Company of the
Securities Act, the Exchange Act or any state or federal securities law, or any
rule or regulation promulgated under such Acts or law applicable to the Company
in connection with any such registration, qualification or compliance, and the
Company will reimburse each such Holder, each of its officers, directors and
partners, and each person controlling such Holder, each such underwriter and
each person who controls any such underwriter, each Investor, each of its
officers, directors and partners and each person controlling such Investor, for
any legal and any other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage, liability or
action, provided that the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability or expense arises out of or
is based on any untrue statement or omission or alleged untrue statement or
omission, made in reliance upon and in conformity with written information
regarding a Holder furnished to the Company by an instrument duly executed by
such Holder, controlling person, underwriter or Investor and stated to be
specifically for use therein. If the Holders and Investors are represented by
counsel other than counsel for the Company, the Company will not be obligated
under this Section 2.6(a) to reimburse legal fees and expenses of more than one
separate counsel for all Holders and Investors.
(b) By Holders. Each Holder will, if Registrable Securities held by
----------
such Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors, each of its officers, each underwriter, if any, of the
<PAGE>
Company's securities covered by such a registration statement, each person who
controls the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such Holder, each of its officers and directors
and each person controlling such Holder within the meaning of Section 15 of the
Securities Act, against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company, such Holders, such directors, officers, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
regarding a Holder furnished to the Company by an instrument duly executed by
such Holder and stated to be specifically for use therein. Notwithstanding the
foregoing, the liability of each Holder under this subsection (b) shall be
limited in an amount equal to the public offering price of the shares sold by
such Holder, unless such liability arises out of or is based on willful
misconduct by such Holder.
(c) Procedures. Each party entitled to indemnification under this
----------
Section 2.6 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement unless the failure to
give such notice is materially prejudicial to an Indemnifying Party's ability to
defend such action and provided further, that the Indemnifying Party shall not
assume the defense for matters as to which there is a conflict of interest or
separate and different defenses. No Indemnifying Party, in the defense of any
such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation.
(d) Contribution. If the indemnification provided for in this Section
------------
2.6 is held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage, or expense
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
<PAGE>
(e) Controlling Agreement. Notwithstanding the foregoing, to the
---------------------
extent that the provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten public
offering are in conflict with the foregoing provisions of this Section 2.6, the
provisions in the underwriting agreement shall control.
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, the Registrable Securities held by
them and the distribution proposed by them as the Company may request in writing
and only as shall be necessary to enable the Company to comply with the
provisions hereof in connection with any registration, qualification or
compliance referred to in this Agreement.
2.8 Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may at any time permit the
sale of the Registrable Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended.
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements);
(c) Furnish to any Holder forthwith upon request a written statement
by the Company as to its compliance with the reporting requirements of Rule 144
(at any time after 90 days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Securities Exchange Act of 1934 (at
any time after it has become subject to such reporting requirements), a copy of
the most recent annual or quarterly report of the Company, and such other
reports and documents of the Company and other information in the possession of
or reasonably obtainable by the Company as such Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing such Holder
to sell any such securities without registration.
2.9 Transfer of Registration Rights. The rights to cause the Company to
-------------------------------
register securities granted Holders under Sections 2.1, 2.2 and 2.3 may be
assigned in connection with any transfer or assignment by a Holder of
Registrable Securities provided that: (i) such transfer may otherwise be
effected in accordance with applicable securities laws, (ii) such transfer is
effected in compliance with the restrictions on transfer contained in this
Agreement and in any other agreement between the Company and the Holder, and
(iii) such assignee or transferee is a constituent partner of an Investor or
purchases (I) at least 10,000 shares of Registrable Securities or (II) all
shares of Registrable Securities held by an Investor if transferred to a single
entity. No transfer or assignment will divest a Holder or any subsequent owner
of such rights and powers unless all Registrable Securities are transferred or
assigned.
2.10 Termination. The rights granted pursuant to this Section 2 shall
-----------
terminate as to any Holder at the later of (i) three (3) years after the
Company's initial public offering or (ii) after the effective date of the
Company's first registered public offering of its stock, at such time as such
Holder
<PAGE>
may sell under Rule 144, or a successor rule, in a three month period all
Registrable Securities then held by such Holder.
2.11 Lockup Agreement. Provided that each officer and director of the
----------------
Company who owns stock or options to purchase stock of the Company also agrees
to such restrictions, each Holder agrees that, if, in connection with the
Company's initial public offering of the Company's securities, the Company or
the underwriters managing the offering so request, the Holder shall not sell,
make any short sale of, loan, grant any option for the purchase of, or otherwise
dispose of any Registrable Securities (other than those included in the
registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time not to exceed 180 days
from the effective date of such registration. This Section 2.11 shall be binding
on all transferees or assignees of Registrable Securities, whether or not such
persons are entitled to registration rights pursuant to Section 2.11.
2.12 Material Information. In the event the Company issues to any holder
--------------------
a notice under Section 2.5(f) hereof, each such holder agrees not to sell or
otherwise distribute any Registrable Securities covered by the prospectus in
question until such time as the Company shall have delivered a notice stating
that such prospectus no longer includes an untrue statement of material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements made therein not misleading in the light of the
circumstances then existing or the Company delivers to such holder an amended
prospectus that does not include an untrue statement of material fact or omits
to state a material fact required to be stated therein or necessary to make the
statements made therein not misleading in the light of the circumstances then
existing, provided, that such notice or amended prospectus shall be delivered
--------
within 15 days of the date the notice under Section 2.5(f) is received.
3. Information Rights.
------------------
3.1 Financial Information. The Company will provide each Investor the
---------------------
following reports:
(a) As soon as practicable after the end of each fiscal year, and in
any event within one hundred twenty (120) days thereafter, consolidated balance
sheets of the Company and its subsidiaries (if any) as of the end of such fiscal
year, and consolidated statements of income, stockholders' equity and cash flows
of the Company and its subsidiaries, if any, for such year, prepared in
accordance with generally accepted accounting principles, applied on a
consistent basis, and setting forth in each case in comparative form the figures
for the previous fiscal year, all in reasonable detail and audited by
independent auditors of national standing selected by the Company.
(b) As soon as practicable after the end of each fiscal quarter, and
in any event within forty-five (45) days thereafter, a consolidated balance
sheet of the Company and its subsidiaries, if any, as of the end of each such
period, consolidated statements of income, consolidated statements of changes in
financial condition, a consolidated statement of cash flow of the Company and
its subsidiaries and a statement of stockholders' equity for such period and for
the current fiscal year to date, and setting forth in each case in comparative
form the figures for corresponding periods in the previous fiscal year, and
setting forth in comparative form the budgeted figures, prepared in accordance
with generally accepted accounting principles (other than for accompanying
notes), applied on a consistent basis, subject to changes resulting from normal
year-end audit adjustments, all in reasonable detail and signed by the principal
financial or accounting officer of the Company.
<PAGE>
(c) Such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as the Investor or any
assignee of the Investor may from time to time request, provided, however, that
the Company shall not be obligated to provide information which it deems in good
faith to be confidential proprietary information of the Company.
3.2 Inspection Rights. The Company shall permit each Investor holding not
-----------------
less than 10,000 shares of Registrable Securities, at such Investor'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 such Investor;
provided, however, that the Company shall not be obligated pursuant to this
Section 4.2 to provide access to any information which it reasonably considers
to be a trade secret or similar confidential information.
3.3 Assignment of Rights. The rights granted pursuant to Section 4.1 and
--------------------
4.2 may be assigned or otherwise conveyed by an Investor to a constituent
partner of an Investor or to a transferee. Notwithstanding the foregoing, the
rights granted pursuant to Section 4.1 and 4.2 may not be assigned or otherwise
conveyed to a competitor of the Company, as reasonably determined by the Board
of Directors of the Company excluding any director with an interest in such
transferee. The transferor shall provide the Company with written notice of any
assignment or conveyance of the rights granted pursuant to Section 4.1 and 4.2.
3.4 Termination. The provisions of this Section 4 shall terminate upon
-----------
the closing of a firmly underwritten public offering for any securities of the
Company.
4. Legends
-------
4.1 Legends. Each Investor understands that the share certificates
-------
evidencing any Registrable Securities shall be endorsed with the following
legends (in addition to any legends required under applicable state securities
laws):
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933."
(b) "THE SALE, TRANSFER OR ASSIGNMENT OF THE SECURITIES REPRESENTED
BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY
AND THE REGISTERED HOLDER OR HIS PREDECESSOR IN INTEREST. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF
THIS CERTIFICATE TO THE SECRETARY OF THE COMPANY."
5. Miscellaneous.
-------------
5.1 Governing Law. This Agreement shall be governed in all respects by
-------------
the laws of the State of California as applied to contracts made and to be fully
performed entirely within that state between residents of that state. All
disputes arising out of this Agreement shall be subject to the exclusive
jurisdiction and venue of the California state courts of Orange County,
California, (or, if there is exclusive
<PAGE>
federal jurisdiction, the United States District Court for the Central District
of California) and the parties consent to the personal and exclusive
jurisdiction and venue of these courts.
5.2 Entire Agreement; Amendment. This Agreement constitutes the full and
---------------------------
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof. This Agreement or any term hereof may be amended,
waived, discharged or terminated by a written instrument signed by the Company
and the Investors or transferees of such Investors holding more than fifty
percent (50%) of the Registrable Securities then outstanding.
5.3 Aggregation. For the purposes of determining the number of shares of
-----------
Registrable Securities held by a transferee or assignee, the holdings of
transferees and assignees of a partnership who are partners or retired partners
of such partnership (including spouses and ancestors, lineal descendants and
siblings of such partners or spouses who acquire Registrable Securities by gift,
will or intestate succession) shall be aggregated together and with the
partnership; provided that, all assignees and transferees who would not qualify
individually for assignment of registration rights shall have a single attorney-
in-fact for the purpose of exercising any rights, receiving notices or taking
any action under Sections 2, 3 and 4 of this Agreement.
5.4 Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be deemed given if in writing and mailed by registered
or certified mail, postage prepaid, or otherwise delivered by hand or by
messenger, addressed (a) if to an Investor, at such Investor's address as set
forth on the signature pages attached to this Agreement, or at such other
address as such Investor shall have furnished to the Company in writing, or (b)
if to any other holder of any Registrable Securities, at such address as such
holder shall have furnished the Company in writing, or, until any such holder so
furnishes an address to the Company, then to and at the address of the last
holder of such Registrable Securities who has so furnished an address to the
Company, or (c) if to the Company, at the address of its principal offices and
addressed to the attention of the Corporate Secretary and with a copy to Graham
& James LLP, 400 Capitol Mall, 24th Floor, Sacramento, California 95814,
Attention: Gilles S. Attia, Esq. or at such other address as the Company shall
have furnished to the Investors.
5.5 Severability. In the event that any provision of this Agreement
------------
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
5.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
[SIGNATURES ON FOLLOWING PAGE]
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Investors' Rights
Agreement as of the date set forth above.
"COMPANY" ECOMMERCIAL.COM, INC.,
a Delaware corporation
----------------------------
Tom Blakeley
President
***INVESTORS' RIGHTS AGREEMENT***
<PAGE>
SIGNATURE OF INDIVIDUAL PURCHASERS:
__________________________ ____________________________
Signature Signature (if jointly held)
__________________________ ____________________________
Print Name Print Name
Executed at:
___________________________ Date: ______________________
City, State
SIGNATURE OF PURCHASERS WHO ARE CORPORATIONS, TRUSTS OR PARTNERSHIPS:
____________________________________________________________
Name of entity (please print or type)
____________________________________________________________
Signature(s) of authorized agent, trustee or general partner(s)
____________________________________________________________
Title of authorized agent, trustee or general partner
Executed at:_________________________ Date: __________________
City, State
***INVESTORS' RIGHTS AGREEMENT***
<PAGE>
TAG ALONG AGREEMENT
This TAG ALONG AGREEMENT (this "Agreement") is made as of September __,
1999, by and among Thomas J. Blakeley ("Blakeley"), Eric A. McAfee ("McAfee"),
@Onex LLC, a Delaware limited liability company ("@Onex") and eCommercial.com,
Inc. (the "Corporation"). Each of Blakeley and McAfee and their Permitted
Transferees (as defined below) is hereinafter referred to as a "Founder".
Blakeley owns 2,000,000 shares of common stock, par value $.001 per share,
of the Corporation (including any such shares which may be obtained upon the
exercise of warrants or the conversion of preferred stock, the "Shares") and
McAfee owns 2,036,567 Shares.
It is hereby agreed as follows:
1. Restrictions on Transfer
------------------------
(1) Neither Founder shall, directly or indirectly, sell, assign, pledge,
encumber or otherwise transfer or offer or contract to transfer any Shares which
he owns other than (i) to one another, (ii) pursuant to Section 2 hereof or
(iii) to (A) a successor in interest to such Founder, in the case of a transfer
upon the death of such Founder; (B) such Founder's spouse, parents and
descendants (whether by blood or adoption, and including stepchildren) and the
spouses of such persons; (C) any entity owned or held solely for the benefit of
any of such Founder or (D) any trust created by such Founder for the benefit of
any of the foregoing persons (the "Permitted Transferees"); provided that it
---------------------
shall be a condition to any such permitted transfer that, simultaneously with
the consummation of such transfer, such Permitted Transferee becomes a party to
this Agreement. Any attempted sale, assignment, pledge, encumbrance or other
transfer not permitted by, or effected in accordance with, the terms of this
Agreement shall be null and void and neither the Corporation as the issuer of
such Shares nor any transfer agent shall give any effect to such attempted
transaction. The Corporation shall, prior to registering or directing the
registration of any such attempted transfer by any Founder on the books of the
Corporation, require the provision of evidence satisfactory to the Corporation
that such transfer is permitted by, and has been effected in accordance with,
the terms of this Agreement.
(2) Each Founder and the Corporation hereby agree that, until the
termination of this Agreement, each outstanding certificate
<PAGE>
representing any Shares held by such Founder shall bear a legend reading
substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS AND OBLIGATIONS, INCLUDING RESTRICTIONS ON TRANSFER PURSUANT
TO A TAG ALONG AGREEMENT DATED AS OF SEPTEMBER __, 1999. A COPY OF SUCH
TAG ALONG AGREEMENT MAY BE OBTAINED WITHOUT CHARGE FROM THE SECRETARY OF
THE ISSUER. NO TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
WILL BE MADE ON THE BOOKS OF THE ISSUER UNLESS ACCOMPANIED BY EVIDENCE OF
COMPLIANCE WITH THE TERMS OF SUCH TAG ALONG AGREEMENT.
2. Tag-Along Rights.
----------------
(1) If at any time any Founder proposes to sell any of his Shares (a
"Proposed Transfer"), then such Founder must permit @Onex, or cause @Onex to be
permitted, to sell up to that percentage of its Shares, determined on a fully
diluted basis, as is being sold by such Founder in the Proposed Transfer (a
"Tag-Along Right"), on the terms described below.
(2) In the event of a Proposed Transfer giving rise to a Tag-Along Right,
a Founder shall deliver a written notice (a "Participation Notice") to @Onex at
least thirty (30) days prior to the consummation of such Proposed Transfer
including the percentage of Shares to be sold by such Founder, the price per
Share to be paid in the Proposed Transfer and the other principal terms of the
transaction and the name and address of the prospective buyer. @Onex may elect
to participate in the contemplated transfer by delivering a written notice to
such Founder of its election to participate within twenty (20) days after
delivery of the Participation Notice. Such Founder shall seek to obtain the
agreement of the prospective buyer to the participation of @Onex in the Proposed
Transfer and will not transfer any Shares to the prospective buyer if the
prospective buyer declines to allow the participation of @Onex. If @Onex does
not elect to participate in the Proposed Transfer, it shall be deemed to have
waived all of its rights with respect to such Proposed Transfer, and such
Founder shall thereafter be entitled to effect the Proposed Transfer on the
terms set forth in the Participation Notice for a period of 180 days following
delivery of the Participation Notice, without any obligation to @Onex.
(3) The election of @Onex to participate in the Proposed Transfer shall be
irrevocable, and @Onex shall be bound and obligated to transfer in the Proposed
Transfer on the same terms and conditions as the selling Founder, which
principal terms shall be the same as those set forth in the Participation
Notice; provided, however, that if, at the end of the 120th day following the
-------- -------
date of the Participation Notice, such Founder has not completed the Proposed
Transfer, @Onex shall be released from its obligations under this Section, the
Participation Notice shall be null and void, and it shall be necessary for a
separate Participation Notice to be furnished, and the terms and provisions of
this Section 2 separately complied with, in order to consummate such Proposed
Transfer pursuant
<PAGE>
to this Section 2, unless the failure to complete such sale resulted from any
failure by @Onex to comply with the terms of this Section 2.
(4) If, prior to consummation of a Proposed Transfer in which @Onex has
declined to participate or has elected to include in such Proposed Transfer less
than the maximum percentage of Shares that it is permitted to include, the terms
of the Proposed Transfer shall change with the result that the price per Share
to be paid in such Proposed Transfer shall be greater than the price per Share
set forth in the Participation Notice or the other principal terms of such
Proposed Transfer shall be materially more favorable to @Onex than those set
forth in the Participation Notice, the Participation Notice shall be null and
void, and it shall be necessary for a separate Participation Notice to be
furnished, and the terms and provisions of this Section 2 separately complied
with, in order to consummate such Proposed Transfer pursuant to this Section 2;
provided, however, that in the case of such a separate Participation Notice, the
- -------- -------
applicable period to which reference is made in Section 2(b) shall be five
business days.
(5) The closing of a Proposed Transfer shall take place at such time and
place as the selling Founder shall specify by notice to @Onex. At any such
closing, @Onex, if it has elected to participate, shall deliver certificates
representing the Shares being purchased, duly endorsed in blank or accompanied
by stock powers duly executed in blank, and free and clear of any and all liens,
pledges, mortgages, security interests, encumbrances or charges of any kind,
against delivery of a bank check and/or other consideration representing the
aggregate purchase price therefor.
3. Miscellaneous
-------------
(1) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed in such State, without regard to conflicts of law principles
thereof.
(2) Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of the successors and assigns of the Corporation and @Onex, and the
respective heirs and personal representatives and all other legal
representatives (by operation of law or otherwise) of Blakeley and McAfee.
(3) Notices. All notices, demands, requests or other communications which
-------
may be or are required to be given, served, or sent by any party to any other
party pursuant to this Agreement shall be in writing and shall be mailed by
first-class, registered or certified mail, return receipt requested, postage
prepaid, or
3
<PAGE>
transmitted by hand delivery (including delivery by courier), or facsimile
transmission, addressed as follows:
If to the Corporation:
eCommercial.com, Inc.
95 Enterprise, Suite 360
Aliso Viejo, CA 92656
Attention: Eric McAfee
Facsimile: (949) 916-8713
If to @Onex or any Founder, to its last known address appearing
on the books of the Corporation maintained for such purpose.
(4) Complete Agreement; Modification and Termination. This Agreement
------------------------------------------------
contains a complete statement of all the arrangements among the parties with
respect to its subject matter, supersedes all existing agreements among them
concerning that subject matter and cannot be changed or terminated orally or
without the written consent of all parties hereto.
(5) Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument, and each of the parties hereto may execute this Agreement by signing
any such counterpart.
(6) Further Assurances. From and after the date of this Agreement, upon
------------------
the request of any party, the other parties shall execute and deliver such
instruments, documents and other writings as may be necessary or desirable to
confirm and carry out and to effectuate fully the intent and purposes of this
Agreement.
(7) Term. This Agreement shall terminate, as to any Founder, at such time
----
as such Founder no longer holds any Shares.
(8) Severability. In case any provision in or obligation under this
------------
Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
4
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed on its behalf as of the date first above written.
ECOMMERCIAL.COM, INC.
By: ______________________________
Name:
Title:
@Onex LLC
By: ______________________________
Name:
Title:
_____________________________
Thomas J. Blakeley
_____________________________
Eric A. McAfee
5
<PAGE>
EXHIBIT 4.4
NEITHER THIS SECURITY NOR THE UNDERLYING SECURITIES HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. AS AMENDED (THE "ACT"), OR QUALIFIED UNDER ANY STATE
SECURITIES LAWS, AND NEITHER MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT AND QUALIFIED
UNDER SUCH LAWS OR EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND
THE QUALIFICATION REQUIREMENTS OF SUCH LAWS ARE AVAILABLE FOR SUCH OFFER, SALE,
OR TRANSFER, PLEDGE OR HYPOTHECATION.
"Warrants" Shares
WARRANT
TO PURCHASE SHARES OF COMMON STOCK OF
ECOMMERCIAL.COM, INC.
THIS CERTIFIES that, for value received, "First" "Last", or registered assigns
(a "Registered Holder") is entitled, upon the terms and subject to the
conditions set forth herein, to subscribe for and purchase from eCommercial.com,
Inc., a corporation with a principal office at 95 Enterprise, Suite 360, Aliso
Viejo, California 92656 (the "Company"), "Warrants" shares (the "Warrant
Shares") of the Company's Common Stock (the "Common Stock") at a price equal to
$8.00 per share (the "Exercise Price").
1. Title of Warrant. Prior to the expiration hereof and subject to compliance
----------------
with applicable laws, this warrant (this "Warrant") and all rights
hereunder are transferable, in whole or in part, at the principal office
of the Company specified above, by the Registered Holder in person or by
duly authorized attorney, upon surrender of this Warrant, properly
endorsed, together with an Assignment Form substantially in the form of
Exhibit B attached hereto (the "Assignment Form").
---------
2. Method of Exercise; Payment.
---------------------------
2.1 Cash Exercise. The purchase rights represented by this Warrant may be
-------------
exercised by the Registered Holder, in whole or in part, at any time
during the period commencing on the date hereof and expiring on the date
that is two (2) year after the date hereof (the "Warrant Exercise Term")
by (i) surrender of this Warrant together with a duly executed notice of
exercise form (the "Notice of Exercise") substantially in the form
attached hereto as Exhibit A at the principal office of the Company (or
---------
such other office of the Company as it may designate by notice in writing
to the Registered Holder at the address of such holder appearing on the
books of the Company), and (ii) payment to the Company of an amount equal
to the Exercise Price multiplied by the number of Warrant Shares being
purchased, which amount may be paid, at the option of the Registered
Holder, by bank check payable to the order of the Company or by wire
transfer.
<PAGE>
2.2 Net Issue Exercise.
------------------
(a) In lieu of payment of the Exercise Price by bank check or wire
transfer in accordance with Section 2.1 hereof, the Registered Holder may elect
to pay the Exercise Price by surrendering this Warrant to the Company in
exchange for the number of shares of Common Stock determined in accordance with
the following formula:
X = Y (A-B)
-------
A
Where: X = the number of shares of Common Stock to be issued to
the Registered Holder;
Y = the number of Warrant Shares requested to be exercised
under this Warrant;
A = the fair market value of one share of Common Stock (as
of the date of calculation); and
B = the Exercise Price (as adjusted to the date of such
calculation).
(b) For purposes of the above calculation, current fair market value
of Common Stock shall mean with respect to each share of Common Stock:
(i) If this Warrant is exercised in connection with an initial
public offering of the Common Stock, and if the Company's Registration Statement
relating to such public offering has been declared effective by the Securities
and Exchange Commission (the "Commission"), then the fair market value per share
of Common Stock shall be the "Initial Price to Public" specified in the final
prospectus filed with the Commission with respect to such offering;
(ii) If this Warrant is exercised prior to, and not in
connection with, an initial public offering of Common Stock and if the Common
Stock is not then quoted in the Over-The-Counter Market Summary or on The Nasdaq
Stock Market or traded on an exchange, then the current fair market value of
Common Stock shall be as determined in good faith by the Company's Board of
Directors, unless (a) the Company shall become subject to a merger, acquisition
or other consolidation pursuant to which the Company is not the surviving party,
or (b) the Company shall become subject to a merger, acquisition or other
consolidation pursuant to which the Company shall be the surviving party and in
which all or substantially all of the outstanding shares of Common Stock shall
be changed into or exchanged for stock or other securities of any other party or
cash or any other property, in which case the fair market value per share of
Common Stock shall be deemed to be the value received by the holders of Common
Stock pursuant to such merger, acquisition or consolidation; and
(iii) If this Warrant is exercised not in connection with an
initial public offering of Common Stock and the Common Stock quoted in the
Over-The-Counter Market Summary or on The Nasdaq Stock Market or traded on an
exchange, then the current fair market value of the Common Stock shall be the
weighted average of the closing bid and asked prices of the Common Stock quoted
in the Over-The-Counter Market Summary or on The Nasdaq Stock Market or the
closing price quoted on the exchange on which the Common Stock is traded, as the
case may be, as published in the Wall Street Journal for the ten (10) trading
-------------------
day period ending one day prior to the date of determination of such fair
market value.
2
<PAGE>
2.3 Record Date. If the Registered Holder shall be entitled to exercise
-----------
this Warrant on the date that this Warrant is surrendered to the Company for
exercise in accordance with the terms hereof, the Warrant Shares so purchased
shall be deemed to have been issued to the Registered Holder and the Registered
Holder shall be deemed to have been the record owner of such shares as of the
close of business on the date of such surrender.
2.4 Stock Certificates. Within a reasonable time after the exercise of
------------------
this Warrant in accordance with the terms hereof, certificates for the Warrant
Shares so purchased shall be delivered to the Registered Holder and, unless this
Warrant has been fully exercised or has expired, a new Warrant representing the
Warrant Shares with respect to which this Warrant shall not have been exercised
shall also be issued to the Registered Holder. The Company covenants that all
shares of stock which may be issued upon the exercise of this Warrant will be
duly authorized, validly issued, fully paid and nonassessable, and will be free
from all taxes, liens and charges with respect to the issue thereof (other than
taxes with respect to any transfer occurring contemporaneously with such issue).
3. No Fractional Shares or Scrip. No fractional shares or scrip
-----------------------------
representing fractional shares shall be issued upon the exercise of this
Warrant.
4. Charges, Taxes and Expenses. The Company shall pay all charges, taxes
---------------------------
and other expenses in connection with the issuance of certificates representing
the Warrant Shares purchased by the Registered Holder upon the exercise of this
Warrant, and such certificates shall be issued in the name of the Registered
Holder or in such name or names as may be directed by the Registered Holder;
provided, however, that in the event that certificates for Warrant Shares are
- -------- -------
directed by the Registered Holder to be issued in a name other than that of the
Registered Holder, this Warrant shall be accompanied by a duly executed
Assignment Form when surrendered for exercise.
5. No Rights as Shareholders. This Warrant does not entitle the
-------------------------
Registered Holder hereof to any voting rights or other rights as a shareholder
of the Company prior to the exercise hereof.
6. Exchange and Registry of Warrant. This Warrant is exchangeable, upon
--------------------------------
the surrender hereof by the Registered Holder at the principal office of the
Company specified above, for a new Warrant of like tenor to be dated as of the
date of such exchange. The Company shall maintain at its principal office a
registry showing the name and address of the Registered Holder. This Warrant may
be surrendered for exchange, transfer or exercise, in accordance with its terms,
at such office of the Company, and, the Company shall be entitled to rely in all
respects, prior to written notice to the contrary, upon such registry.
7. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by the
-------------------------------------------------
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, the Company will make and deliver to
the Registered Holder a replacement warrant with terms that are substantially
the same as those contained herein provided that (i) in the event of loss, theft
or destruction of this Warrant, the Company receives indemnity or security
reasonably satisfactory to the Company, (ii) in the event of mutilation of this
Warrant, the Company receives this Warrant for cancellation, and (iii) in any
event the Company receives reimbursement of all reasonable expenses incurred in
connection with the issuance of a replacement warrant.
8. Saturdays, Sundays, Holidays. etc. If the last or appointed day for
---------------------------------
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a Saturday,
Sunday or legal holiday.
3
<PAGE>
9. Adjustment. The number of shares for which this Warrant is exercisable,
----------
the Exercise Price and the time period for exercise are subject to adjustment
from time to time as follows:
9.1 Antidilution. Subject and pursuant to the provisions of this Section
------------
9.1, the Exercise Price and number of shares of Common Stock subject to this
Warrant shall be subject to adjustment from time to time as set forth
hereinafter:
(a) In the event that the Company shall sell or issue either any
shares of its Common Stock or any rights, options, warrants or obligations or
securities containing the right to subscribe for or purchase any shares of
Common Stock ("Options") or exchangeable for or convertible into shares of
Common Stock ("Convertible Securities"), at a price per share, as determined
pursuant to Section 9.1(b), less than the Exercise Price then in effect on the
date of such sale or issuance, then the number of shares of Common Stock
purchasable upon exercise of this Warrant shall be determined by multiplying the
number of shares of Common Stock theretofore purchasable upon exercise of this
Warrant by a fraction (A) the numerator of which shall be the number of shares
of Common Stock outstanding on the date of sale or issuance of such shares of
Common Stock, Options or Convertible Shares immediately following such sale or
issuance, and (B) the denominator of which shall be the number of shares of
Common Stock outstanding on the date prior to the date of sale or issuance of
such shares of Common Stock, Options or Convertible Shares, plus the number of
shares of Common Stock which the aggregate consideration received by the Company
upon such issuance would purchase on such date at the per share Exercise Price
then in effect.
(b) The following provisions, in addition to other provisions in this
Section 9.1, shall be applicable in determining any adjustment under
Section 9.1(a):
(i) In the event of the issuance or sale of shares of Common
Stock, part or all of the consideration for which shall be cash, the cash
consideration received by the Company therefor shall be deemed to be the amount
of gross cash proceeds of such sale of shares without deducting therefrom any
compensation paid or discount allowed in the sale, underwriting or purchase
thereof by underwriters or dealers or others performing similar services or any
expenses incurred in connection therewith.
(ii) In the event of the issuance or sale of shares of Common
Stock, wholly or partly for a consideration other than cash, the amount of the
consideration other than cash received by the Company for such shares shall be
deemed to be the value of such consideration as determined by a resolution
adopted by the Board of Directors of the Company acting in good faith,
irrespective of any accounting treatment thereof. Any such good faith
determination shall be final and binding upon the Registered Holder. In the
event of the issuance or sale of shares of Common Stock (other than upon
conversion or exchange) together with other stock or securities or other assets
of the Company for a consideration which is received for both such shares of
Common Stock and other securities or assets, the Board of Directors of the
Company acting in good faith shall determine what part of the consideration so
received is to be deemed to be the consideration for the issuance of such shares
of Common Stock, irrespective of any accounting treatment thereof. Any such good
faith determination shall be final and binding upon the Registered Holder.
(iii) In the event that at any time the Company shall declare a
dividend or make any other distribution upon any stock of the Company payable in
shares of Common Stock, then such shares of Common Stock issuable in payment of
such dividend or distribution shall be deemed to have been issued or sold
without consideration, and no adjustment shall be made in connection with such
distribution.
4
<PAGE>
(iv) The price per share of any shares of Common Stock sold or
issued by the Company (other than pursuant to Options or Convertible Securities)
shall be equal to a price calculated by dividing (A) the amount of the
consideration received by the Company, as determined pursuant to Sections
9.1(b)(i) and 9.1(b)(ii), upon such sale or issuance by (B) the number of shares
of Common Stock sold or issued.
(v) In the event that the Company shall at any time after the
date hereof issue any Options or Convertible Securities, the following
provisions shall apply in making any adjustment pursuant to this Section 9.1:
(1) The price per share for which shares of Common Stock
are issuable upon the exercise of the Options or upon conversion or exchange of
the Convertible Securities shall be determined by dividing (i) the total amount,
if any, received or receivable by the Company as consideration for the issuance
of such Options or Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the exercise of
such Options or the conversion or exchange of such Convertible Securities, by
(ii) the aggregate maximum number of shares of Common Stock issuable upon the
exercise of such Option or upon the conversion or exchange of such Convertible
Securities.
(2) In determining the price per share for which shares of
Common Stock are issuable upon exercise of the Option or conversion or exchange
of the Convertible Securities and in computing any adjustment pursuant to
Section 9.1(a) (i) the aggregate maximum number of shares of Common Stock
issuable upon the exercise of such Options or Convertible Securities shall be
considered to be outstanding at the time such Options or Convertible Securities
were issued and to have been issued for such price per share as determined
pursuant to Section 9.1(b)(v)(1), and (ii) the consideration for the issuance of
such Options or Convertible Securities and the amount of additional
consideration payable to the Company upon exercise of such Options or upon the
conversion or exchange of such Convertible Securities shall be determined in the
same manner as the consideration received upon the issuance of sale of shares of
Common Stock as provided in Sections 9.1(b)(i) and 9.1(b)(ii).
(3) On the expiration of such Options or the termination
of any right to convert or exchange any Convertible Securities, the number of
shares of Common Stock subject to this Warrant shall forthwith be readjusted to
such number of shares of Common Stock as would have been obtained had the
adjustments made upon the issuance of such Options or Convertible Securities
been made upon the basis of the delivery of only the number of shares of Common
Stock actually delivered upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities.
(4) If the minimum purchase price per share of Common
Stock provided for in any Option or the rate at which any Convertible Securities
are convertible into or exchangeable for shares of Common Stock shall change or
a different purchase price or rate shall become effective at any time or from
time to time (other than pursuant to any antidilution provisions of such Options
or Convertible Securities) then upon such change becoming effective, the number
of shares of Common Stock subject to this Warrant shall forthwith be readjusted
to such number of shares as would have been obtained had the adjustments made
upon the granting or issuance of such Options or Convertible Securities been
made upon the basis of (i) the issuance of the number of shares of Common Stock
theretofore actually delivered upon the exercise of such Options or upon the
conversion or exchange of such Convertible Securities, and the total
consideration received therefor, and (ii) the granting or issuance at the time
of such change of any such Options or Convertible Securities then still
outstanding or the consideration, if any, received by the Company therefor and
to be received on the basis of such changed price or rate of exchange or
conversion.
5
<PAGE>
(5) Except as otherwise specifically provided herein, the
date of issuance or sale of shares of Common Stock, any Option or any
Convertible Security shall be deemed to be the date the Company is legally
obligated to issue such shares of Common Stock or such Option or Convertible
Security.
(6) Anything hereinabove to the contrary notwithstanding,
no adjustment shall be made pursuant to Section 9.1(a) to the Exercise Price, or
to the number of shares of Common Stock purchasable upon the exercise of the
Warrant upon:
a. The issuance or sale by the Company of (1) any
shares of Common Stock pursuant to this Warrant or any other warrant or warrants
to be issued to the Registered Holder, (2) any Options granted pursuant to the
Company's 1999 Stock Option Plan.
b. The issuance or sale of shares of Common Stock
pursuant to the exercise of Options or conversion or exchange of Convertible
Securities hereinafter issued for which an adjustment has been made (or was not
required to be made) pursuant to the provisions of this Section 9.1.
c. The increase in the number of shares of Common
Stock subject to any Option or Convertible Securities referred to in this
Section 9.1(b)(v)(6) pursuant to the provisions of such Options or Convertible
Securities designed to protect against dilution.
(c) No adjustment in the number of shares of Common Stock subject
to this Warrant shall be required under this Section 9.1 unless such adjustment
would require an increase or decrease in such number of shares of at least 2% of
the then adjusted number of shares of Common Stock issuable upon exercise of
this Warrant; provided, however, that any adjustments which by reason of the
-------- -------
foregoing are not required at the time to be made shall be carried forward and
taken into account and included in determining the amount of any subsequent
adjustment.
(d) Whenever the number of shares of Common Stock purchasable upon
the exercise of this Warrant is adjusted as provided in this Section 9.1, the
Exercise Price shall be adjusted (to the nearest cent) by multiplying the
Exercise Price immediately prior to such adjustment by a fraction (x) the
numerator of which shall be the number of shares of Common Stock purchasable
upon the exercise of the Warrant immediately prior to such adjustment, and (y)
the denominator of which shall be the number of shares of Common Stock so
purchasable immediately thereafter.
(e) If the Company after the date hereof shall take any action
affecting the shares of its Common Stock, other than actions described in this
Section 9, which, in the opinion of the Board of Directors of the Company, would
materially affect the rights of the Registered Holder, the Exercise Price and
the number of shares of Common Stock obtainable upon exercise of such Warrant
shall be adjusted in such manner, if any, and at such time as the Board of
Directors of the Company, in good faith, may determine to be equitable under the
circumstances. The minutes or unanimous consent approving such action shall set
forth the Board's determination as to whether an adjustment is warranted and the
manner of such adjustment. In the absence of such determination, Holder may
request in writing that the Board make such determination. Any such
determination made in good faith by the Board shall be final and binding upon
the Holder. If the Board fails, however, to make such determination within sixty
(60) days after such request, such failure shall be deemed a determination that
no such adjustment is required.
9.2 Merger, Sale of Assets, etc. If at any time there shall be a capital
---------------------------
reorganization of the Common Stock (other than a subdivision, combination,
payment of dividend, reclassification or exchange of Common Stock provided for
below) or a merger or consolidation of the Company with or into another
6
<PAGE>
corporation, or the sale of the Company's properties and assets as, or
substantially as, an entirety to any other person, then, as a part of such
reorganization, merger, consolidation or sale, lawful provision shall be made so
that the Registered Holder of this Warrant shall thereafter be entitled to
receive upon exercise of this Warrant, during the period specified in this
Warrant and upon payment of the Exercise Price then in effect, the number of
shares of Common Stock or other securities or property of the Company or of any
other entity to which a holder of the Common Stock issuable upon exercise of
this Warrant would have been entitled in such capital reorganization, merger, or
consolidation or sale if this Warrant had been exercised immediately before that
capital reorganization, merger, consolidation, or sale. In any such case,
appropriate adjustment (as determined in good faith by the Company's Board of
Directors) shall be made in the application of the provisions of this Warrant
with respect to the rights and interest of the Registered Holder of this Warrant
after the reorganization, merger, consolidation or sale such that the provisions
of this Warrant (including adjustment of the Exercise Price then in effect and
number and kind of securities purchasable upon exercise of this Warrant) shall
be applicable after that event in relation to any securities purchasable after
that event upon exercise of this Warrant.
9.3 Reclassification, etc. If the Company at any time shall, by
---------------------
subdivision, combination or reclassification of securities or otherwise, change
any of the securities to which purchase rights under this Warrant exist into the
same or a different number of securities of any class or classes, this Warrant
shall thereafter be deemed to represent the right to acquire such number and
kind of securities as would have been issuable as the result of such change with
respect to the securities which were subject to the purchase rights under this
Warrant immediately prior to such subdivision, combination, reclassification or
other change and the Exercise Price shall be proportionately adjusted.
9.4 Certificate as to Adjustment. In each case of any adjustment in either
----------------------------
the Exercise Price or in the number of shares of Common Stock, or other stock,
securities or property receivable on the exercise of this Warrant, the Chief
Financial Officer of the Company shall compute such adjustment in accordance
with the terms of this Warrant and shall prepare a certificate setting forth
such adjustment and showing in detail the facts upon which such adjustment is
based, including a statement of the adjusted Exercise Price. The Company will
cause copies of such certificate to be mailed (by first class mail, postage
prepaid) to the Registered Holder.
10. Restrictions on Transfer. This Warrant and the securities issuable
------------------------
upon exercise of this Warrant have not been registered under the Act or under
the securities laws any states. These securities are subject to restrictions on
transferability and resale and may not be transferred or resold except as
permitted under the Act and the applicable state securities laws, pursuant to
registration or exemption therefrom, investors should be aware that they may be
required to bear the financial risks of this investment for an indefinite period
of time. As a condition to the issuance of this Warrant and to its exercise, the
Registered Holder hereby represents and warrants to the Company that:
10.1 The Warrant and, if applicable, the shares of Common Stock issuable
upon exercise hereof (collectively, the "Securities") have been acquired by
----------
the Registered Holder for investment and not with a view to the sale or other
distribution thereof or within the meaning of the Act, and the Registered
Holder has present intention of selling or otherwise disposing all or any
portion of the Securities.
10.2 The Registered Holder has acquired the Securities for the Registered
Holder's own account.
10.3 The Registered Holder is capable of evaluating the merits and risks
of any investment in the Securities, is financially capable of bearing a total
loss of this investment and has either: (i) a preexisting personal or business
relationship with the Company or its principals, or (ii) by reason of the
7
<PAGE>
Registered Holder's business or financial experience, has the capacity to
protect his, her or its own interests in connection with this investment.
10.4 The Registered Holder has had access to all information regarding the
Company, its present and prospective business, assets, liabilities and financial
condition that the Registered Holder considers important to making the decision
to acquire the Securities and has had ample opportunity to ask questions of and
receive answers from the Company's representatives concerning an investment in
the Securities and to obtain any and all documents requested in order to
supplement or verify any of the information supplied.
10.5 The Registered Holder understands that the Securities shall be deemed
restricted securities under the Act and may not be resold unless they are
registered under the Act and qualified under any applicable state securities
laws unless an exemption from such registration and qualification is available.
10.6 The Registered Holder is familiar with the contents of Rule 144
promulgated under the Act ("Rule 144") which provides, in substance, that:
--------
(i) after the expiration of one year from the date restricted securities have
been purchased and fully paid for, a holder may transfer such restricted
securities provided certain public information, volume, manner of sale and
notice requirements are complied with; and (ii) after the expiration of two
years from the date restricted securities have been purchased and fully paid
for, holders who are not "affiliates" of the Company may sell such restricted
securities without satisfying such conditions.
10.7 The Registered Holder further understands that if the requirements of
Rule 144 are not met, registration under the Act, compliance with Regulation A
promulgated under the Act, or some other registration exemption will be required
for any disposition of the Securities; and that, although Rule 144 is not
exclusive, the Commission has expressed its opinion that persons proposing to
sell restricted securities other than in a registered offering or other than
pursuant to Rule 144 will have a substantial burden of proof in establishing
that an exemption from registration is available for such offers or sales and
such persons and the brokers who participate in the transactions do so at their
own risk.
11. Miscellaneous.
-------------
11.1 Issue Date. The provisions of this Warrant shall be construed and
----------
shall be given effect in all respect as if it had been issued and delivered by
the Company on the date hereof.
11.2 Authorized Shares. The Company covenants that during the period the
-----------------
Warrant is exercisable, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of Common Stock
upon the exercise of any purchase rights under this Warrant, including taking
all actions necessary to increase the authorized number of shares of Common
Stock by a sufficient number of shares. The Company further covenants 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 the Company's Common Stock upon the
exercise of the purchase rights under this Warrant.
11.3 No Impairment. The Company will not, by amendment of its
-------------
Certificate of Incorporation 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 action as may be necessary or appropriate in order to
protect the rights of the Registered Holder hereof against impairment.
8
<PAGE>
11.4 Notices of Record Date. In the event of:
----------------------
(a) the Company shall take a record of the holders of its Common
Stock for the purposes of entitling them to receive any dividend (other than a
cash dividend) or other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares or stock of any class or any other securities or
property, or to receive any other right; or
(b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, or any conveyance of all
or substantially all of the assets of the Company to another corporation; or
(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder a notice specifying, as the case may be, (i) the date on which
a record is to be taken for the purpose of such dividend, distribution or right,
and stating the amount and character of such dividend, distribution or right, or
(ii) the date on which such reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation or winding-up is to take place, and
the time, if any is to be fixed, as of which the holders of record of Common
Stock shall be entitled to exchange their shares of Common Stock for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding-up. Such
notice shall be mailed at least thirty (30) days prior to the date therein
specified.
12. Attorneys' Fees. In the event any party is required to engage the
---------------
services of attorneys for the purpose of enforcing this Warrant, or any
provision thereof, the prevailing party shall be entitled to recover its
reasonable attorneys' fees and any other related costs and expenses.
13. Headings. The headings in this Warrant are for purposes of
--------
convenience only, and shall not be deemed to constitute a part hereof.
14. Governing Law. This Warrant shall constitute a contract under the
-------------
laws of the State of Delaware and shall be construed and enforced in accordance
with, and governed by, the internal laws of the State of Delaware, excluding
that body of law applicable to conflicts of laws.
15. Terms Binding. This Warrant shall be binding upon any successors or
-------------
assigns of the Company. By acceptance of this Warrant, the Registered Holder
(and each subsequent assignee, transferee or Registered Holder) accepts and
agrees to be bound by all the terms and conditions of this Warrant.
[SIGNATURE ON FOLLOWING PAGE]
9
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officer thereunto duly authorized.
Dated: ___________ ___, 1999
ECOMMERCIAL.COM, INC.
By:_________________________
Name:_______________________
Its:________________________
10
<PAGE>
EXHIBIT A
---------
NOTICE OF EXERCISE
------------------
TO: ECOMMERCIAL.COM, INC.
1. The undersigned hereby elects to purchase _______________________
shares of Common Stock of eCommercial.com, Inc. pursuant to the terms of this
warrant, and tenders herewith payment of the purchase price of such shares in
full.
2. Payment of the purchase price shall be by (please mark the appropriate
method):
_________ Bank Check
_________ Wire Transfer
_________ Net Exercise
3. Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
___________________________________
(Name)
___________________________________
(Address)
___________________________________
(Address)
4. The undersigned hereby represents and warrants that the aforesaid
shares of Common Stock are being acquired for the account of the undersigned for
investment and not with a view to the distribution thereof, and that the
undersigned has no present intention of distributing or reselling such shares
without registration under the Act or an exemption therefrom.
Date:
___________________________ ________________________________________
(Signature)
11
<PAGE>
EXHIBIT B
---------
ASSIGNMENT FORM
---------------
(To assign the warrant to which this Assignment Form is attached,
complete and execute this form. Do not use this form to
purchase shares upon exercise of the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to
________________________________________________________________________________
(Please Print)
whose address is
________________________________________________________________
(Please Print)
Dated: ______________________, _____.
Holder's Signature: _____________________
Holder's Address: _____________________
_____________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant to which this Assignment Form is attached,
without alteration or enlargement or any change whatsoever. Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
12
<PAGE>
NEITHER THIS SECURITY NOR THE UNDERLYING SECURITIES HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACZachary RobertsFinancial Printing
GroupNEITHER THIS SECURITY NOR THE UNDERLYING SECURITIES HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR QUALIFIED UNDER ANY
STATE SECURITIES LAWS, AND NEITHER MAY BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT
AND QUALIFIED UNDER SUCH LAWS OR EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS
OF THE ACT AND THE QUALIFICATION REQUIREMENTS OF SUCH LAWS ARE AVAILABLE FOR
SUCH OFFER, SALE, OR TRANSFER, PLEDGE OR HYPOTHECATION.
250,000 Shares
WARRANT
TO PURCHASE SHARES OF COMMON STOCK OF
ECOMMERCIAL.COM, INC.
THIS CERTIFIES that, for value received, @Onex LLC, or registered assigns (a
"Registered Holder") is entitled, upon the terms and subject to the conditions
set forth herein, to subscribe for and purchase from eCommercial.com, Inc., a
corporation with a principal office at 95 Enterprise, Suite 360, Aliso Viejo,
California 92656 (the "Company"), 250,000 shares (the "Warrant Shares") of the
Company's Common Stock (the "Common Stock") at a price equal to $7.00 per share
(the "Exercise Price").
1. Title of Warrant. Prior to the expiration hereof and subject to
----------------
compliance with applicable laws, this warrant (this "Warrant") and all rights
hereunder are transferable, in whole or in part, at the principal office of the
Company specified above, by the Registered Holder in person or by duly
authorized attorney, upon surrender of this Warrant, properly endorsed, together
with an Assignment Form substantially in the form of Exhibit B attached hereto
(the "Assignment Form").
2. Method of Exercise; Payment.
---------------------------
2.1 Cash Exercise. The purchase rights represented by this Warrant
-------------
compliance may be may be exercised by the Registered Holder, in whole or in
part, at any time during the period commencing on the date hereof and expiring
on the date that is five (5) years after the date hereof (the "Warrant Exercise
Term") by (i) surrender of this Warrant together with a duly executed notice of
exercise form (the "Notice of Exercise") substantially in the form attached
hereto as Exhibit A at the principal office of the Company (or such other office
---------
of the Company as it may designate by notice in writing to the Registered Holder
at the address of such holder appearing on the books of the Company), and (ii)
payment to the Company of an amount equal to the Exercise Price multiplied by
the number of Warrant Shares being purchased, which amount may be paid, at the
option of the Registered Holder, by bank check payable to the order of the
Company or by wire transfer.
<PAGE>
2.2 Net Issue Exercise.
------------------
(1) In lieu of payment of the Exercise Price by bank check or wire
transfer in accordance with Section 2.1 hereof, the Registered Holder may elect
to pay the Exercise Price by surrendering this Warrant to the Company in
exchange for the number of shares of Common Stock determined in accordance with
the following formula:
X = Y (A-B)
-------
A
Where: X = the number of shares of Common Stock to be issued to the
Registered Holder;
Y = the number of Warrant Shares requested to be exercised under
this Warrant;
A = the fair market value of one share of Common Stock (as of the
date of calculation); and
B = the Exercise Price (as adjusted to the date of such
calculation).
(2) For purposes of the above calculation, current fair market value of
Common Stock shall mean with respect to each share of Common Stock:
(1) If this Warrant is exercised in connection with an initial public
offering of the Common Stock, and if the Company's Registration Statement
relating to such public offering has been declared effective by the Securities
and Exchange Commission (the "Commission"), then the fair market value per share
of Common Stock shall be the "Initial Price to Public" specified in the final
prospectus filed with the Commission with respect to such offering;
(2) If this Warrant is exercised prior to, and not in connection
with, an initial public offering of Common Stock and if the Common Stock is not
then quoted in the Over-The-Counter Market Summary or on The Nasdaq Stock Market
or traded on an exchange, then the current fair market value of Common Stock
shall be as determined in good faith by the Company's Board of Directors, unless
(a) the Company shall become subject to a merger, acquisition or other
consolidation pursuant to which the Company is not the surviving party, or (b)
the Company shall become subject to a merger, acquisition or other consolidation
pursuant to which the Company shall be the surviving party and in which all or
substantially all of the outstanding shares of Common Stock shall be changed
into or exchanged for stock or other securities of any other party or cash or
any other property, in which case the fair market value per share of Common
Stock shall be deemed to be the value per share of Common Stock received by the
holders of Common Stock pursuant to such merger, acquisition or consolidation;
and
2
<PAGE>
(3) If this Warrant is exercised not in connection with an initial
public offering of Common Stock and the Common Stock is quoted in the Over-The-
Counter Market Summary or on The Nasdaq Stock Market or traded on an exchange,
then the current fair market value of the Common Stock shall be the weighted
average of the closing bid and asked prices of the Common Stock quoted in the
Over-The-Counter Market Summary or on The Nasdaq Stock Market or the closing
price quoted on the exchange on which the Common Stock is traded, as the case
may be, as published in the Wall Street Journal for the ten (10) trading day
-------------------
period ending one day prior to the date of determination of such fair market
value.
2.3 Record Date. If the Registered Holder shall be entitled to exercise
-----------
this Warrant on the date that this Warrant is surrendered to the Company for
exercise in accordance with the terms hereof, the Warrant Shares so purchased
shall be deemed to have been issued to the Registered Holder and the Registered
Holder shall be deemed to have been the record owner of such shares as of the
close of business on the date of such surrender.
2.4 Stock Certificates. Within a reasonable time after the exercise of
------------------
this Warrant in accordance with the terms hereof, certificates for the Warrant
Shares so purchased shall be delivered to the Registered Holder and, unless this
Warrant has been fully exercised or has expired, a new Warrant representing the
Warrant Shares with respect to which this Warrant shall not have been exercised
shall also be issued to the Registered Holder. The Company covenants that all
shares of stock which may be issued upon the exercise of this Warrant will be
duly authorized, validly issued, fully paid and nonassessable, and will be free
from all taxes, liens and charges with respect to the issue thereof (other than
taxes with respect to any transfer occurring contemporaneously with such issue).
3. No Fractional Shares or Scrip. No fractional shares or scrip
-----------------------------
representing fractional shares shall be issued upon the exercise of this
Warrant. Fractional amounts resulting from a net issue exercise under Section
2.2 hereof shall be rounded to the nearest whole share.
4. Charges, Taxes and Expenses. The Company shall pay all charges, taxes
---------------------------
and other expenses in connection with the issuance of certificates representing
the Warrant Shares purchased by the Registered Holder upon the exercise of this
Warrant, and such certificates shall be issued in the name of the Registered
Holder or in such name or names as may be directed by the Registered Holder;
provided, however, that in the event that certificates for Warrant Shares are
- -------- -------
directed by the Registered Holder to be issued in a name other than that of the
Registered Holder, this Warrant shall be accompanied by a duly executed
Assignment Form when surrendered for exercise.
5. No Rights as Shareholders; Limitation of Liability. This Warrant does
--------------------------------------------------
not entitle the Registered Holder hereof to any voting rights or other rights as
a shareholder of the Company prior to the exercise hereof. No provision hereof,
in the absence of affirmative action by the Registered Holder to purchase shares
of Common Stock, and no enumeration herein of the rights or privileges of the
Registered Holder hereof, shall give rise to any liability of the Registered
Holder for the purchase price of any Common Stock or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
3
<PAGE>
6. Exchange and Registry of Warrant. This Warrant is exchangeable, upon
--------------------------------
the surrender hereof by the Registered Holder at the principal office of the
Company specified above, for a new Warrant of like tenor to be dated as of the
date of such exchange. The Company shall maintain at its principal office a
registry showing the name and address of the Registered Holder. This Warrant may
be surrendered for exchange, transfer or exercise, in accordance with its terms,
at such office of the Company, and, the Company shall be entitled to rely in all
respects, prior to written notice to the contrary, upon such registry.
7. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by the
-------------------------------------------------
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, the Company will make and deliver to
the Registered Holder a replacement warrant with terms that are substantially
the same as those contained herein provided that (i) in the event of loss, theft
or destruction of this Warrant, the Company receives indemnity or security
reasonably satisfactory to the Company, (ii) in the event of mutilation of this
Warrant, the Company receives this Warrant for cancellation, and (iii) in any
event the Company receives reimbursement of all reasonable expenses incurred in
connection with the issuance of a replacement warrant.
8. Saturdays, Sundays, Holidays. etc. If the last or appointed day for
---------------------------------
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a Saturday,
Sunday or legal holiday.
9. Adjustment. The number of shares for which this Warrant is
----------
exercisable, the Exercise Price and the time period for exercise are subject to
adjustment from time to time as follows:
9.1 Antidilution. Subject and pursuant to the provisions of this
------------
Section 9.1, the Exercise Price and number of shares of Common Stock subject to
this Warrant shall be subject to adjustment from time to time as set forth
hereinafter:
(1) In the event that the Company shall sell or issue either any
shares of its Common Stock or any rights, options, warrants or obligations or
securities containing the right to subscribe for or purchase any shares of
Common Stock ("Options") or exchangeable for or convertible into shares of
Common Stock ("Convertible Securities"), at a price per share, as determined
pursuant to Section 9.1(b), less than the Exercise Price then in effect on the
date of such sale or issuance, then the number of shares of Common Stock
purchasable upon exercise of this Warrant shall be determined by multiplying the
number of shares of Common Stock theretofore purchasable upon exercise of this
Warrant by a fraction (A) the numerator of which shall be the number of shares
of Common Stock outstanding on the date of sale or issuance of such shares of
Common Stock, Options or Convertible Shares immediately following such sale or
issuance, and (B) the denominator of which shall be the number of shares of
Common Stock outstanding on the date prior to the date of sale or issuance of
such shares of Common Stock, Options or Convertible Shares, plus the number of
shares of Common Stock which the aggregate
4
<PAGE>
consideration received by the Company upon such issuance would purchase on such
date at the per share Exercise Price then in effect.
(2) The following provisions, in addition to other provisions in this
Section 9.1, shall be applicable in determining any adjustment under Section
9.1(a):
(1) In the event of the issuance or sale of shares of Common
Stock, part or all of the consideration for which shall be cash, the cash
consideration received by the Company therefor shall be deemed to be the amount
of gross cash proceeds of such sale of shares without deducting therefrom any
compensation paid or discount allowed in the sale, underwriting or purchase
thereof by underwriters or dealers or others performing similar services or any
expenses incurred in connection therewith.
(2) In the event of the issuance or sale of shares of Common
Stock, wholly or partly for a consideration other than cash, the amount of the
consideration other than cash received by the Company for such shares shall be
deemed to be the value of such consideration as determined by the Board of
Directors of the Company acting in good faith, irrespective of any accounting
treatment thereof. In the event of the issuance or sale of shares of Common
Stock (other than upon conversion or exchange) together with other stock or
securities or other assets of the Company for a consideration which is received
for both such shares of Common Stock and other securities or assets, the Board
of Directors of the Company acting in good faith shall determine what part of
the consideration so received is to be deemed to be the consideration for the
issuance of such shares of Common Stock, irrespective of any accounting
treatment thereof. Any determination by the Board of Directors pursuant to this
Section 9.1(b)(ii) may be challenged in good faith by the Registered Holder, and
any dispute shall be resolved by an investment banking firm of nationally
recognized standing selected by the Company and acceptable to the Registered
Holder.
(3) The price per share of any shares of Common Stock sold or
issued by the Company (other than pursuant to Options or Convertible Securities)
shall be equal to a price calculated by dividing (A) the amount of the
consideration received by the Company, as determined pursuant to Sections
9.1(b)(i) and 9.1(b)(ii), upon such sale or issuance by (B) the number of shares
of Common Stock sold or issued.
(4) In the event that the Company shall at any time after the
date hereof issue any Options or Convertible Securities, the following
provisions shall apply in making any adjustment pursuant to this Section 9.1:
(1) The price per share for which shares of Common Stock
are issuable upon the exercise of the Options or upon conversion or exchange of
the Convertible Securities shall be determined by dividing (i) the total amount,
if any, received or receivable by the Company as consideration for the issuance
of such Options or Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the exercise of
such Options or the conversion or exchange of such Convertible Securities, by
5
<PAGE>
(ii) the aggregate maximum number of shares of Common Stock issuable upon the
exercise of such Option or upon the conversion or exchange of such Convertible
Securities.
(2) In determining the price per share for which shares of Common
Stock are issuable upon exercise of the Option or conversion or exchange of the
Convertible Securities and in computing any adjustment pursuant to Section
9.1(a) (i) the aggregate maximum number of shares of Common Stock issuable upon
the exercise of such Options or Convertible Securities shall be considered to be
outstanding at the time such Options or Convertible Securities were issued and
to have been issued for such price per share as determined pursuant to Section
9.1(b)(iv)(1), and (ii) the consideration for the issuance of such Options or
Convertible Securities and the amount of additional consideration payable to the
Company upon exercise of such Options or upon the conversion or exchange of such
Convertible Securities shall be determined in the same manner as the
consideration received upon the issuance of sale of shares of Common Stock as
provided in Sections 9.1(b)(i) and 9.1(b)(ii).
(3) On the expiration of such Options or the termination of any right
to convert or exchange any Convertible Securities, the number of shares of
Common Stock subject to this Warrant shall forthwith be readjusted to such
number of shares of Common Stock as would have been obtained had the adjustments
made upon the issuance of such Options or Convertible Securities been made upon
the basis of the delivery of only the number of shares of Common Stock actually
delivered upon the exercise of such Options or upon conversion or exchange of
such Convertible Securities.
(4) If the minimum purchase price per share of Common Stock provided
for in any Option or the rate at which any Convertible Securities are
convertible into or exchangeable for shares of Common Stock shall change or a
different purchase price or rate shall become effective at any time or from time
to time then upon such change becoming effective, the number of shares of Common
Stock subject to this Warrant shall forthwith be readjusted to such number of
shares as would have been obtained had the adjustments made upon the granting or
issuance of such Options or Convertible Securities been made upon the basis of
(i) the issuance of the number of shares of Common Stock theretofore actually
delivered upon the exercise of such Options or upon the conversion or exchange
of such Convertible Securities, and the total consideration received therefor,
and (ii) the granting or issuance at the time of such change of any such Options
or Convertible Securities then still outstanding or the consideration, if any,
received by the Company therefor and to be received on the basis of such changed
price or rate of exchange or conversion.
(5) Except as otherwise specifically provided herein, the date of
issuance or sale of shares of Common Stock, any Option or any Convertible
Security shall be deemed to be the date the Company is legally obligated to
issue such shares of Common Stock or such Option or Convertible Security.
(6) Anything hereinabove to the contrary notwithstanding, no
adjustment shall be made pursuant to Section 9.1(a) to the Exercise Price, or to
the number of shares of Common Stock purchasable upon the exercise of the
Warrant upon:
6
<PAGE>
1. The issuance or sale by the Company of (1) any shares of
Common Stock pursuant to this Warrant or any other warrant or warrants to be
issued to the Registered Holder, (2) any Options granted pursuant to the
Company's 1999 Stock Option Plan or shares in respect of exercises of such
Options, (3) up to 250,000 shares of Common Stock in connection with strategic
alliances, licensing arrangements and the like approved by the Company's Board
of Directors or Options not issued under the Company's 1999 Stock Option Plan
and (4) securities issuable on the exercise of Options or conversion of
securities outstanding as of the date of this Warrant.
2. The issuance or sale of shares of Common Stock pursuant
to the exercise of Options or conversion or exchange of Convertible Securities
hereinafter issued for which an adjustment has been made (or was not required to
be made) pursuant to the provisions of this Section 9.1.
(3) No adjustment in the number of shares of Common Stock subject to
this Warrant shall be required under this Section 9.1 unless such adjustment
would require an increase or decrease in such number of shares of at least 1% of
the then adjusted number of shares of Common Stock issuable upon exercise of
this Warrant; provided, however, that any adjustments which by reason of the
-------- -------
foregoing are not required at the time to be made shall be carried forward and
taken into account and included in determining the amount of any subsequent
adjustment.
(4) Whenever the number of shares of Common Stock purchasable upon
the exercise of this Warrant is adjusted as provided in this Section 9.1, the
Exercise Price shall be adjusted (to the nearest cent) by multiplying the
Exercise Price immediately prior to such adjustment by a fraction (x) the
numerator of which shall be the number of shares of Common Stock purchasable
upon the exercise of the Warrant immediately prior to such adjustment, and (y)
the denominator of which shall be the number of shares of Common Stock so
purchasable immediately thereafter.
(5) If the Company after the date hereof shall take any action
affecting the shares of its Common Stock, other than actions described in this
Section 9, which, in the opinion of the Board of Directors of the Company, would
materially affect the rights of the Registered Holder, the Exercise Price and
the number of shares of Common Stock obtainable upon exercise of such Warrant
shall be adjusted in such manner as may be equitable under the circumstances.
9.2 Merger, Sale of Assets. etc. If at any time there shall be a capital
---------------------------
reorganization of the Common Stock (other than a subdivision, combination,
payment of dividend, reclassification or exchange of Common Stock provided for
below) or a merger or consolidation of the Company with or into another
corporation, or the sale of all or substantially all of the Company's properties
or assets to any other person, or a liquidation of the Company's assets or a
dissolution of the Company then, as a part of such reorganization, merger,
consolidation, sale, liquidation or dissolution, lawful provision shall be made
so that the Registered Holder of this Warrant shall thereafter be entitled to
receive upon exercise of this
7
<PAGE>
Warrant, during the period specified in this Warrant and upon payment of the
Exercise Price then in effect, or, in the case of a liquidation of assets or a
dissolution to receive, upon such liquidation or dissolution, without taking any
further action, the number of shares of Common Stock or other securities or
property of the Company or of any other entity to which a holder of the Common
Stock issuable upon exercise of this Warrant would have been entitled in such
capital reorganization, merger, or consolidation or sale if this Warrant had
been exercised immediately before that capital reorganization, merger,
consolidation, or sale. In any such case, appropriate adjustment (as determined
in good faith by the Company's Board of Directors) shall be made in the
application of the provisions of this Warrant with respect to the rights and
interest of the Registered Holder of this Warrant after the reorganization,
merger, consolidation or sale such that the provisions of this Warrant
(including adjustment of the Exercise Price then in effect and number and kind
of securities purchasable upon exercise of this Warrant) shall be applicable
after that event in relation to any securities purchasable after that event upon
exercise of this Warrant.
9.3 Reclassification, etc. If the Company at any time shall, by stock
---------------------
dividend, subdivision, combination or reclassification of securities or
otherwise, change any of the securities to which purchase rights under this
Warrant exist into the same or a different number of securities of any class or
classes, this Warrant shall thereafter be deemed to represent the right to
acquire such number and kind of securities as a record holder of the same number
and kind of securities for which this Warrant is exercisable immediately prior
to the occurrence of such event would own or be entitled to receive after the
happening of such event, and the Exercise Price shall be proportionately
adjusted.
9.4 Certain Other Distributions. If at any time the Company shall take a
---------------------------
record of the holders of its Common Stock for the purpose of entitling them to
receive any dividend or other distribution of cash, evidences of indebtedness or
any other securities or property of any nature whatsoever (other than securities
for which an adjustment is made pursuant to Section 9.3), then the Company shall
cause to be mailed to the Registered Holder at least ten days prior to the date
hereinafter specified, a notice stating the date on which a record is to be
taken for the purpose of such dividend or distribution.
9.5 Certificate as to Adjustment. In each case of any adjustment in
----------------------------
either the Exercise Price or in the number of shares of Common Stock, or other
stock, securities or property receivable on the exercise of this Warrant, the
Chief Financial Officer of the Company shall compute such adjustment in
accordance with the terms of this Warrant and shall prepare a certificate
setting forth such adjustment and showing in detail the facts upon which such
adjustment is based, including a statement of the adjusted Exercise Price. The
Company will cause copies of such certificate to be mailed (by first class mail,
postage prepaid) to the Registered Holder.
10. Restrictions on Transfer. This Warrant and the securities issuable
------------------------
upon exercise of this Warrant have not been registered under the Act or under
the securities laws of any states. These securities are subject to restrictions
on transferability and resale and may not be transferred or resold except as
permitted under the Act and the applicable state securities laws, pursuant to
8
<PAGE>
registration or exemption therefrom, and holders should be aware that they may
be required to bear the financial risks of this investment for an indefinite
period of time. As a condition to the issuance of this Warrant and to its
exercise, the Registered Holder hereby represents and warrants to the Company
that:
10.1 The Warrant and, if applicable, the shares of Common Stock issuable
upon exercise hereof (collectively, the "Securities") have been acquired by the
----------
Registered Holder for investment and not with a view to the sale or other
distribution thereof within the meaning of the Act, and the Registered Holder
has no present intention of selling or otherwise disposing all or any portion of
the Securities.
10.2 The Registered Holder has acquired the Securities for the Registered
Holder's own account.
10.3 The Registered Holder is capable of evaluating the merits and risks
of any investment in the Securities, is financially capable of bearing a total
loss of this investment and has either: (i) a preexisting personal or business
relationship with the Company or its principals, or (ii) by reason of the
Registered Holder's business or financial experience, has the capacity to
protect his, her or its own interests in connection with this investment.
10.4 The Registered Holder has had access to all information regarding the
Company, its present and prospective business, assets, liabilities and financial
condition that the Registered Holder considers important to making the decision
to acquire the Securities and has had ample opportunity to ask questions of and
receive answers from the Company's representatives concerning an investment in
the Securities and to obtain any and all documents requested in order to
supplement or verify any of the information supplied.
10.5 The Registered Holder understands that the Securities shall be deemed
restricted securities under the Act and may not be resold unless they are
registered under the Act and qualified under any applicable state securities
laws unless an exemption from such registration and qualification is available.
10.6 The Registered Holder is familiar with the contents of Rule 144
promulgated under the Act ("Rule 144") which provides, in substance, that: (i)
--------
after the expiration of one year from the date restricted securities have been
purchased and fully paid for, a holder may transfer such restricted securities
provided certain public information, volume, manner of sale and notice
requirements are complied with; and (ii) after the expiration of two years from
the date restricted securities have been purchased and fully paid for, holders
who are not "affiliates" of the Company may sell such restricted securities
without satisfying such conditions.
10.7 The Registered Holder further understands that if the requirements of
Rule 144 are not met, registration under the Act, compliance with Regulation A
promulgated under the Act, or some other registration exemption will be required
for any disposition of the Securities; and that, although Rule 144 is not
exclusive, the Commission has expressed its
9
<PAGE>
opinion that persons proposing to sell restricted securities other than in a
registered offering or other than pursuant to Rule 144 will have a substantial
burden of proof in establishing that an exemption from registration is available
for such offers or sales and such persons and the brokers who participate in the
transactions do so at their own risk.
11. Representation and Warranties of the Company. The Company hereby
--------------------------------------------
represents and warrants to the Registered Holder that:
11.1 Organization and Standing. The Company is a corporation duly
-------------------------
organized and existing under the laws of the State of Nevada and is in good
standing under such laws. The Company has the requisite corporate power to own
and operate its properties and assets, and to carry on its business as presently
conducted.
11.2 Corporate Power. The Company has requisite legal and corporate power
---------------
and authority to issue this Warrant and the Warrant Shares as provided herein
and to carry out and perform its obligations hereunder.
11.3 Capitalization. The authorized capital stock of the Company consists
--------------
of 20,000,000 shares of Common Stock, par value $.001 per share ("Common
Stock"), of which 9,512,523 shares are issued and outstanding as of the date
hereof, and 2,000,000 shares of Preferred Stock, par value $.001 per share, of
which 1,750,000 shares have been designated as Series B Preferred Stock ("Series
B Preferred"). 1,093,073 shares of Series B Preferred are issued and outstanding
as of the date hereof. All of the outstanding shares of Common Stock and Series
B Preferred are duly authorized, validly issued, fully paid and nonassessable.
Except for such outstanding shares of Common Stock and Series B Preferred and
(i) options to purchase 1,868,000 shares of Common Stock granted under the
Company's 1999 Stock Option Plan (the "Option Plan"), (ii) warrants to purchase
an aggregate of 475,965 shares of Common Stock, (iii) 2,400,000 shares of Common
Stock reserved for issuance upon exercise of options outstanding or to be
granted under the Company's 1999 Stock Option Plan, (iv) 475,965 shares of
Common Stock reserved for issuance upon exercise of warrants and (v) 1,093,073
shares of Common Stock issuable on conversion of shares of Series B Preferred
(assuming no adjustment to the conversion price of the Series B Preferred),
there are no other outstanding shares of capital stock or outstanding rights of
first refusal, preemptive rights or other rights, options, warrants, conversion
rights, or other agreements either directly or indirectly for the purchase or
acquisition from the Company or any of its significant shareholders of any
shares of its capital stock.
11.4 Authorization. All corporate action on the part of the Company, its
-------------
officers, directors and shareholders necessary for the authorization, sale,
issuance and delivery of this Warrant and the Warrant Shares pursuant hereto and
the performance of all of the Company's obligations hereunder has been taken.
This Warrant constitutes a valid and binding obligation of the Company,
enforceable in accordance with its terms, except as enforcement may be limited
by applicable bankruptcy laws or other similar laws affecting creditors' rights
generally, and the availability of equitable remedies may be limited by
applicable law. This Warrant is validly issued, fully paid and non-assessable.
The Warrant Shares have been duly and validly reserved and, when issued in
accordance with the provisions of this Warrant, will be validly issued, fully
10
<PAGE>
paid and non-assessable. This Warrant is, and when issued in accordance with
the terms of this Warrant, the Warrant Shares will be, free of any liens or
encumbrances created by Registered Holder; provided, however, that this Warrant
and the Warrant Shares may be subject to restrictions on transfer under state
and/or federal securities laws.
11.5 Compliance with Instruments. The Company is not in violation of or
---------------------------
default under (i) any term of its certificate of incorporation or bylaws, as
amended, (ii) to the knowledge of the Company, any term or provision of any
material mortgage, indebtedness, indenture, contract, agreement, instrument,
judgment, order or decree, or (iii) to the knowledge of the Company, any
statute, rule or regulation applicable to the Company in each case where such
violation would materially and adversely affect the Company. To the knowledge
of the Company, the execution, delivery, performance and issuance of this
Warrant and the issuance of the Warrant Shares have not resulted in, and will
not result in, any material violation of, or conflict with, or constitute with
or without the passage of time and the giving of notice a material violation or
default under, the Company's certificate of incorporation or bylaws, as amended,
or any such material agreements except where the violation, conflict, or default
would not (a) have a material adverse effect on the ability of the Company to
perform its obligations hereunder, (b) have a material adverse effect on the
Company's business operations, or (c) result in the creation of any mortgage,
pledge, lien, encumbrance or charge upon any of the properties or assets of the
Company.
11.6 Governmental Consent, etc. To the Company's knowledge, no consent,
--------------------------
approval or authorization of or designation, declaration or filing with any
governmental authority on the part of the Company is required in connection with
the valid execution, delivery and performance of this Warrant, or the offer,
sale or issuance of this Warrant or the Warrant Shares, or the consummation of
any other transaction contemplated hereby, except for the making of filings and
the payment of fees as may be necessary under California Corporate Securities
Law of 1968, as amended, and any other applicable Blue Sky laws, which filings
and payments of fees, if required, will be accomplished in a timely manner,
except where the failure to file or pay any such fee would not (i) have a
material adverse effect on the ability of the Company to perform its obligations
hereunder or (ii) have a material adverse effect on the Company's business
operations.
12. Miscellaneous.
-------------
12.1 Issue Date. The provisions of this Warrant shall be construed
----------
and shall be given effect in all respects as if it had been issued and delivered
by the Company on the date hereof.
12.2 Authorized Shares. The Company covenants that during the period
-----------------
the Warrant is exercisable, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of Common
Stock upon the exercise of any purchase rights under this Warrant, including
taking all actions necessary to increase the authorized number of shares of
Common Stock by a sufficient number of shares. The Company further covenants
that its issuance of this Warrant shall constitute full authority to its
officers
11
<PAGE>
who are charged with the duty of executing stock certificates to execute and
issue the necessary certificates for shares of the Company's Common Stock upon
the exercise of the purchase rights under this Warrant.
12.3 No Impairment. The Company will not, by amendment of its
-------------
Certificate of Incorporation 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 action as may be necessary or appropriate in order to
protect the rights of the Registered Holder hereof against impairment.
12.4 Notices of Record Date. In the event:
----------------------
(1) the Company shall take a record of the holders of its Common
Stock for the purposes of entitling them to receive any dividend (other than a
cash dividend) or other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares or stock of any class or any other securities or
property, or to receive any other right; or
(2) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, or any conveyance of all
or substantially all of the assets of the Company to another corporation; or
(3) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder a notice specifying, as the case may be, (i) the date on which
a record is to be taken for the purpose of such dividend, distribution or right,
and stating the amount and character of such dividend, distribution or right, or
(ii) the date on which such reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation or winding-up is to take place, and
the time, if any is to be fixed, as of which the holders of record of Common
Stock shall be entitled to exchange their shares of Common Stock for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding-up. Such
notice shall be mailed at least thirty (30) days prior to the date therein
specified.
13. Nonwaiver and Expenses. No course of dealing or any delay or failure
----------------------
to exercise any right hereunder on the part of the Registered Holder shall
operate as a waiver of such right or otherwise prejudice the Registered Holder's
rights, powers or remedies. If the Company fails to make, when due, any payments
provided for hereunder, or fails to comply with any other provision of this
Warrant, the Company shall pay to the Registered Holder such amounts as shall be
sufficient to cover any costs and expenses including, but not limited to,
reasonable attorneys' fees, including those of appellate proceedings, incurred
by the Registered Holder in collecting any amounts due pursuant hereto or in
otherwise enforcing any of its rights, powers or remedies hereunder.
12
<PAGE>
14. Headings. The headings in this Warrant are for purposes of
--------
convenience only, and shall not be deemed to constitute a part hereof.
15. Governing Law. This Warrant shall constitute a contract under the
-------------
laws of the State of Delaware and shall be construed and enforced in accordance
with, and governed by, the internal laws of the State of Delaware, excluding
that body of law applicable to conflicts of laws.
16. Terms Binding. This Warrant shall be binding upon any successors or
-------------
assigns of the Company. By acceptance of this Warrant, the Registered Holder
(and each subsequent assignee, transferee or Registered Holder) accepts and
agrees to be bound by all the terms and conditions of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officer thereunto duly authorized.
Dated: ______________ __, 1999
ECOMMERCIAL.COM, INC.
By:________________________________
Name:______________________________
Its:_______________________________
13
<PAGE>
EXHIBIT A
---------
NOTICE OF EXERCISE
------------------
TO: ECOMMERCIAL.COM, INC.
17. The undersigned hereby elects to purchase _____________________ shares
of Common Stock of eCommercial.com, Inc. pursuant to the terms of this warrant,
and tenders herewith payment of the purchase price of such shares in full.
18. Payment of the purchase price shall be by (please mark the appropriate
method):
___________ Bank Check
___________ Wire Transfer
___________ Net Exercise
19. Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
_______________________________
(Name)
_______________________________
(Address)
_______________________________
(Address)
20. The undersigned hereby represents and warrants that the aforesaid
shares of Common Stock are being acquired for the account of the undersigned for
investment and not with a view to the distribution thereof, and that the
undersigned has no present intention of distributing or reselling such shares
without registration under the Act or an exemption therefrom.
Date:_____________________ ___________________________________
(Signature)
<PAGE>
EXHIBIT B
---------
ASSIGNMENT FORM
---------------
(To assign the warrant to which this Assignment Form is attached,
complete and execute this form. Do not use this form to
purchase shares upon exercise of the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to
________________________________________________________________________________
(Please Print)
whose address is _______________________________________________________________
(Please Print)
Dated:____________, ____.
Holder's Signature: ________________
Holder's Address: ________________
________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant to which this Assignment Form is attached,
without alteration or enlargement or any change whatsoever. Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
<PAGE>
EXHIBIT 4.5
CERTIFICATE OF DESIGNATION
OF RIGHTS, PREFERENCES AND PRIVILEGES OF
SERIES B PREFERRED STOCK
OF
ECOMMERCIAL.COM, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is:
eCommercial.com, Inc.
2. The articles of incorporation of the Corporation authorize the issuance
of Two Million (2,000,000) shares of Preferred Stock, par value $.001 per share
and expressly vests in the Board of Directors of the Corporation the authority
provided therein to issue any and all of said shares, the designations,
preferences and relative, participating, optional, or other special rights, or
qualifications, limitations or restrictions thereof as shall be stated and
expressed in the resolution or resolutions of the Board of Directors of the
Corporation.
3. The Board of Directors of the Corporation, pursuant to the authority
expressly vested in it as aforesaid, has adopted the following resolutions
creating Series B Preferred Stock:
RESOLVED THAT:
The Corporation's Board of Directors hereby establishes a class of
Preferred Stock authorized to be issued by the Corporation as above stated, with
the designations and amounts thereof with the preferences, conversion and other
rights, and relative participating, optional and other special rights of each
series, and the qualifications, limitations or restrictions thereof, to be as
follows:
1. Designations and Amounts. One Million Seven Hundred Fifty Thousand
(1,750,000) shares of the Corporation's authorized Preferred Stock are
designated as Series B Preferred Stock.
2. Definitions.
For the purposes of this Resolution the following definitions shall
apply:
(a) "Board" shall mean the Board of Directors of the Corporation.
(b) "Common Stock" shall refer to the Corporation's common stock
with a par value of $.001 per share.
(c) "Purchase Price" shall be $8.00.
(d) "Subsidiary" shall mean any corporation at least 51% of whose
outstanding voting stock shall at the time be owned directly or indirectly by
the Corporation or by one or more subsidiaries of the Corporation.
3. Dividends. The holder of each issued and outstanding share of Series B
Preferred Stock shall be entitled to receive dividends when and if declared by
the Board, out of funds
<PAGE>
legally available for such purpose. No dividends (other than those payable
solely in shares of Common Stock) may be declared or paid with respect to shares
of Common Stock during any fiscal year of the Corporation until dividends in the
aggregate amount of not less than $0.90 per share (the "Dividend Preference
Rate") of Series B Preferred Stock (as adjusted as provided herein) have been
paid or declared and set aside with respect to the Series B Preferred Stock
during such fiscal year. If the Corporation shall (a) pay a distribution in
shares of Series B Preferred Stock, (b) subdivide its outstanding shares of
Series B Preferred Stock into a greater number of shares, (c) combine its
outstanding shares of Series B Preferred Stock into a smaller number of shares,
or (d) issue by reclassification of its shares of Series B Preferred Stock any
shares of Series B Preferred Stock, the Dividend Preference Rate shall be
ratably adjusted to an amount equal to the Dividend Preference Rate in effect
immediately prior to such action multiplied by the number of shares of Series B
Preferred Stock outstanding immediately prior to such action divided by the
number of shares of Series B Preferred Stock outstanding immediately after such
action.
4. Redemption. Shares of Series B Preferred Stock are not redeemable by
the Corporation.
5. Liquidation and Dissolution. In the event of any voluntary or
involuntary liquidation, dissolution, or winding up of the affairs of the
Corporation, the holders of the issued and outstanding Series B Preferred Stock
shall be entitled to receive for each share of Series B Preferred Stock, before
any distribution of the assets of the Corporation shall be made to the holders
of any other capital stock, an amount per share equal to the Purchase Price (the
"Liquidation Rate"), plus all accrued and unpaid dividends and distributions
declared thereon, without interest. If the Corporation shall (a) pay a
distribution in shares of Series B Preferred Stock, (b) subdivide its
outstanding shares of Series B Preferred Stock into a greater number of shares,
(c) combine its outstanding shares of Series B Preferred Stock into a smaller
number of shares, or (d) issue by reclassification of its shares of Series B
Preferred Stock any shares of Series B Preferred Stock, the Liquidation Rate
shall be ratably adjusted to an amount equal to the Liquidation Rate in effect
immediately prior to such action multiplied by the number of shares of Series B
Preferred Stock outstanding immediately prior to such action divided by the
number of shares of Series B Preferred Stock outstanding immediately after such
action. After such payment shall have been made in full to the holders of the
issued and outstanding Series B Preferred Stock, or funds necessary for such
payment shall have been set aside in trust for the account of the holders of the
issued and outstanding Series B Preferred Stock so as to be and continue to be
available therefor, then the remaining assets of the Corporation shall be
divided and distributed ratably among the holders of the Common Stock. If, upon
such liquidation, dissolution, or winding up, the assets of the Corporation
distributable, as aforesaid, among the holders of the Series B Preferred Stock
shall be insufficient to permit the payment to them of said amount, the entire
assets shall be distributed ratably among the holders of the Series B Preferred
Stock. A consolidation, merger or reorganization of the Corporation with or into
another corporation or entity in which the holders of the Corporation's
outstanding capital stock do not retain a majority of the voting power in the
surviving corporation immediately thereafter or (ii) a sale, conveyance or
disposition of all or substantially all of the Corporation's assets shall be
regarded as a "liquidation, dissolution, or winding up of the affairs of the
Corporation" within the meaning of this paragraph 5.
6. Conversion Rights.
(a) Optional Conversion; Conversion Rate; Conversion Price. Each
share of Series B Preferred Stock shall be convertible, at the option of the
holder thereof, into shares of
2
<PAGE>
Common Stock at any time after the issuance of such share. The number of shares
of Common Stock into which each share of Series B Preferred Stock may be
converted shall be determined by dividing $8.00 by a price, hereinafter referred
to as the "Conversion Price," in effect for the Series B Preferred Stock at the
time of the conversion. The Conversion Price per share of Series B Preferred
Stock initially shall be $8.00, subject to adjustment as provided.
(b) Automatic Conversion. Each share of Series B Preferred Stock
shall automatically be converted into fully paid and nonassessable shares of
Common Stock of the Corporation at the Conversion Price then in effect for the
Series B Preferred Stock (subject to adjustment as provided below) upon the
earlier to occur of:
(i) the effective date of a firm commitment, underwritten
public offering of Common Stock pursuant to an effective registration statement
under the Securities Act of 1933, as amended (the "Securities Act"), other than
a registration under Rule 145 of the Securities Act (or any successor thereto)
or to any employee benefit plan of the Corporation, generating aggregate
proceeds to the Company of at least Fifteen Million Dollars ($15,000,000)
(before deducting underwriters' discounts and all expenses relating to the
offering), and an offering price (prior to underwriters' discounts and expenses)
per share to the public equal to or greater than Fifteen Dollars ($15.00),
appropriately adjusted for stock dividends, stock splits, stock combinations,
recapitalizations, reclassifications, exchanges and the like ("Initial Public
Offering"); or
(ii) the date on which the holders of two-thirds (2/3) of
the then outstanding shares of Series B Preferred Stock consent in writing to
such conversion.
(c) Conversion Mechanics. The holder of any shares of Series B
Preferred Stock may exercise the conversion rights as to such shares or any part
thereof by delivering to the Corporation during regular business hours, at the
office of any transfer agent of the Corporation, or at the principal office of
the Corporation or at such other place as may be designated by the Corporation,
the certificate or certificates for the shares to be converted, duly endorsed
for transfer to the Corporation (if required by it), accompanied by written
notice stating that the holder elects to convert such shares. Except as set
forth above, conversion shall be deemed to have been effected on the date when
such delivery is made, and such date is referred to herein as the "Conversion
Date." As promptly as practicable thereafter the Corporation shall issue and
deliver to or upon the written order of such holder, at such office or other
place designated by the Corporation, a certificate or certificates for the
number of full shares of Common Stock to which such holder is entitled and a
check for cash with respect to any fractional interest in a share of Common
Stock as provided below. The holder shall be deemed to have become a shareholder
of record for the Common Stock on the applicable Conversion Date unless the
transfer books of the Corporation are closed on the date, in which event such
holder shall be deemed to have become a shareholder of record for the Common
Stock on the next succeeding date on which the transfer books are open. Upon
conversion of only a portion of the number of shares of Series B Preferred
Stock, as the case may be, represented by a certificate surrendered for
conversion, the Corporation shall issue and deliver to or upon the written order
of the holder of the certificate so surrendered for conversion, at the expense
of the Corporation, a new certificate for the number of shares of Series B
Preferred Stock representing the unconverted portion of the certificate so
surrendered.
(d) No Fractional Shares. No fractional shares of Common Stock or
scrip shall be issued upon conversion of shares of Series B Preferred Stock. If
more than one share of Series B Preferred Stock shall be surrendered for
conversion at any one time by the same
3
<PAGE>
holder, the number of full shares of Common Stock issuable upon conversion
thereof shall be computed on the basis of the aggregate number of shares of
Series B Preferred Stock so surrendered. Instead of any fractional shares of
Common Stock which would otherwise be issuable upon conversion of any shares of
Series B Preferred Stock, the Corporation shall pay a cash adjustment in respect
of such fractional interest equal to the fair market value of such fractional
interest as determined in good faith by the Corporation's Board of Directors.
(e) Taxes. The Corporation shall pay any and all issue and other
taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion pursuant hereto of Series B Preferred Stock. The
Corporation shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue and delivery of shares of
Common Stock in a name other than that in which the Series B Preferred Stock so
converted were registered, and no such issue or delivery shall be made unless
and until the person requesting such issue has paid to the Corporation the
amount of any such tax, or has established, to the satisfaction of the
Corporation, that such tax has been paid.
(f) Share Reserve. The Corporation shall at all times reserve and
keep available, out of its authorized but unissued Common Stock, solely for the
purpose of effecting the conversion of the Series B Preferred Stock, the full
number of shares of Common Stock deliverable upon the conversion of all Series B
Preferred Stock from time to time outstanding. The Corporation shall from time
to time (subject to obtaining necessary director and shareholder approval, which
the Corporation shall use its best efforts to promptly obtain), in accordance
with the laws of the State of Nevada, promptly increase the authorized amount of
its Common Stock if at any time the authorized number of shares of its Common
Stock remaining unissued shall not be sufficient to permit the conversion of all
of the shares of Series B Preferred Stock at the time outstanding.
(g) Registration or Listing. If any shares of Common Stock to be
reserved for the purpose of conversion of shares of Series B Preferred Stock
require registration or listing with, or approval of, any governmental
authority, stock exchange, quotation system or other regulatory body under any
federal or state law or regulation or otherwise, before such shares may be
validly issued or delivered upon conversion and traded or quoted on an exchange
or quotation system on which other shares of Common Stock are then listed or
quoted, the Corporation will in good faith and as expeditiously as possible
endeavor to secure such registration, listing or approval, as the case may be.
(h) Status Upon Issuance. All shares of Common Stock which may be
issued upon conversion of the shares of Preferred Stock will upon issuance by
the Corporation be validly issued, fully paid and non-assessable and free from
all taxes, liens and charges created by the Corporation with respect to the
issuance thereof.
7. Adjustments.
(a) Adjustments to Conversion Prices for Stock Dividends and for
Combinations or Subdivisions of Common Stock. In the event that the Corporation
shall at any time declare or pay, without consideration, any dividend on the
Common Stock payable in Common Stock or in any right to acquire Common Stock for
no consideration, or shall subdivide the outstanding Common Stock into a greater
number of shares of Common Stock (by stock split, reclassification or otherwise
than by payment of a dividend in Common Stock or in any right to acquire Common
Stock), or in the event the outstanding shares of Common Stock shall be combined
or consolidated, by reclassification or otherwise, into a lesser number of
shares of
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<PAGE>
Common Stock, then the Conversion Price for the Series B Stock in effect
immediately prior to each such stock dividend, combination or subdivision shall
be proportionately increased or decreased, as appropriate, effective at the
close of business on the date of each such stock dividend, combination or
subdivision, as the case may be. In the event that the Corporation shall declare
or pay, without consideration, any dividend on the Common Stock payable in any
right to acquire Common Stock for no consideration then the Corporation shall be
deemed to have made a dividend payable in Common Stock in an amount of shares
equal to the maximum number of shares issuable upon exercise of such rights to
acquire Common Stock.
(b) Adjustments for Capital Reorganizations and Reclassifications.
In case of any capital reorganization (other than in connection with a merger or
other reorganization in which the Corporation is not the continuing or surviving
entity) or any reclassification of the Common Stock of the Corporation, the
Series B Preferred Stock shall thereafter be convertible into the number of
shares of stock or other securities or property to which a holder of the number
of shares of Common Stock of the Corporation deliverable upon conversion of the
shares of Series B Preferred Stock immediately prior to each such reorganization
or recapitalization would have been entitled upon such reorganization, or
reclassification; and, in any such case, appropriate adjustment (as determined
by the Board of Directors) shall be made in the application of the provisions
herein set forth with respect to the rights and interests thereafter of the
holders of Series B Preferred Stock, to the end that the provisions set forth
herein shall thereafter be applicable, as nearly as reasonably may be, in
relation to any share of stock or other property thereafter deliverable upon the
conversion.
(c) Noncash Dividends, Stock Purchase Rights, Capital
Reorganizations and Dissolutions. In case:
(i) the Corporation shall take a record of the holders of
its Common Stock for the purpose of entitling them to receive a dividend, or any
other distribution, payable otherwise than in cash; or
(ii) the Corporation shall take a record of the holders of
its Common Stock for the purpose of entitling them to subscribe for or purchase
any shares of stock of any class or to receive any other rights; or
(iii) of any capital reorganization of the Corporation,
reclassification of the capital stock of the Corporation (other than a
subdivision or combination of its outstanding shares of Common Stock),
consolidation or merger of the Corporation with or into another corporation or
conveyance of all or substantially all of the assets of the Corporation to
another corporation; or
(iv) of the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, and in any such case, the Corporation shall cause to be mailed to the
transfer agent for Series B Preferred Stock, and to the holders of record of the
outstanding Series B Preferred Stock, at least ten (10) days prior to the date
hereinafter specified, a notice stating the date on which (x) a record is to be
taken for the purpose of such dividend, distribution or rights, or (y) such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up is to take place and the date, if any is
to be fixed, as of which holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities or
5
<PAGE>
other property deliverable upon such reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or winding up.
(d) Other Issuances. Upon the issuance by the Corporation of any
Equity Securities (as defined below) without consideration or for consideration
per share of Common Stock issued or issuable upon exchange, exercise or
conversion of such Equity Securities of less than the Conversion Price then in
effect, then the Conversion Price shall be adjusted to a price (calculated to
the nearest cent) determined by multiplying the Conversion Price by a fraction,
the numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance (on a fully diluted basis) plus the number of
shares of Common Stock which the aggregate consideration received by the
Corporation for the newly issued Equity Securities would purchase at the
Conversion Price in effect immediately prior to such issuance, and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance (on a fully diluted basis) plus the number of
additional shares of Equity Securities so issued. For purposes of this
subsection 7(d) the following provisions will be applicable:
(i) in the case of an issue or sale for cash of shares of
Common Stock, the "consideration per share" received by the Corporation therefor
shall be deemed to be the amount of cash received, before deducting therefrom
any commissions or expenses paid by the Corporation.
(ii) in case of the issuance (otherwise than upon
conversion or exchange of obligations or shares of stock of the Corporation) of
additional shares of Common Stock for a consideration other than cash or a
consideration partly other than cash, the amount of the consideration other than
cash received by the Corporation for such shares shall be deemed to be the fair
market value of such consideration as determined in good faith by the Board of
Directors.
(iii) in case of the issuance by the Corporation in any
manner of any rights to subscribe for or to purchase shares of Common Stock, or
any options for the purchase of shares of Common Stock or stock convertible into
Common Stock, all shares of Common Stock or stock convertible into Common Stock
to which the holders of such rights or options shall be entitled to subscribe
for or purchase pursuant to such rights or options shall be deemed "outstanding"
as of the date of the offering of such rights or the granting of such options,
as the case may be, and the minimum aggregate consideration named in such rights
or options for the shares of Common Stock or stock convertible into Common Stock
covered thereby, plus the consideration, if any, received by the Corporation for
such rights or options, shall be deemed to be the "consideration per share"
received by the Corporation (as of the date of the offering of such rights or
the granting of such options, as the case may be) for the issuance of such
shares.
(iv) in case of the issuance or issuances by the Corporation
in any manner of any obligations or of any shares of stock of the Corporation
that shall be convertible into or exchangeable for Common Stock, all shares of
Common Stock issuable upon the conversion or exchange of such obligations or
shares shall be deemed issued as of the date such obligations or shares are
issued, and the amount of the "consideration per share" received by the
Corporation for such additional shares of Common Stock shall be deemed to be the
total of (X) the amount of consideration received by the Corporation upon the
issuance of such obligations or shares, as the case may be, plus (Y) the minimum
aggregate consideration, if any, other than such obligations or shares,
receivable by the Corporation upon such conversion or exchange, except in
adjustment of dividends.
6
<PAGE>
The amount of the "consideration per share" received by the
Corporation upon the issuance of any rights or options referred to in subsection
(iii) above or upon the issuance of any obligations or shares which are
convertible or exchangeable as described in subsection (iv) above, and the
amount of the consideration, if any, other than such obligations or shares so
convertible or exchangeable, receivable by the Corporation upon the exercise,
conversion or exchange thereof shall be determined in the same manner provided
in subsections (i) and (ii) above with respect to the consideration received by
the Corporation in case of the issuance of additional shares of Common Stock;
provided, however, that if such obligations or shares of stock so convertible or
exchangeable are issued in payment or satisfaction of any dividend upon any
stock of the Corporation other than Common Stock, the amount of the
"consideration per share" received by the Corporation upon the original issuance
of such obligations or shares or stock so convertible or exchangeable shall be
deemed to be the value of such obligations or shares of stock, as of the date of
the adoption of the resolution declaring such dividend, as determined by the
Board of Directors at or as of that date. On the expiration of any rights or
options referred to in subsection (iii), or the termination of any right of
conversion or exchange referred to in subsection (iv), or any change in the
number of shares of Common Stock deliverable upon exercise of such options or
rights or upon conversion of or exchange of such convertible or exchangeable
securities, the Conversion Price then in effect shall forthwith be readjusted to
such Conversion Price as would have been obtained had the adjustments made upon
the issuance of such options, rights or convertible or exchangeable securities
been made upon the basis of the delivery of only the number of shares of Common
Stock actually delivered or to be delivered upon the exercise of such rights or
options or upon the conversion or exchange of such securities.
(e) Exclusions. Anything herein to the contrary notwithstanding, the
Corporation shall not be required to make any adjustment of a Conversion Price
as a result of the issuance after the effective date of this Certificate of
Designation, of (w) shares of Common Stock (or any options, warrants or rights
to purchase such shares) to officers, directors, employees or consultants of the
Corporation or its subsidiaries pursuant to stock option or stock purchase plans
or agreements or other employee benefit plans and any shares of Common Stock
issued upon exercise or conversion pursuant to such plans or agreements, (x)
shares of Common Stock (or any options, warrants or rights to purchase such
shares), which have been approved by the Board of Directors in connection with
strategic investments, licensing arrangements or debt or equipment financings,
(y) shares issuable upon conversion or exercise of securities which are
outstanding as of the date of this Certificate of Designation or (z) shares of
Common Stock (or any options, warrants or rights to purchase such shares), which
have been approved by the Board of Directors issued as consideration in
connection with mergers, acquisitions or other business combinations.
(f) Definition of Equity Securities. For purposes of this Certificate
of Designation, "Equity Securities" shall mean any securities having voting
rights in the election of the Board of Directors not contingent upon default, or
any securities evidencing an ownership interest in the Company, or any
securities convertible into or exercisable for any shares of the foregoing, or
any agreement or commitment to issue any of the foregoing.
(g) Protection of Conversion Rights. The Corporation will not, by
amendment of its Articles of Incorporation 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 to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 5 and in the taking of all such action as may
be necessary or
7
<PAGE>
appropriate in order to protect the conversion rights of the holders of the
Series B Preferred Stock against impairment.
8. Voting Rights. Holders of shares of Series B Preferred Stock shall
be entitled to vote on all matters submitted to a vote of the stockholders of
the Company. Each share of Series B Preferred Stock shall entitle the holder to
that number of votes equal to the number of shares of Common Stock into which
such share of Series B Preferred Stock is convertible as of the record date
established for the vote of the stockholders of the Company. Fractional votes
will not, however, be permitted, and any fractional voting rights resulting from
the above formula (after aggregating all shares of Common Stock into which
shares of Series B Preferred Stock held by each holder could be converted) shall
be rounded to the nearest whole number (with one-half being rounded upward).
Except with respect to the seat on the Board of Directors allocated to the
shares of Series B Preferred Stock as described below or as required by law, the
Series B Preferred Stock will vote together with the Common Stock and not as a
separate class.
9. Board Seat. The Board of Directors shall consist of seven (7) members.
The holders of Series B Preferred Stock, voting together as a single class,
shall be entitled to designate one (1) member of the Board of Directors. The
remaining six (6) directors shall be designated by the holders of the Common
Stock and the Series B Preferred Stock, voting together as a single class.
10. No Preemptive Rights. No holder of the Series B Preferred Stock shall
be entitled, as of right, to purchase or subscribe for any part of the unissued
capital stock of the Corporation or of any capital stock of the Corporation to
be issued by reason of any increase of the authorized capital stock of the
Corporation, or to purchase or subscribe for any bonds, certificates of
indebtedness, debentures or other securities convertible into or carrying
options or warrants to purchase stock or other securities of the Corporation or
to purchase or subscribe for any stock of the Corporation purchased by the
Corporation or by its nominee or nominees, or to have any other preemptive
rights now or hereafter defined by the laws of the State of Nevada.
11. Protective Covenants. So long as shares of Series B Preferred Stock
remain outstanding and for such further period as may be required by law, the
Company will not, without first obtaining the affirmative vote or written
consent of the holders of at least a majority of the then outstanding Series B
Preferred Stock voting separately as a class (i) sell, convey or otherwise
dispose of all or substantially all of assets of the Company, merge the Company
with or consolidate the Company into another entity, or engage in any other form
of corporate reorganization or recapitalization that would require the vote of
the Company's shareholders under applicable law; (ii) increase the number of
authorized shares of Series B Preferred Stock (except as a result of a stock
split or combination); (iii) effect an exchange, reclassification or
cancellation of all or a part of the shares of Series B Preferred Stock (except
as a result of a stock split or combination); (iv) effect an exchange, or create
a right of exchange, of all or part of the shares of another class into shares
of Series B Preferred Stock; (v) alter or change the rights, preferences,
privileges and restrictions of the Series B Preferred Stock; (vi) authorize or
issue shares of any class of stock having any rights, preferences or privileges
superior to any such right, preference or privilege of the Series B Preferred
Stock; (vii) authorize or issue shares of stock of any class or any bonds,
debentures, notes or other obligations convertible into or exchangeable for, or
having option rights to purchase, any shares of stock of the Company having any
rights, preferences or privileges superior to any right, preference or privilege
of the Series B Preferred Stock; or (viii) reclassify any other outstanding
shares of stock into shares
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<PAGE>
having any right, preference or privilege superior to any such right,
preference, privilege or priority of the Series B Preferred Stock.
12. Notices of Record Date. In the event that the Company shall propose at
any time (i) to declare any dividend or distribution upon the Common Stock other
than distributions to shareholders in connection with the repurchase of shares
of former employees or consultants to which at least a majority of the holders
of Series B Preferred Stock have consented, (ii) to offer for subscription to
the holders of any class or series of its capital stock any additional shares of
stock of any class or series or any other rights, (iii) to effect any
reclassification or recapitalization or (iv) to merge or consolidate with or
into any other corporation, or sell, lease or convey all or substantially all
its property or business, or to liquidate, dissolve or wind up; then the Company
will send to the holders of the Series B Preferred Stock, at least ten (10)
days' prior written notice of the date on which a record shall be taken for such
dividend, distribution or subscription rights and on which such event shall take
place.
13. No Implied Limitations. Except as otherwise provided by the express
provisions of this Certificate of Designation of Series B Preferred Stock,
nothing herein shall limit, by inference or otherwise, the discretionary right
of the Board to classify and reclassify and issue any shares of Preferred Stock
and to fix or alter all terms thereof to the full extent provided in the
Certificate of Incorporation of the Corporation.
14. General Provisions. In addition to the above provisions with respect to
the Series B Preferred Stock, such Series B Preferred Stock shall be subject to,
and entitled to the benefits of, the provisions set forth in the Corporation's
Certificate of Incorporation with respect to the Corporation's Preferred Stock
generally.
15. Notices. All notices required or permitted to be given by the
Corporation with respect to the Series B Preferred Stock shall be in writing,
and if delivered by first class United States mail, postage prepaid, to the
holders of the Series B Preferred Stock at their last addresses as they shall
appear on the books of the Corporation, shall be conclusively presumed to have
been duly given, whether or not the stockholder actually receives such notice;
provided, however, that failure to duly give such notice by mail, or any defect
in such notice, to the holders of any stock designated for redemption, shall not
affect the validity of the proceedings for the redemption of any other shares of
Series B Preferred Stock.
FURTHER RESOLVED, that the statements contained in the foregoing
resolutions creating and designating the said Series B issue of Preferred Stock
and fixing the number, limited powers, preferences and relative, optional,
participating, and other special rights and the qualifications, limitations,
restrictions, and other distinguishing characteristics thereof shall, upon the
effective date of said series, be deemed to be included in and be a part of the
Articles of Incorporation of the Corporation pursuant to the provisions of the
General Corporation Law of the State of Nevada.
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The effective time and date of the series herein certified shall be the
date such Certificate of Designation is filed with the Nevada Secretary of
State.
Dated: ______________, 1999 ECOMMERCIAL.COM, INC.
______________________________
Tom Blakeley, President
______________________________
Eric McAfee, Secretary
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EXHIBIT 10.1
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT is made and entered into as of this 16th day
of April 1999, by and among eCommercial.com, Inc., a California corporation
("Buyer"), Zap International, Inc., a California corporation ("Zap") and the
stockholders of Zap who have executed this agreement on the signature page
hereof (individually, a "Stockholder" and collectively, the "Stockholders").
RECITALS:
--------
WHEREAS, the parties have determined that it is in their mutual interest to
effect a transaction whereby the outstanding shares of Common and Preferred
Stock of Zap shall be transferred to Buyer in exchange for the shares of Common
Stock of Buyer hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises made herein, the
parties agree as follows:
ARTICLE I
SALE AND TRANSFER OF STOCK
--------------------------
1.1 Shares to be Transferred. Subject to the terms and conditions of this
------------------------
Agreement, each Stockholder agrees to transfer, convey, assign and deliver to
Buyer, and Buyer agrees to purchase, all shares of Common or Preferred Stock of
Zap set forth next to the name of each Stockholder in Exhibit A hereto (the
"Tendered Shares").
ARTICLE II
CONSIDERATION AND PAYMENT
-------------------------
2.1 CONSIDERATION. In full consideration for the purchase of the Zap
-------------
Shares, Buyer will issue a maximum of 2,640,000 shares of its Common Stock to
the holders of record of Tendered Shares all as set forth in Exhibit A attached
hereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ZAP
-------------------------------------
Subject to and except for the information which is set forth in a list
of exceptions, identified by the Section of this Article to which they pertain
and contained in a schedule to be
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delivered to Buyer (the "Disclosure Schedule"), Zap and each Stockholder,
jointly and severally, represent and warrant to Buyer that:
3.1. Due Incorporation. Zap is a corporation duly organized, validly
-----------------
existing and in good standing under the laws of the State of California.
3.2. Subsidiaries. Zap does not own any equity interest, directly or
------------
indirectly, in any corporation, partnership, joint venture, firm or other
entity.
3.3. Corporate Authority. Zap has full power and authority to own and
-------------------
maintain its properties and to carry on its business as it has been and is being
conducted and possesses all licenses, permits, authorizations, franchises,
rights and privileges necessary to the conduct of such business.
3.4. Authorization. Zap has full corporate power and authority to enter
-------------
into this Agreement, and the execution, delivery and performance of this
Agreement have been duly authorized by all requisite corporate action. This
Agreement has been duly executed and delivered by and on behalf of Zap and
constitutes the valid and binding obligation of Zap, enforceable in accordance
with its terms, except as enforcement may be limited by applicable bankruptcy
laws and similar laws affecting creditors' rights generally.
3.5. Effect of Agreement. The act of transferring the Tendered Shares as
-------------------
provided in Section 1.1 hereof will not conflict with, or result in a breach of
the terms of, or constitute a default under or violation of any law or
regulation of any governmental authority. The execution, delivery and
performance by Zap of this Agreement and the consummation of the transactions
herein contemplated, will not conflict with, or result in a breach of the terms
of, or constitute a default under or violation of, any provision of the Articles
of Incorporation or Bylaws of Zap, or any agreement or instrument to which any
of them is a party or by which any of them is bound, nor, to the best of their
knowledge, will it give to any person other than Buyer any interests or rights,
including rights of termination, acceleration or cancellation, in or with
respect to any of Zap's assets. No consent of any person not a party to this
Agreement and no consent of any governmental authority is required to be
obtained on the part of Zap to permit the consummation of the transactions
contemplated by this Agreement, which consent has not been obtained.
3.6. Title to Assets. Zap has good and marketable title to all the assets
---------------
listed in the attached Exhibit B ("Listed Assets"), whether real, personal,
tangible or intangible, and all the Listed Assets are be free and clear of
restrictions on or conditions to transfer or assignment, and free and clear of
mortgages, liens, pledges, encumbrances, claims, conditions or restrictions,
except as set forth in the Disclosure Schedule. To the best of their knowledge,
none of such properties, nor the operation or maintenance thereof, violates any
restrictive covenant or any provision of law.
3.7 Liabilities and Obligations. All liabilities of Zap are set forth in
---------------------------
Exhibit C attached hereto. Any liabilities of Zap which exceed the total
liabilities set forth on Exhibit C shall be paid and satisfied in full by Ken
McEwan.
3.8 Compliance with Laws and Regulations. Zap is not in violation of any
------------------------------------
federal, state or local statute, law, rule or regulation with respect to or
affecting the conduct of the its business or the ownership or operation of the
Listed Assets, except to the extent that non-compliance would not have a
material adverse effect on Buyer's ownership or operation of Zap's business and
the Listed Assets.
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<PAGE>
3.9 Litigation and Claims. There are no claims, actions, suits,
---------------------
investigations or proceedings pending or threatened against or affecting Zap or
any of its properties or business, at law or in equity, or before or by any
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which if determined adversely would have a material adverse
effect on Buyer's ownership or operation of the Zap business and the Listed
Assets.
3.10 Capitalization. The authorized capital stock of Zap consists of
--------------
__________ shares of Common Stock, and __________ shares of Preferred Stock, of
which 640,000 shares of Common Stock and 2,000,000 shares of Preferred Stock are
issued and outstanding. All of the outstanding shares have been validly issued
and are fully paid and nonassessable and free of preemptive rights. The issued
and outstanding shares are owned of record by the persons and in the amounts set
forth on Exhibit A. No stock options or stock purchase warrants have been
issued to any person with respect to any shares of the capital stock of Zap.
Except as set forth in Exhibit A, there are outstanding (i) no shares of capital
stock or other voting securities of Zap, (ii) no securities convertible into or
exchangeable or exercisable for shares of capital stock of other securities of
Zap and (iii) no options, preemptive or other rights to acquire from Zap, and no
obligations of Zap to issue, any capital stock, voting securities, or securities
convertible into or exchangeable or exercisable for capital stock or other
securities of Zap.
3.11 Intellectual Property. Zap owns or possesses adequate licenses
---------------------
or other rights to use, free and clear of any liens or other claims, all
intellectual property material to its business. Zap has taken all reasonable
and customary steps to protect its intellectual property rights. The products
used, manufactured, marketed, sold or licensed by Zap and all intellectual
property used in the conduct of Zap's business as currently conducted, do not
infringe upon, violate or constitute the unauthorized use of any rights owned or
controlled by any third party. Zap has received no notice or other claim
alleging violation of any intellectual property rights of any third party and to
their knowledge no third party is violating any intellectual property of Zap.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
----------------------------------------
Buyer represents and warrants to Zap as follows:
4.1. Organization. Buyer is a corporation duly incorporated, validly
------------
existing and in good standing under the laws of the State of California and has
all necessary corporate power and authority to own or lease its properties and
to carry on its business as now being conducted.
4.2. Authorization. Buyer has the corporate power and authority to
-------------
enter into this Agreement, and the execution, delivery and performance of this
Agreement have been duly authorized by all requisite corporate action. This
Agreement has been duly executed and delivered and constitutes the valid and
binding obligation of Buyer, enforceable in accordance with its terms, except as
enforcement may be limited by applicable bankruptcy laws and similar laws
affecting creditors' rights generally.
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<PAGE>
4.3. Effect of Agreement. The execution, delivery and performance by
-------------------
Buyer of this Agreement, and the consummation of the transactions herein
contemplated, will not result in a breach of the terms of, or constitute a
default under or violation of, any law or regulation of any governmental
authority, and the execution, delivery and performance by Buyer of this
Agreement, and the consummation by it of the transactions herein contemplated,
will not result in a breach of the terms of, or constitute a default under or
violation of, any provision of the Articles of Incorporation or Bylaws of Buyer,
or any agreement or instrument to which Buyer is a party or by which it is bound
or to which it is subject. No consent of any person not a party to this
Agreement and no consent of any governmental authority is required to be
obtained on the part of Buyer to permit the consummation of the transactions
contemplated by this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
--------------------------------------------------
Each Stockholder hereby severally, but not jointly, represents and warrants
to Buyer as follows:
5.1 Investor Status. The Stockholder either (a) is an "accredited
---------------
investor" as such term is defined in Rule 501 promulgated under the Securities
Act of 1933, as amended (the "Securities Act") or (b) has such knowledge and
experience in financial and business matters so as to be capable of evaluating
the merits and risks of acquiring the Buyer Common Stock pursuant to this
Agreement. The Stockholder resides at the address shown on Exhibit A). The
Stockholder either (i) has a preexisting business or personal relationship with
Buyer or any of its officers or directors or (ii) has such business or financial
experience as to have the capacity to protect his or her own interests in
connection with the transactions pursuant to this Agreement.
5.2 Title to Capital Stock. The Stockholder has good and marketable
----------------------
title to the shares of Zap capital stock shown on Exhibit A as owned by the him
or her, free and clear of any and all liens, pledges or other encumbrances. The
Stockholder is not a party to or bound by any option, sale agreement,
shareholder agreement, pledge, proxy, voting trust, power of attorney,
restriction on transfer or other agreement or instrument which relates to the
ownership, voting or transfer of any shares of Zap capital stock owned by him or
her. The Stockholder has the sole and absolute right, power and authority to
sell, assign and transfer such capital stock as provided in this Agreement.
Buyer will acquire good and unencumbered title to such capital stock, free and
clear of all liens, and not subsequent to any adverse claim when acquired by
Buyer pursuant to this Agreement.
5.3 Authorization of Transaction. The Stockholder has the full right,
----------------------------
power and authority to execute and deliver this Agreement and to perform his or
her obligations hereunder. This Agreement constitute the valid and legally
binding obligations of the Stockholder, enforceable against him or her in
accordance with its terms, except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws relating to or
affecting the enforcement of creditors' rights generally, now or hereafter in
effect and subject to the application of equitable principles and the
availability of equitable remedies.
4
<PAGE>
5.4 No Violation. The Stockholder is not a party to, subject to or bound
------------
by any agreement or any judgment, order, writ, prohibition, injunction or decree
of any court or other governmental agency which would prevent the execution,
delivery or performance of this Agreement.
5.5 Investment Intent. The Stockholder (i) is acquiring the Buyer's
-----------------
Common Stock pursuant to this Agreement solely for his or her own account for
investment purposes and not with a view to the distribution thereof within the
meaning of the Securities Act; and (ii) has had access to or had the opportunity
to obtain all information as he or she deemed necessary in order to evaluate the
merits and risks inherent in acquiring and holding the Buyer's Common Stock. It
is the intent of all parties hereto that this transaction be treated as a tax-
free exchange.
5.6 No Breach, Default, Violation or Consent. The execution, delivery
----------------------------------------
and performance by the Stockholder with the terms of this Agreement does not and
will not:
(a) breach or result in a default (or an event which, with the giving of
notice or the passage of time, or both, would constitute a default) under,
require any consent under or give to others any rights of termination,
acceleration, suspension, revocation, cancellation or amendment of any contract,
agreement, instrument or document to which the Stockholder is a party or by
which the Stockholder or his or her assets are bound;
(b) breach or otherwise violate any governmental order which names the
Stockholder, or is directed to the Stockholder or any of his or her assets;
(c) result in the creation of a lien or other right or encumbrance held by
any third party on any of his or her shares of Zap capital stock;
(d) violate any governmental rule applicable to the Stockholder; or
(e) require any consent, authorization, approval, exemption or other
action by, or any filing, registration or qualification with, any other person
including, but not limited to, the Stockholder's spouse.
ARTICLE VI
CLOSING
-------
6.1. Closing Date. The closing of the transactions contemplated by this
------------
Agreement (the "Closing") shall take place on the date of this Agreement or as
soon as practicable thereafter (the "Closing Date") upon satisfaction or waiver
of the conditions specified below.
5
<PAGE>
6.2. Instruments of Conveyance and Transfer.
--------------------------------------
(a) On the Closing Date, each Stockholder shall deliver to Buyer
certificates representing the shares of Zap capital stock to be transferred to
Buyer, duly endorsed for transfer, or in lieu thereof assignments separate from
certificate, appropriately endorsed and in each case effecting transfer of the
Tendered Shares to Buyer. Buyer may require appropriate lost certificate
indemnities in the event certificates are not presented for transfer.
(b) On the Closing Date, Zap shall deliver to Buyer all of Zap's
agreements, leases, contracts, insurance policies and vendor, supplier and
customer purchase orders assigned to or assumed by Buyer under this Agreement,
with such assignments thereof and consents to the assignment thereof as may be
reasonably necessary to assure Buyer of the full benefits thereof.
(c) On the Closing Date, Buyer shall deliver to each Stockholder
certificates representing the shares of Buyer Common Stock to be issued to each
Stockholder hereunder in the names of the Stockholders as set forth on the
signature page to this Agreement.
6.3. Other Documents. Each party shall deliver to the other on the
---------------
Closing Date such other documents, certificates, schedules, agreements and
instruments called for by this Agreement at such time.
6.4. Further Assurances of Zap and the Stockholders. Zap and the
----------------------------------------------
Stockholders shall from time to time at the request of Buyer, and without
further consideration, execute and deliver such instruments of transfer,
conveyance and assignment in addition to those issued pursuant to Section 6.2
hereof, and take such other actions, as may be reasonably necessary to transfer,
convey, assign to and vest in Buyer, and to put Buyer in possession of the
shares to be transferred, conveyed, assigned and delivered hereunder.
6.5. Further Assurances of Buyer. Buyer shall from time to time at the
---------------------------
request of Zap or any Stockholder, and without further consideration, execute
and deliver such instruments of assumption in addition to those issued pursuant
to Section 6.3 hereof, and take such other actions, as may be reasonably
necessary to put each Stockholder in possession of the shares of Buyer Common
Stock to which they are entitled.
6.6. Conditions to Closing. The following shall be conditions to closing
---------------------
the purchase of assets contemplated herein:
(a) Buyer shall not be required to purchase any of the Zap Shares
hereunder until it has, in its complete discretion, obtained the agreement,
waiver, release or other evidence of satisfaction from each of the
creditors of Zap with respect to the obligations listed in Exhibit B
hereto, provided, that Buyer may elect to purchase such Zap Shares without
such agreement, release, waiver or other evidence of satisfaction of any or
all of such obligations, in its sole discretion, so long as Buyer agrees to
assume such obligations in full.
(b) Zap and the Stockholders shall have complied in all respects with
their covenants and other obligations under this Agreement.
6
<PAGE>
(c) Zap's and the Stockholder's representations and warranties as set
forth in this Agreement shall be true and correct in all respects as if
made on the Closing Date.
(d) Shares of Zap capital stock representing a majority of the
outstanding shares of Zap Preferred Stock and a majority of the outstanding
shares of Zap Common Stock shall be included in the Tendered Shares.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS, WARRANTIES
---------------------------------------
AND COVENANTS; INDEMNIFICATION
------------------------------
7.1. Survival. The representations, warranties and covenants of the
--------
parties contained in this Agreement or in any certificate or instrument
delivered pursuant hereto shall survive the Closing Date.
7.2. Indemnification.
---------------
a) Zap and the Stockholders jointly and severally agree to indemnify,
defend, and hold Buyer, Buyer's officers, directors, employees and attorneys,
all affiliates (as defined in Rule 144 promulgated under the Securities Act of
1933, 17 CFR (S)230.144(a)) (all such persons and entities being collectively
referred to as the "Buyer Indemnity Group") harmless from and against any and
all losses, damages, costs and expenses, including attorneys' fees, actions or
claims by all Zap International, Inc. shareholders (any such loss, damage, cost
or expense herein called a "Loss"), which Buyer (or any member of the Buyer
Indemnity Group) may at any time sustain or incur by reason of: (i) any
inaccuracy or breach of any of the representations, warranties or covenants of
Zap or the Stockholders contained herein or in any certificate delivered
pursuant thereto, or (ii) any claim or claims whether or not presently known to
Zap or any Stockholder, which arise in connection with the ownership of Zap or
the Listed Assets.
b) Buyer agrees to indemnify and hold harmless the Stockholders and Zap,
Zap's officers, directors, employees and attorneys, all affiliates (as defined
in Rule 144 promulgated under the Securities Act of 1933, 17 CFR (S)230.144(a))
(all such persons and entities being collectively referred to as the "Zap
Indemnity Group") with respect to any Loss which any of them may at any time
sustain or incur (i) by reason of any inaccuracy in or breach of any of the
representations, warranties or covenants of Buyer contained herein; or (ii)
arising out of Buyer's failure to discharge the obligations and liabilities of
Zap specifically assumed by Buyer hereunder. If any action in respect of which
indemnity may be sought hereunder by a party hereto shall be brought against
such party, the other party shall be entitled to participate in the defense
thereof at its own expense and to settle any such action on such terms as it
shall see fit so long as the party entitled to indemnification hereunder shall
be released from any liability by reason of such settlement. In such event, the
party required to provide indemnification shall receive full cooperation and
access to all relevant and nonprivileged records.
7
<PAGE>
7.3. Remedies. The indemnification provisions of Article VII hereof
--------
shall not be deemed exclusive and shall not prejudice any other rights or
remedies, at law or in equity, of any party under this Agreement with respect to
any matter relating to the terms, provisions, covenants or conditions of this
Agreement or any transaction contemplated hereby.
ARTICLE VIII
GENERAL PROVISIONS
------------------
8.1. Notices. Any notice, request, instruction or other document to be
-------
given hereunder by either party to the other shall be in writing and effective
when delivered personally or sent by first class mail, postage prepaid, as
follows:
TO: eCommercial.com, Inc.
95 Enterprise, Suite 360
Aliso Viejo, California 92656
Attention: President
TO: ZAP International, Inc.
__________________________
______________________________
Attention: President
or to such other addresses or other persons as may be designated in writing by
either of the parties, by notice given as aforesaid.
8.2. Headings. The headings of the several sections of this Agreement are
--------
inserted for the convenience of reference only and are not intended to affect
the meaning or interpretation of this Agreement.
8.3. Counterparts. This Agreement may be executed in one or more
------------
counterparts, and when so executed each counterpart shall be deemed to be an
original, and said counterparts together shall constitute one and the same
instrument.
8.4. Binding Nature. This Agreement shall be binding upon and inure to the
--------------
benefit of the parties hereto. Neither party may assign or transfer any rights
or obligations under this Agreement, without the written consent of the other
party, which consent shall not be withheld unreasonably.
8
<PAGE>
8.5. Waiver. Buyer or Zap or any Stockholder may, by written notice to
------
the other: (i) waive any of the conditions to its obligations hereunder or
extend the time for the performance of any of the obligations or actions of the
other; (ii) waive any inaccuracies in the representations of the other contained
in this Agreement or in any documents delivered pursuant to this Agreement;
(iii) waive compliance with any of the covenants of the other contained in this
Agreement; or (iv) waive or modify performance of any of the obligations of the
other. No action taken pursuant to this Agreement, including without limitation
any investigation by or on behalf of either party, shall be deemed to constitute
a waiver by the party taking such action of compliance with any representation,
warranty, condition or agreement contained herein. Waiver of the breach of any
one or more provisions of this Agreement shall not be deemed or construed to be
a waiver of other breaches or subsequent breaches of the same provisions.
8.6. Entire Agreement. This Agreement and the Schedules and Exhibits
----------------
hereto constitute the entire agreement between the parties pertaining to the
subject matter contained herein and supersede all prior and contemporaneous
negotiations, agreements, representations, and understandings of the parties.
No supplement, modification, or amendment of this Agreement shall be binding
unless executed in writing by the party sought to be bound.
8.7. Good Faith. Each of the parties hereto agrees that it shall act in
----------
good faith in an attempt to cause all the conditions precedent to its respective
obligations to be satisfied and to transfer the Tendered Shares.
8.8. Applicable Law. This Agreement shall be governed by the laws of the
--------------
State of California.
8.9. Severability. Should any provision of this Agreement be determined
------------
to be invalid, it shall be severed from this Agreement and the remaining
provisions of the Agreement shall remain in full force and effect.
WITNESS the due execution of this Agreement by the parties hereto as
of the date first set forth above.
eCommercial.com, Inc. ZAP International, Inc.
By: _____________________ By: _____________________
Title: _____________________ Title: _____________________
9
<PAGE>
Stockholders
_____________________________ _____________________________
Ken McEwan Clyde Berg
_____________________________ _____________________________
Dick Brown Joseph McCarthy
_____________________________ _____________________________
Marcia Israelson Jon Minnis
_____________________________ _____________________________
Scott Murphy Novus Ventures
_____________________________ _____________________________
John Whitney Bradford Smith
10
<PAGE>
EXHIBIT A
---------
The Purchase Price shall be allocated to the holders of the Zap Shares as
follows:
Preferred Stockholders
----------------------
Clyde Berg 800,000
Joseph McCarthy 600,000
Jon Minnis 600,000
Common Stockholders
-------------------
Ken McEwan 335,000
Dick Brown 160,000
Marcia Israelson 65,000
Scott Murphy 40,000
Novus Ventures 10,000
Bradford Smith 5,000
John Whitney 25,000
---------
2,640,000
=========
<PAGE>
EXHIBIT B
---------
LISTED ASSETS
-------------
(a) All of Zap's rights to all of its accounts receivable as of the
Closing Date.
(b) The inventories of raw materials, work-in-process and finished
goods of Zap as of the Closing Date;
(c) The office furniture and leasehold improvements of Zap;
(d) The machinery, equipment and other tangible assets of Zap;
(e) All assignable rights and obligations of Zap under any vendor and
supplier contracts, purchase orders, equipment or other personal property
leases, insurance plans and policies.
(f) The prepaid expenses, customer deposits, and security deposits of
Zap;
(g) The claims, counterclaims, suits, proceedings and causes of action
of Zap;
(h) All of the customer lists, customer files, service records,
accounting records, forms and other documentation relating to Zap as of the
Closing Date; and
(i) All of the patents, patent applications, copyrights, trademarks,
trademark registrations and applications, trade names, service names, commercial
names, inventions, processes, research and development results, know-how, trade
secrets, goodwill and all other intangible property of Zap, including but not
limited to the following
a. All right and title to trademark applications for "ECOMMERCIAL,"
"EBROCHURE," and any derivations thereto; and
b. All right and title to all intellectual property, including but
not limited to all patents and copyrights, computer programs
(source and object code included) related to the "Media Messenger"
software and any other software, technology or know-how related to
the creation or production of rich media messages;
(j) All rights and obligations of Zap under any and all licenses and
other agreements including but not limited to those concerning the intellectual
property;
(k) All rights under the 1998 Software License Agreement between Zap
International, Inc. and Auravision Corporation.
<PAGE>
EXHIBIT 10.2
MERGER AGREEMENT
by and between
WIRELESS NETCOM, INC.
A Nevada Corporation
and
ECOMMERCIAL.COM, INC.
A California Corporation
Dated as of April 19, 1999
<PAGE>
MERGER AGREEMENT
THIS MERGER AGREEMENT (this "Agreement") is dated as of April 19, 1999, by
and between WIRELESS NETCOM, INC., a Nevada corporation ("Buyer"), and the
shareholders (the "Sellers") of ECOMMERCIAL.COM, INC., a California corporation
("Acquired Company").
RECITALS
WHEREAS, the Acquired Company is a development-stage business whose assets
consist of intellectual property and good will primarily related to Internet
software and services; and,
WHEREAS, Buyer is a telecommunications business with a desire to expand its
Internet-related business activities; and,
WHEREAS, upon completion of this transaction, the Buyer will change its
name to the name of the Acquired Company; and,
WHEREAS, the Buyer's Articles of Incorporation and its Bylaws shall be the
surviving Articles of Incorporation and Bylaws, with an amendment to the
Articles reflecting the change of name of the Buyer to "eCommercial.com, Inc.";
and,
WHEREAS, Buyer wishes to acquire from the Sellers all of the outstanding
common shares of the Acquired Company (the "Shares");
WHEREAS, the Board of Directors of the constituent corporations deem it
desirable and in the best interests of the corporations and their shareholders
that the Acquired Company be merged into Buyer, in accordance with the
provisions of Nevada Revised Statutes 92 A.120 and 92 A.190, and California
Corporations Code Section 108, in order that the transaction qualify as a
"reorganization" within the meaning of Section 368(a) (1) (A) of the Internal
Revenue Code of 1986, as amended;
NOW, THEREFORE, in consideration of the foregoing recitals and the
representations, warranties and covenants set forth below, the parties hereto
agree as follows:
ARTICLE I
ISSUANCE OF STOCK
Section 1.1 Issuance of Shares. Pursuant to the terms and subject to the
------------------
conditions of this Agreement, Sellers shall, at Closing (as defined in Section 3
hereof), sell, assign, grant, transfer and convey to Buyer, and Buyer shall
acquire from Sellers all of Sellers' right, title and interest in and to all the
Shares of the Acquired Company.
1
<PAGE>
Section 1.2 Assumptions of Liabilities related to Shares. Sellers hereby
--------------------------------------------
specifically acknowledge and agree that Buyer shall receive the Shares free and
clear of all liens or encumbrances, and Buyer shall not assume any obligations,
liabilities or debts related to the Shares purchased by Buyer of any nature
whatsoever, whether absolute, accrued, contingent or otherwise, or whether due
or to become due.
ARTICLE II
CONSIDERATION
Section 2.1 Purchase Price for Shares. As consideration for the Shares,
-------------------------
Buyer shall issue to the Sellers at the Closing an aggregate of 6,100,000 common
shares of Buyer valued at their par value of $0.0001 per share (the "Purchase
Price").
ARTICLE III
CLOSING
Section 3.1 Closing. The closing of the transactions contemplated by this
-------
Agreement (the "Closing") shall take place as of April 19, 1999, subject to
receipt of approval from the Board of Directors of Buyer. The date of the
Closing shall be referred to as the Closing Date. The effective date of merger
shall be the date of filing of the Articles of Merger with the Secretary of
State of the State of Nevada. Delivery of the Shares shall be by such documents
and instruments of issuance in such form as Buyer may request in its reasonable
discretion. Sellers shall from time to time after the Closing make further
conveyances, transfers, assignments and deliveries, and execute further
documents and instruments as Buyer deems necessary in its reasonable discretion
in order to effect and conform the sale of the Shares and the other transactions
contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Sellers as follows:
Section 4.1 Organization, Standing and Qualification. Buyer is a
----------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada, with all necessary corporate power and authority to own,
operate and conduct its properties and to carry on its business as now
conducted, and is duly qualified to conduct its business and is in good standing
as a foreign corporation in each jurisdiction where the character of its
properties or the nature of its business makes such qualification necessary,
except for such jurisdictions when the failure to so qualify or to be in good
standing would not, individually or in the aggregate, have a material adverse
effect on Buyer taken as a whole.
2
<PAGE>
Section 4.2 Authorization of Agreement - No Violation - No Consents.
-------------------------------------------------------
(a) The execution and performance by Buyer of this Agreement and
agreements ancillary hereto, and the transaction contemplated hereby and
thereby, have been approved by the Board of Directors of Buyer, and no further
corporate action is required to be taken by Buyer in order to execute, deliver
and perform this Agreement and the agreements ancillary hereto and to consummate
the transactions contemplated hereby. This Agreement is a legal, valid and
binding obligation of Buyer enforceable in accordance with its terms, and each
agreement or instrument contemplated by this Agreement, when executed and
delivered by Buyer in accordance with the provisions hereof and thereof will be
a legal, valid and binding obligation of Buyer enforceable in accordance with
their terms, except as the enforcement hereof and thereof may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting the enforcement
of creditors' rights generally and subject to the availability of equitable
remedies.
(b) Buyer has full power and authority to make the representations,
warranties, covenants and agreements contained in this Agreement and in the
agreement ancillary hereto.
(c) Neither the execution and delivery of this Agreement and the
agreements ancillary hereto, nor the consummation of the transactions
contemplated herein and therein will conflict with or result in a breach,
default or violation of any of Buyer's Articles of Incorporation, Bylaws or any
agreement, document, instrument, judgment, decree, order, governmental permit,
certificate, license, law, statute, rule or regulation by which Buyer is bound
or affected.
(d) No consent, action, approval or authorization of or
registration, declaration or filing with any governmental department,
commission, agency or other instrumentality or any other person or entity is
required to authorize, or is otherwise required in connection with, the
execution and delivery of this Agreement and the agreements ancillary hereto by
Buyer or its performance of the terms hereof and thereof or the validity or
enforceability hereof and thereof.
ARTICLE V
CONDITIONS TO THE CLOSING
Section 5.1 Conditions to Buyer Obligations. The obligation of the Buyer
-------------------------------
to consummate the transactions contemplated by this Agreement are, unless waived
by Buyer, subject to fulfillment on or before the Closing, of each of the
following conditions:
(a) The Shares shall be free and clear of all liens, claims,
liabilities and encumbrances; and
(b) Sellers shall have performed all of the covenants required
hereunder to be performed prior to the Closing.
3
<PAGE>
Section 5.2 Conditions to Sellers's Obligations. The obligation of the
-----------------------------------
Sellers to consummate the transactions contemplated by this Agreement shall be
subject to:
(a) the receipt by Sellers of common shares of Buyer pursuant to
Section 2.1 herein which are free and clear of all liens, claims, liabilities
and encumbrances; and
(b) Buyer shall have performed all of the covenants required
hereunder to be performed prior to the Closing.
Section 5.3 Failure of Conditions. In the event of the failure of a
---------------------
condition resulting in Buyer or Sellers not performing its obligations hereunder
pursuant to the terms of Articles V, VI or VII, as the case may be, this
Agreement shall become null and void and there shall be no liability on the part
of any party hereto, except nothing herein shall relieve any party from
liability for any breach of this Agreement.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Attorney Fees and Costs. The parties to this Agreement
-----------------------
hereby agree that the prevailing party in any action arising from or as a result
of this Agreement or the transactions contemplated hereby shall be entitled to
reasonable attorneys' fees and other costs and expenses incurred (a) after
referral to an attorney, (b) in any settlement negotiations and (c) in preparing
for and prosecuting any suit or action, including trial, arbitration, mediation,
appeals or other proceedings.
Section 6.2 Time of the Essence. Time is of the essence with respect to
-------------------
the obligations to be performed under this Agreement.
Section 6.3 Rights Cumulative. Except as expressly provided in this
-----------------
Agreement, and to the extent permitted by law, any remedies described in this
Agreement are cumulative and not alternative to any other remedies available at
law or in equity.
Section 6.4 Governing Law, Jurisdiction and Venue. This Agreement shall
-------------------------------------
be governed by and construed in accordance with the laws of the State of
California. The parties agree that the Court shall have exclusive jurisdiction
of any action arising from or in connection with this Agreement.
Section 6.5 Expenses. Each party hereto shall bear all of its legal,
--------
accounting and other costs and expenses incident to the negotiation of this
Agreement and the performance of the transactions contemplated herein.
Section 6.6 Notices. All notices and other communications hereunder to a
-------
party hereto shall be deemed to be properly given if delivered personally or
mailed to it by registered or certified mail (return receipt requested) as
follows:
4
<PAGE>
in the case of the Sellers, to:
Eric A. McAfee, E.V.P. - eCommercial.com, Inc.
3170 De La Cruz Blvd, Suite 108
Santa Clara, CA 95054
and in the case of Buyer, to:
Wireless Netcom, Inc.
774 Mays Blvd., #10
Incline Village, NV 89451
or at such other address as may have been specified by proper notice.
Section 6.7 Headings. The descriptive headings of the Articles and
--------
Sections of this Agreement are set forth for convenience only and shall not
constitute a part of this Agreement.
Section 6.8 Waiver. Any agreement on the part of a party hereto to any
------
extension or waiver with regard to any provision hereof shall be valid only if
set forth in a written instrument signed by each party to this Agreement. The
consummation of the transactions contemplated hereby shall not be deemed a
waiver of any right any party may have with respect to representations,
warranties, covenants or agreements contained in or related to this Agreement
being incorrect, untrue or breached.
Section 6.9 Amendment. This Agreement may not be amended except by a
---------
written instrument signed by each party to this Agreement.
Section 6.10 Further Actions. Each party shall execute and deliver such
---------------
other certificates, agreements and other documents and take such other actions
as may reasonably be requested by any other party in order to consummate or
implement the transactions contemplated by this Agreement.
Section 6.11 Assignment. This Agreement and all of the provisions hereof
----------
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, successors and assigns, but neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned (other than by
will or by operation of law upon the death of any such party, as applicable)
without the prior written consent of the other parties. Nothing in this
Agreement, express or implied, is intended to confer upon any person or entity
other than the parties hereto and their respective heirs, successors and
assigns, any rights, remedies or obligations pursuant to or by reason of this
Agreement.
Section 6.12 Severability. The provisions contained herein are
------------
independent and separate, and in the event that any provision contained herein
is declared invalid or illegal, the other provisions hereof shall not be
affected or impaired thereby and shall remain valid and enforceable in
accordance with the terms thereof.
Section 6.13 Injunctive Relief. In the event of a breach or threatened
-----------------
breach by a party hereto of the provisions of this Agreement, any other party
hereto shall be entitled to an injunction to prevent irreparable injury which
may result from such breach or threatened breach. Nothing contained herein shall
5
<PAGE>
be construed as prohibiting any party hereto from pursuing any other remedies
available for such breach or threatened breach, including the recovery of
damages.
Section 6.14 Disclosures. A qualification or exception to any
-----------
representation, warranty or covenant contained in this Agreement shall not be
construed as a qualification or exception to any other representation, warranty
or covenant contained herein, unless such qualification or exception expressly
refers to such other representation, warranty or covenant.
Section 6.15 Counterparts. This Agreement may be executed in any number
------------
of counterparts, each of which when so executed shall be deemed an original but
all of which together shall constitute one and the same instrument.
Section 6.16 Entire Agreement. This Agreement and the exhibits, schedules
----------------
and attachments hereto shall supersede all prior agreements, memoranda and other
documents regarding the subject matter hereof and represent the final agreement
between the parties with regard thereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above to be effective as of the day and year first
above written.
BUYER:
WIRELESS NETCOM, INC. (a Nevada Corporation)
___________________________________________
By: Martin Korn, Executive Vice President
SELLERS:
The Shareholders of ECOMMERCIAL.COM, INC.
(a California Corporation)
___________________________________________
By: Tom Blakeley, Shareholder
___________________________________________
By: Eric McAfee, Shareholder and
as agent for Clyde Berg, Joseph McCarthy,
Jon Minnis, Ken McEwan and Dick Brown
6
<PAGE>
SELLING SHAREHOLDER
SHARE DISTRIBUTION LIST
Shareholder Number of eCom Shares Sold Number of WNC Shares Received
- ----------- -------------------------- -----------------------------
Tom Blakeley 2,000,000 2,000,000
Eric McAfee 2,000,000 2,000,000
Clyde Berg 800,000 800,000
Joseph McCarthy 600,000 600,000
Jon Minnis 600,000 600,000
Ken McEwan 80,000 80,000
Dick Brown 20,000 20,000
7
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, made as of September 28, 1999, is by and between
eCommercial.com Inc., a Nevada corporation (the "Employer"), and Thomas J.
Blakeley (the "Employee").
In consideration of the mutual covenants contained in this Agreement, the
Employer and Employee hereby agree as follows:
1. TERM
1.1 Term. The term of this Agreement shall be three (3) years commencing
on October 1, 1999. Thereafter, the Agreement shall automatically renew each
year for a term of one (1) year, unless either party provides written notice to
the other at least ninety (90) days prior to the expiration of the term.
Provided that in the event of a "change in control" as defined in the written
"Change In Control Agreement," the Change In Control Agreement shall supercede
this Agreement.
1.2 Office and Support. Employee shall be provided an office and support
staff, including but not limited to secretarial services, at Employer's
principal place of business.
1.3 Place of Performance. In connection with Employee's employment by
Employer, Employee shall be based at Employer's office in Aliso Viejo,
California, except for required travel on Employer's business to an extent
substantially consistent with Employee's customary business travel practices.
2. DUTIES OF THE EMPLOYEE
2.1 Title. Employee shall have the titles of Chief Executive Officer and
President.
2.2 Duties. Employee shall have the responsibilities and authority as are
customarily performed by such officer and as may from time to time be assigned
to Employee by the Board of Directors of Employer. Employee will continue to
have for the term of this Agreement all authority and responsibility that the
Employee had at the time this Agreement commenced. Employee will report to the
Board of Directors.
2.3 Extent of Duties. Employee shall devote substantially his full time,
attention and energies to the business of the Employer.
2.4 Non-Disclosure of Confidential Information. Employee has previously
signed the Employer's written Confidentiality and Non-Solicitation Agreement, a
copy of which is attached for reference as Exhibit 1. Employee shall at all
times abide by the terms of such agreement.
2.5 Inventions. Employee has previously signed the Employer's written
Employee Inventions Agreement, a copy of which is attached for reference as
Exhibit 2. Employee shall at all times abide by the terms of such Agreement.
1
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3. COMPENSATION AND BENEFITS
3.1 Base Compensation. As compensation for services rendered under this
Agreement, the Employee shall receive a base salary during the first year of
this Agreement at the annual rate of $198,000. On or before October 1, 2000, and
each year thereafter, the Board of Directors shall review and adjust Employee's
base salary in consideration of the Company's performance and in consideration
of average base compensation of senior executives of similarly situated
companies, provided that the annual base salary in the second year of this
Agreement shall in no event be less than $248,000 and in the third year of this
Agreement shall in no event be less than $298,000. If increased, this salary
shall not be decreased thereafter during the term of this Agreement without the
consent of the Employee. Employee's salary shall be paid monthly in accordance
with Employer's normal practices.
3.2 Bonus. As additional performance-based compensation, Employee shall
participate in "Tier 1" of the Company-wide Profit-sharing Plan, as follows:
The Bonus Pool amounts to the 20% of the Company's quarterly Operating Income.
The Pool will be distributed to employees actively employed by the Company on
the last day of the month following the close of a fiscal quarter, as follows:
Level 1 = 40% of the Pool
Level 2 = 25% of the Pool
Level 3 = 15% of the Pool
Level 4 = 12% of the Pool
Level 5 = 8% of the Pool
Employee shall receive 46% of Level 1 amount.
Each of Levels 2 through 5 shall be allocated ratably among members of each
Level, except that the individual share of any Level shall not be higher than in
higher levels. In the event that a lower-level employees' share is calculated as
higher than a next higher Level, then each of the two levels shall be taken
together as one. Incentive Bonuses shall be paid quarterly and shall be
reconciled annually in the event of any returns or credits.
3.3 Benefits. Employee shall be entitled to the following benefits:
3.3.1 Health Insurance Benefits. Employer will provide insurance for
-------------------------
medical, dental, and vision coverage for Employee and Employee's dependents.
Employer shall pay the premiums for such coverage.
3.3.2 Disability Insurance. Employer shall provide Employee with
--------------------
disability insurance to provide coverage at the rate of sixty percent (60%) of
Employee's base compensation in the event that Employee becomes permanently
disabled.
3.3.3 Life Insurance. Employer shall procure for Employee a term life
--------------
insurance policy with a death benefit of $1,000,000.
3.3.4 Vacation and Holidays. Employee is entitled to 4 weeks paid
---------------------
vacation per year and all legal holidays.
2
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3.3.5 Car Allowance. Employee will receive a base car allowance of
-------------
$750 per month. In addition, Employer shall pay for gas, maintenance, repair,
registration, and insurance. In addition, the Employee shall be entitled to
receive an amount of $5,000 every two years as a down payment on a new vehicle.
3.3.6 Additional Benefits. In addition to the benefits set forth
-------------------
above, Employee shall be entitled to participate in all other employee benefit
plans and employee benefits, including any retirement, pension, or profit-
sharing plans developed which may hereafter be adopted by Employer such that
Employee shall have the same rights and privileges to participate in such plans
and benefits as any other executive employee during the term of this Agreement.
Participation in any benefit plans shall be in addition to the compensation
provided for in Section 3.1.
3.4 Business Expenses. Employer shall provide Employee with a corporate
credit card for Employee's use. Employee shall not use the credit card other
than for business expenses. All corporate travel, hotels, meals and
entertainment and other business expenses including cellular telephone will be
paid for by the Employer. Itemization and business expense forms with original
receipts will be turned in monthly for reimbursement. Employer will cover any
professional seminars, conferences attended, as well as professional
organizational memberships and dues.
4. TERMINATION OF EMPLOYMENT
4.1 Termination by Employer. The Employee's employment hereunder may be
terminated by Employer under the following circumstances:
4.1.1 Death of Employee. This Agreement shall terminate automatically
without notice upon the death of Employee.
4.1.2 Disability. This Agreement shall not terminate upon the
temporary disability of the Employee, but the Employer may terminate this
Agreement upon the permanent disability of the Employee. Employee shall be
permanently disabled if: (1) he is disabled as defined in a disability insurance
policy purchased by or for the benefit if the Employee; or (2) he is unable
because of a medical, physical, or mental condition to perform substantially all
of his duties for 9 consecutive months for Employer that he performed prior to
such incapacitation.
4.1.3 With Cause. Employer may terminate Employee's employment at any
time for "cause." For purposes of this Agreement, the Employer shall have
"Cause" to terminate the Employee's employment hereunder upon the following: (1)
the willful and continued failure by the Employee substantially to perform his
duties hereunder (other than failure resulting from the Employee's incapacity
due to physical or mental illness); or (2) the willful engaging by the Employee
in misconduct which is materially injurious to the Employer, monetarily or
otherwise. For purposes of this paragraph, no act, or failure to act, on the
part of the Employee shall be considered "Willful" unless done, or omitted to be
done, not in good faith and without reasonable belief by him that his action or
omission was in the best interest of the Employer. Notwithstanding the
foregoing, the Employee shall not be deemed to have been terminated for Cause
without (i) reasonable notice to the Employee setting forth reasons for the
Employer's
3
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intention to terminate of Cause and granting Employee 90 days to cure the remedy
(if possible) the reasons for termination; (ii) an opportunity for the Employee,
together with his counsel, to be heard before the Board, and (iii) delivery to
the Employee of a Notice of Termination as defined in section 4.2 hereof from
the board finding that in the good faith opinion of the Board the Employee was
guilty of misconduct set forth above in clause (1) or (2) of the preceding
paragraph and was unable to cure or remedy the reasons for termination, and
specifying the particulars thereof in detail.
4.1.4 Without Cause. The Employer may terminate Employee's employment
without cause or reason upon ninety (90) days written notice following a
majority vote of the Board of Directors and subject to the provisions below.
4.2 Termination By Employee. The Employee's employment hereunder may be
terminated by Employee under the following circumstances:
4.2.1 Resignation For Good Reason. Employee may resign his employment
upon Fifteen (15) days written notice for "good reason." For purposes of this
provision, "good reason" shall exist if any other the following have occurred at
any time within 180 days of Employee's notice:
(i) Employer makes a general assignment for the
benefit of creditors, files a voluntary bankruptcy petition, files a petition or
answer seeking a reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any law, there shall have been
filed any petition or application for the involuntary bankruptcy of Employer, or
other similar proceeding, in which an order for relief is entered or which
remains undismissed for a period of 30 days or more, or Employer seeks, consents
to, or acquiesces in the appointment of a trustee, receiver, or liquidator of
Employer or any material party of its assets; or
(ii) there are material changes in Employee's titles,
duties, or responsibilities without his express written consent; or
(iii) the Employer fails to pay Employee the
compensation and benefits required under this Agreement.
4.2.2 For Other Than Good Reason. Employee may resign "at-will" or
for any reason other than "good reason" upon Ninety (90) days written notice to
Employer.
4.3 Notice of Termination. Any terminations of the Employee's employment
by the Employer or by the Employee shall be communicated by written " Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
employment under the provision so indicated.
4.4 Date of Termination. "Date of Termination" shall mean (i) if the
Employee's employment is terminated by his death, the date of his death; and
(ii) if the Employee's employment is terminated for any other reason, the date
on which a Notice of Termination is received by Employer or Employee.
4
<PAGE>
4.5 Payment of Salary, Vacation, and Incentive Bonus Upon Termination or
Resignation. Upon termination or resignation for any reason, Employee shall
receive all compensation earned through the termination date and shall also
receive payment for all accrued but unused vacation at Employee's then current
base salary. Employee shall also receive his Incentive Bonus for the fiscal
quarter in process at the Date of Termination. Employee shall also be reimbursed
for all reasonable expenses incurred through the Date of Termination.
4.6 Supplemental Severance Compensation. In the event that Employee is
terminated for reasons other than death or permanent disability (as defined
above), Employer shall pay Employee a lump sum severance payment equal to two
times the Employee's annual salary and earned bonuses as of the Date of
Termination, which amount shall be paid within five business days of the date of
Notice of Termination is delivered to Employee. In addition, all unvested stock
options shall become fully vested.
4.6.1 In the event Employee is terminated because of permanent
disability of the Employee as described in Section 3.1.(b) Employee shall be
entitled to receive all compensation payable up to the Date of Termination
notwithstanding his temporary or permanent disability; any such payment however,
shall be reduced by disability insurance benefits, if any, paid to Employee
under policies (other than group policies) for which Employer pays all premiums
and Employee is the beneficiary.
4.7 Remedies. Any termination of this Agreement shall not prejudice any
other remedy to which the Employer or Employee may be entitled, either at law,
equity, or under this Agreement.
5. INDEMNIFICATION
5.1 Indemnification. To the fullest extent permitted by applicable law,
Employer agrees to indemnify, defend and hold Employee harmless from any and all
claims, actions, costs, expenses, damages and liabilities, including without
limitation, reasonable attorneys' fees, hereafter or heretofore arising out of
or in connection with activities of Employer or its employees, including
Employee, or other agents in connection with and within the scope of this
Agreement or by reason of the fact that he is or was a director or officer of
Employer or any affiliate of Employer. To the fullest extent permitted by
applicable law, Employer shall advance to Employee expenses of defending any
such action, claim or proceeding. However, Employer shall not indemnify Employee
or defend Employee against, or hold him harmless from any claims, damages,
expenses or liabilities, including attorneys' fee, resulting from the gross
negligence or willful misconduct of Employee. The duty to indemnify shall
survive the expiration or early termination of this Agreement as to any claims
based on facts or conditions which occurred or are alleged to have occurred
prior to expiration or termination.
6. GENERAL PROVISIONS
6.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
5
<PAGE>
6.2 Entire Agreement. This Agreement supersedes any and all other
Agreements, whether oral or in writing between the parties with respect to the
employment of the Employee by the Employer.
6.3 Successors and Assigns. This Agreement, all terms and conditions
hereunder, and all remedies arising herefrom, shall inure to the benefit of and
be binding upon Employer, any successor in interest to all or substantially all
of the business and/or assets of the Employer, and the heirs, administrators,
successors and assigns of Employee. Except as provided in the preceding
sentence, the rights and obligation of the parties hereto may not be assigned or
transferred by either party without the prior written consent of the other
party.
6.4 Notices. For purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement, shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid as follows:
If to Employee:
Thomas J. Blakeley
2923 Via San Gorgonio
San Clemente, California 92672
If to Employer:
eCommercial.com, Inc.
95 Enterprise, Ste. 360
Aliso Viejo, CA 92656
Attn: Human Resources
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
6.5 Severability. If any provision of this Agreement is prohibited by or
is unlawful or unenforceable under any applicable law of any jurisdiction as to
such jurisdiction, such provision shall be ineffective to the extent of such
prohibition without invalidating the remaining provisions hereof.
6.6 Section Headings. The section headings used in this Agreement are for
convenience only and shall not affect the construction of any terms of this
Agreement.
6.7 Survival of Obligations. Termination of this Agreement for any reason
shall not relieve Employer or Employee of any obligation accruing or arising
prior to such termination.
6.8 Amendments. This Agreement may be amended only by written agreement of
both Employer and Employee.
6
<PAGE>
6.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original but all of which, when
taken together, shall constitute only one legal instrument. This Agreement shall
become effective when copies hereof, when taken together, shall bear the
signatures of both parties hereto. It shall not be necessary in making proof of
this Agreement to produce or account for more than one such counterpart.
6.10 Fees and Costs. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys fees, costs and necessary disbursements in
addition to any other relief to which that party may be entitled.
6.11 Conflicts With Change in Control Agreement. For any provision of this
agreement which conflicts with any provision of Employee's Change in Control
Agreement, the provision of this Agreement shall take precedence.
"EMPLOYER"
eCommercial.com Inc.
By____________________________
Chief Operating Officer
"EMPLOYEE"
______________________________
Thomas J. Blakeley
7
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, made as of September 28,1999, is by and between
eCommercial.com Inc., a Nevada corporation (the "Employer"), and Mark Grundy
(the "Employee").
In consideration of the mutual covenants contained in this Agreement, the
Employer and Employee hereby agree as follows:
1. TERM
1.1 Term. The term of this Agreement shall be three (3) years commencing
on October 1, 1999. Thereafter, the Agreement shall automatically renew each
year for a term of one (1) year, unless either party provides written notice to
the other at least ninety (90) days prior to the expiration of the term.
Provided that in the event of a "change in control" as defined in the written
"Change In Control Agreement," the Change In Control Agreement shall supercede
this Agreement.
1.2 Office and Support. Employee shall be provided an office and support
staff, including but not limited to secretarial services, at Employer's
principal place of business.
1.3 Place of Performance. In connection with Employee's employment by
Employer, Employee shall be based at Employer's office in Aliso Viejo,
California, except for required travel on Employer's business to an extent
substantially consistent with Employee's customary business travel practices.
2. DUTIES OF THE EMPLOYEE
2.1 Title. Employee shall have the title of Chief Operating Officer.
2.2 Duties. Employee shall have the responsibilities and authority as are
customarily performed by such officer and as may from time to time be assigned
to Employee by the Board of Directors of Employer. Employee will continue to
have for the term of this Agreement all authority and responsibility that the
Employee had at the time this Agreement commenced. Employee will report to the
Board of Directors.
2.3 Extent of Duties. Employee shall devote substantially his full time,
attention and energies to the business of the Employer.
2.4 Non-Disclosure of Confidential Information. Employee has previously
signed the Employer's written Confidentiality and Non-Solicitation Agreement, a
copy of which is attached for reference as Exhibit 1. Employee shall at all
times abide by the terms of such agreement.
2.5 Inventions. Employee has previously signed the Employer's written
Employee Inventions Agreement, a copy of which is attached for reference as
Exhibit 2. Employee shall at all times abide by the terms of such Agreement.
1
<PAGE>
3. COMPENSATION AND BENEFITS
3.1 Base Compensation. As compensation for services rendered under this
Agreement, the Employee shall receive a base salary during the first year of
this Agreement at the annual rate of $178,000. On or before October 1, 2000, and
each year thereafter, the Board of Directors shall review and adjust Employee's
base salary in consideration of the Company's performance and in consideration
of average base compensation of senior executives of similarly situated
companies, provided that the annual base salary in the second year of this
Agreement shall in no event be less than $228,000 and in the third year of this
Agreement shall in no event be less than $278,000. If increased, this salary
shall not be decreased thereafter during the term of this Agreement without the
consent of the Employee. Employee's salary shall be paid monthly in accordance
with Employer's normal practices.
3.2 Bonus. As additional performance-based compensation, Employee shall
participate in "Tier 1" of the Company-wide Profit-sharing Plan, as follows:
The Bonus Pool amounts to the 20% of the Company's quarterly Operating Income.
The Pool will be distributed to employees actively employed by the Company on
the last day of the month following the close of a fiscal quarter, as follows:
Level 1 40% of the Pool
Level 2 25% of the Pool
Level 3 15% of the Pool
Level 4 12% of the Pool
Level 5 8% of the Pool
Employee shall receive 24% of Level 1 amount.
Each of Levels 2 through 5 shall be allocated ratably among members of each
Level, except that the individual share of any Level shall not be higher than in
higher levels. In the event that a lower-level employees' share is calculated as
higher than a next higher Level, then each of the two levels shall be taken
together as one. Incentive Bonuses shall be paid quarterly and shall be
reconciled annually in the event of any returns or credits.
3.3 Benefits. Employee shall be entitled to the following benefits:
3.3.1 Health Insurance Benefits. Employer will provide insurance for
-------------------------
medical, dental, and vision coverage for Employee and Employee's dependents.
Employer shall pay the premiums for such coverage.
3.3.2 Disability Insurance. Employer shall provide Employee with
--------------------
disability insurance to provide coverage at the rate of sixty percent (60%) of
Employee's base compensation in the event that Employee becomes permanently
disabled.
3.3.3 Life Insurance. Employer shall procure for Employee a term life
--------------
insurance policy with a death benefit of $1,000,000.
3.3.4 Vacation and Holidays. Employee is entitled to 4 weeks paid
---------------------
vacation per year and all legal holidays.
2
<PAGE>
3.3.5 Car Allowance. Employee will receive a base car allowance of
-------------
$750 per month. In addition, Employer shall pay for gas, maintenance, repair,
registration, and insurance. In addition, the Employee shall be entitled to
receive an amount of $5,000 every two years as a down payment on a new vehicle.
3.3.6 Additional Benefits. In addition to the benefits set forth
-------------------
above, Employee shall be entitled to participate in all other employee benefit
plans and employee benefits, including any retirement, pension, or profit-
sharing plans developed which may hereafter be adopted by Employer such that
Employee shall have the same rights and privileges to participate in such plans
and benefits as any other executive employee during the term of this Agreement.
Participation in any benefit plans shall be in addition to the compensation
provided for in Section 3.1.
3.4 Business Expenses. Employer shall provide Employee with a
corporate credit card for Employee's use. Employee shall not use the credit card
other than for business expenses. All corporate travel, hotels, meals and
entertainment and other business expenses including cellular telephone will be
paid for by the Employer. Itemization and business expense forms with original
receipts will be turned in monthly for reimbursement. Employer will cover any
professional seminars, conferences attended, as well as professional
organizational memberships and dues.
4. TERMINATION OF EMPLOYMENT
4.1 Termination by Employer. The Employee's employment hereunder may be
terminated by Employer under the following circumstances:
4.1.1 Death of Employee. This Agreement shall terminate automatically
without notice upon the death of Employee.
4.1.2 Disability. This Agreement shall not terminate upon the temporary
disability of the Employee, but the Employer may terminate this Agreement upon
the permanent disability of the Employee. Employee shall be permanently disabled
if: (1) he is disabled as defined in a disability insurance policy purchased by
or for the benefit if the Employee; or (2) he is unable because of a medical,
physical, or mental condition to perform substantially all of his duties for 9
consecutive months for Employer that he performed prior to such incapacitation.
4.1.3 With Cause. Employer may terminate Employee's employment at any time
for "cause." For purposes of this Agreement, the Employer shall have "Cause" to
terminate the Employee's employment hereunder upon the following: (1) the
willful and continued failure by the Employee substantially to perform his
duties hereunder (other than failure resulting from the Employee's incapacity
due to physical or mental illness); or (2) the willful engaging by the Employee
in misconduct which is materially injurious to the Employer, monetarily or
otherwise. For purposes of this paragraph, no act, or failure to act, on the
part of the Employee shall be considered "Willful" unless done, or omitted to be
done, not in good faith and without reasonable belief by him that his action or
omission was in the best interest of the Employer. Notwithstanding the
foregoing, the Employee shall not be deemed to have been terminated for Cause
without (i) reasonable notice to the Employee setting forth reasons for the
Employer's
3
<PAGE>
intention to terminate of Cause and granting Employee 90 days to cure the remedy
(if possible) the reasons for termination; (ii) an opportunity for the Employee,
together with his counsel, to be heard before the Board, and (iii) delivery to
the Employee of a Notice of Termination as defined in section 4.2 hereof from
the board finding that in the good faith opinion of the Board the Employee was
guilty of misconduct set forth above in clause (1) or (2) of the preceding
paragraph and was unable to cure or remedy the reasons for termination, and
specifying the particulars thereof in detail.
4.1.4 Without Cause. The Employer may terminate Employee's employment
without cause or reason upon ninety (90) days written notice following a
majority vote of the Board of Directors and subject to the provisions below.
4.2 Termination By Employee. The Employee's employment hereunder may be
terminated by Employee under the following circumstances:
4.2.1 Resignation For Good Reason. Employee may resign his employment
upon Fifteen (15) days written notice for "good reason." For purposes of this
provision, "good reason" shall exist if any other the following have occurred at
any time within 180 days of Employee's notice:
(i) Employer makes a general assignment for the benefit of
creditors, files a voluntary bankruptcy petition, files a petition or answer
seeking a reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any law, there shall have been filed any
petition or application for the involuntary bankruptcy of Employer, or other
similar proceeding, in which an order for relief is entered or which remains
undismissed for a period of 30 days or more, or Employer seeks, consents to, or
acquiesces in the appointment of a trustee, receiver, or liquidator of Employer
or any material party of its assets; or
(ii) there are material changes in Employee's titles,
duties, or responsibilities without his express written consent; or
(iii) the Employer fails to pay Employee the compensation
and benefits required under this Agreement.
4.2.2 For Other Than Good Reason. Employee may resign "at-will" or for
any reason other than "good reason" upon Ninety (90) days written notice to
Employer.
4.3 Notice of Termination. Any terminations of the Employee's employment by
the Employer or by the Employee shall be communicated by written "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
employment under the provision so indicated.
4.4 Date of Termination. "Date of Termination" shall mean (i) if the
Employee's employment is terminated by his death, the date of his death; and
(ii) if the Employee's employment is terminated for any other reason, the date
on which a Notice of Termination is received by Employer or Employee.
4
<PAGE>
4.5 Payment of Salary, Vacation, and Incentive Bonus Upon Termination or
Resignation. Upon termination or resignation for any reason, Employee shall
receive all compensation earned through the termination date and shall also
receive payment for all accrued but unused vacation at Employee's then current
base salary. Employee shall also receive his Incentive Bonus for the fiscal
quarter in process at the Date of Termination. Employee shall also be
reimbursed for all reasonable expenses incurred through the Date of Termination.
4.6 Supplemental Severance Compensation. In the event that Employee is
terminated for reasons other than death or permanent disability (as defined
above), Employer shall pay Employee a lump sum severance payment equal to two
times the Employee's annual salary and earned bonuses as of the Date of
Termination, which amount shall be paid within five business days of the date of
Notice of Termination is delivered to Employee. In addition, all unvested stock
options shall become fully vested.
4.6.1 In the event Employee is terminated because of permanent
disability of the Employee as described in Section 3.1.(b) Employee shall be
entitled to receive all compensation payable up to the Date of Termination
notwithstanding his temporary or permanent disability; any such payment however,
shall be reduced by disability insurance benefits, if any, paid to Employee
under policies (other than group policies) for which Employer pays all premiums
and Employee is the beneficiary.
4.7 Remedies. Any termination of this Agreement shall not prejudice any
other remedy to which the Employer or Employee may be entitled, either at law,
equity, or under this Agreement.
5. INDEMNIFICATION
5.1 Indemnification. To the fullest extent permitted by applicable law,
Employer agrees to indemnify, defend and hold Employee harmless from any and all
claims, actions, costs, expenses, damages and liabilities, including without
limitation, reasonable attorneys' fees, hereafter or heretofore arising out of
or in connection with activities of Employer or its employees, including
Employee, or other agents in connection with and within the scope of this
Agreement or by reason of the fact that he is or was a director or officer of
Employer or any affiliate of Employer. To the fullest extent permitted by
applicable law, Employer shall advance to Employee expenses of defending any
such action, claim or proceeding. However, Employer shall not indemnify
Employee or defend Employee against, or hold him harmless from any claims,
damages, expenses or liabilities, including attorneys' fee, resulting from the
gross negligence or willful misconduct of Employee. The duty to indemnify shall
survive the expiration or early termination of this Agreement as to any claims
based on facts or conditions which occurred or are alleged to have occurred
prior to expiration or termination.
6. GENERAL PROVISIONS
6.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
5
<PAGE>
6.2 Entire Agreement. This Agreement supersedes any and all other
Agreements, whether oral or in writing between the parties with respect to the
employment of the Employee by the Employer.
6.3 Successors and Assigns. This Agreement, all terms and conditions
hereunder, and all remedies arising herefrom, shall inure to the benefit of and
be binding upon Employer, any successor in interest to all or substantially all
of the business and/or assets of the Employer, and the heirs, administrators,
successors and assigns of Employee. Except as provided in the preceding
sentence, the rights and obligation of the parties hereto may not be assigned or
transferred by either party without the prior written consent of the other
party.
6.4 Notices. For purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement, shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid as follows:
If to Employee:
Mark Grundy
31 Costa Brava
Laguna Niguel, CA 92677
If to Employer:
eCommercial.com, Inc.
95 Enterprise, Ste. 360
Aliso Viejo, CA 92656
Attn: Human Resources
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
6.5 Severability. If any provision of this Agreement is prohibited by or
is unlawful or unenforceable under any applicable law of any jurisdiction as to
such jurisdiction, such provision shall be ineffective to the extent of such
prohibition without invalidating the remaining provisions hereof.
6.6 Section Headings. The section headings used in this Agreement are for
convenience only and shall not affect the construction of any terms of this
Agreement.
6.7 Survival of Obligations. Termination of this Agreement for any reason
shall not relieve Employer or Employee of any obligation accruing or arising
prior to such termination.
6.8 Amendments. This Agreement may be amended only by written agreement of
both Employer and Employee.
6
<PAGE>
6.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original but all of which, when
taken together, shall constitute only one legal instrument. This Agreement shall
become effective when copies hereof, when taken together, shall bear the
signatures of both parties hereto. It shall not be necessary in making proof of
this Agreement to produce or account for more than one such counterpart.
6.10 Fees and Costs. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys fees, costs and necessary disbursements in
addition to any other relief to which that party may be entitled.
6.11 Conflicts With Change in Control Agreement. For any provision of this
agreement which conflicts with any provision of Employee's Change in Control
Agreement, the provision of this Agreement shall take precedence.
"EMPLOYER"
eCommercial.com Inc.
By__________________________________
President
"EMPLOYEE"
______________________________________
Mark Grundy
7
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, made as of September 28, 1999, is by and between
ecommercial.com Inc., a Nevada corporation (the "Employer"), and Eric A. McAfee
(the "Employee").
In consideration of the mutual covenants contained in this Agreement, the
Employer and Employee hereby agree as follows:
1. TERM
1.1 Term. The term of this Agreement shall be three (3) years commencing
on October 1, 1999. Thereafter, the Agreement shall automatically renew each
year for a term of one (1) year, unless either party provides written notice to
the other at least ninety (90) days prior to the expiration of the term.
Provided that in the event of a "change in control" as defined in the written
"Change In Control Agreement," the Change In Control Agreement shall supercede
this Agreement.
1.2 Office and Support. Employee shall be provided an office and support
staff, including but not limited to secretarial services, at Employer's
principal place of business.
1.3 Place of Performance. In connection with Employee's employment by
Employer, Employee shall be based at Employer's office in Cupertino, California,
except for required travel on Employer's business to an extent substantially
consistent with Employee's customary business travel practices.
2. DUTIES OF THE EMPLOYEE
2.1 Title. Employee shall have the titles of Executive Vice President and
Corporate Secretary.
2.2 Duties. Employee shall have the responsibilities and authority as are
customarily performed by such officer and as may from time to time be assigned
to Employee by the Board of Directors of Employer. Employee will continue to
have for the term of this Agreement all authority and responsibility that the
Employee had at the time this Agreement commenced. Employee will report to the
Board of Directors.
2.3 Extent of Duties. Employee shall devote substantially his full time,
attention and energies to the business of the Employer.
2.4 Non-Disclosure of Confidential Information. Employee has previously
signed the Employer's written Confidentiality and Non-Solicitation Agreement, a
copy of which is attached for reference as Exhibit 1. Employee shall at all
times abide by the terms of such agreement.
2.5 Inventions. Employee has previously signed the Employer's written
Employee Inventions Agreement, a copy of which is attached for reference as
Exhibit 2. Employee shall at all times abide by the terms of such Agreement.
1
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3. COMPENSATION AND BENEFITS
3.1 Base Compensation. As compensation for services rendered under this
Agreement, the Employee shall receive a base salary during the first year of
this Agreement at the annual rate of $182,000. On or before October 1, 2000, and
each year thereafter, the Board of Directors shall review and adjust Employee's
base salary in consideration of the Company's performance and in consideration
of average base compensation of senior executives of similarly situated
companies, provided that the annual base salary in the second year of this
Agreement shall in no event be less than $232,000 and in the third year of this
Agreement shall in no event be less than $282,000. If increased, this salary
shall not be decreased thereafter during the term of this Agreement without the
consent of the Employee. Employee's salary shall be paid monthly in accordance
with Employer's normal practices.
3.2 Bonus. As additional performance-based compensation, Employee shall
participate in "Tier 1" of the Company-wide Profit-sharing Plan, as follows:
The Bonus Pool amounts to the 20% of the Company's quarterly Operating Income.
The Pool will be distributed to employees actively employed by the Company on
the last day of the month following the close of a fiscal quarter, as follows:
Level 1 = 40% of the Pool
Level 2 = 25% of the Pool
Level 3 = 15% of the Pool
Level 4 = 12% of the Pool
Level 5 = 8% of the Pool
Employee shall receive 30% of Level 1 amount.
Each of Levels 2 through 5 shall be allocated ratably among members of each
Level, except that the individual share of any Level shall not be higher than in
higher levels. In the event that a lower-level employees' share is calculated as
higher than a next higher Level, then each of the two levels shall be taken
together as one. Incentive Bonuses shall be paid quarterly and shall be
reconciled annually in the event of any returns or credits.
3.3 Benefits. Employee shall be entitled to the following benefits:
3.3.1 Health Insurance Benefits. Employer will provide insurance for
-------------------------
medical, dental, and vision coverage for Employee and Employee's dependents.
Employer shall pay the premiums for such coverage.
3.3.2 Disability Insurance. Employer shall provide Employee with
--------------------
disability insurance to provide coverage at the rate of sixty percent (60%) of
Employee's base compensation in the event that Employee becomes permanently
disabled.
3.3.3 Life Insurance. Employer shall procure for Employee a term life
--------------
insurance policy with a death benefit of $1,000,000.
3.3.4 Vacation and Holidays. Employee is entitled to 4 weeks paid
---------------------
vacation per year and all legal holidays.
2
<PAGE>
3.3.5 Car Allowance. Employee will receive a base car allowance of
-------------
$750 per month. In addition, Employer shall pay for gas, maintenance, repair,
registration, and insurance. In addition, the Employee shall be entitled to
receive an amount of $5,000 every two years as a down payment on a new vehicle.
3.3.6 Additional Benefits. In addition to the benefits set forth above,
-------------------
Employee shall be entitled to participate in all other employee benefit plans
and employee benefits, including any retirement, pension, or profit-sharing
plans developed which may hereafter be adopted by Employer such that Employee
shall have the same rights and privileges to participate in such plans and
benefits as any other executive employee during the term of this Agreement.
Participation in any benefit plans shall be in addition to the compensation
provided for in Section 3.1.
3.4 Business Expenses. Employer shall provide Employee with a corporate
credit card for Employee's use. Employee shall not use the credit card other
than for business expenses. All corporate travel, hotels, meals and
entertainment and other business expenses including cellular telephone will be
paid for by the Employer. Itemization and business expense forms with original
receipts will be turned in monthly for reimbursement. Employer will cover any
professional seminars, conferences attended, as well as professional
organizational memberships and dues.
4. TERMINATION OF EMPLOYMENT
4.1 Termination by Employer. The Employee's employment hereunder may be
terminated by Employer under the following circumstances:
4.1.1 Death of Employee. This Agreement shall terminate automatically
without notice upon the death of Employee.
4.1.2 Disability. This Agreement shall not terminate upon the temporary
disability of the Employee, but the Employer may terminate this Agreement upon
the permanent disability of the Employee. Employee shall be permanently disabled
if: (1) he is disabled as defined in a disability insurance policy purchased by
or for the benefit if the Employee; or (2) he is unable because of a medical,
physical, or mental condition to perform substantially all of his duties for 9
consecutive months for Employer that he performed prior to such incapacitation.
4.1.3 With Cause. Employer may terminate Employee's employment at any
time for "cause." For purposes of this Agreement, the Employer shall have
"Cause" to terminate the Employee's employment hereunder upon the following: (1)
the willful and continued failure by the Employee substantially to perform his
duties hereunder (other than failure resulting from the Employee's incapacity
due to physical or mental illness); or (2) the willful engaging by the Employee
in misconduct which is materially injurious to the Employer, monetarily or
otherwise. For purposes of this paragraph, no act, or failure to act, on the
part of the Employee shall be considered "Willful" unless done, or omitted to be
done, not in good faith and without reasonable belief by him that his action or
omission was in the best interest of the Employer. Notwithstanding the
foregoing, the Employee shall not be deemed to have been terminated for Cause
without (i) reasonable notice to the Employee setting forth reasons for the
Employer's
3
<PAGE>
intention to terminate of Cause and granting Employee 90 days to cure the remedy
(if possible) the reasons for termination; (ii) an opportunity for the Employee,
together with his counsel, to be heard before the Board, and (iii) delivery to
the Employee of a Notice of Termination as defined in section 4.2 hereof from
the board finding that in the good faith opinion of the Board the Employee was
guilty of misconduct set forth above in clause (1) or (2) of the preceding
paragraph and was unable to cure or remedy the reasons for termination, and
specifying the particulars thereof in detail.
4.1.4 Without Cause. The Employer may terminate Employee's employment
without cause or reason upon ninety (90) days written notice following a
majority vote of the Board of Directors and subject to the provisions below.
4.2 Termination By Employee. The Employee's employment hereunder may be
terminated by Employee under the following circumstances:
4.2.1 Resignation For Good Reason. Employee may resign his employment
upon Fifteen (15) days written notice for "good reason." For purposes of this
provision, "good reason" shall exist if any other the following have occurred at
any time within 180 days of Employee's notice:
(i) Employer makes a general assignment for the benefit of
creditors, files a voluntary bankruptcy petition, files a petition or answer
seeking a reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any law, there shall have been filed any
petition or application for the involuntary bankruptcy of Employer, or other
similar proceeding, in which an order for relief is entered or which remains
undismissed for a period of 30 days or more, or Employer seeks, consents to, or
acquiesces in the appointment of a trustee, receiver, or liquidator of Employer
or any material party of its assets; or
(ii) there are material changes in Employee's titles,
duties, or responsibilities without his express written consent; or
(iii) the Employer fails to pay Employee the compensation
and benefits required under this Agreement.
4.2.2 For Other Than Good Reason. Employee may resign "at-will" or for
any reason other than "good reason" upon Ninety (90) days written notice to
Employer.
4.3 Notice of Termination. Any terminations of the Employee's employment
by the Employer or by the Employee shall be communicated by written "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
employment under the provision so indicated.
4.4 Date of Termination. "Date of Termination" shall mean (i) if the
Employee's employment is terminated by his death, the date of his death; and
(ii) if the Employee's employment is terminated for any other reason, the date
on which a Notice of Termination is received by Employer or Employee.
4
<PAGE>
4.5 Payment of Salary, Vacation, and Incentive Bonus Upon Termination or
Resignation. Upon termination or resignation for any reason, Employee shall
receive all compensation earned through the termination date and shall also
receive payment for all accrued but unused vacation at Employee's then current
base salary. Employee shall also receive his Incentive Bonus for the fiscal
quarter in process at the Date of Termination. Employee shall also be reimbursed
for all reasonable expenses incurred through the Date of Termination.
4.6 Supplemental Severance Compensation. In the event that Employee is
terminated for reasons other than death or permanent disability (as defined
above), Employer shall pay Employee a lump sum severance payment equal to two
times the Employee's annual salary and earned bonuses as of the Date of
Termination, which amount shall be paid within five business days of the date of
Notice of Termination is delivered to Employee. In addition, all unvested stock
options shall become fully vested.
4.6.1 In the event Employee is terminated because of permanent
disability of the Employee as described in Section 3.1.(b) Employee shall be
entitled to receive all compensation payable up to the Date of Termination
notwithstanding his temporary or permanent disability; any such payment however,
shall be reduced by disability insurance benefits, if any, paid to Employee
under policies (other than group policies) for which Employer pays all premiums
and Employee is the beneficiary.
4.7 Remedies. Any termination of this Agreement shall not prejudice any
other remedy to which the Employer or Employee may be entitled, either at law,
equity, or under this Agreement.
5. INDEMNIFICATION
5.1 Indemnification. To the fullest extent permitted by applicable law,
Employer agrees to indemnify, defend and hold Employee harmless from any and all
claims, actions, costs, expenses, damages and liabilities, including without
limitation, reasonable attorneys' fees, hereafter or heretofore arising out of
or in connection with activities of Employer or its employees, including
Employee, or other agents in connection with and within the scope of this
Agreement or by reason of the fact that he is or was a director or officer of
Employer or any affiliate of Employer. To the fullest extent permitted by
applicable law, Employer shall advance to Employee expenses of defending any
such action, claim or proceeding. However, Employer shall not indemnify Employee
or defend Employee against, or hold him harmless from any claims, damages,
expenses or liabilities, including attorneys' fee, resulting from the gross
negligence or willful misconduct of Employee. The duty to indemnify shall
survive the expiration or early termination of this Agreement as to any claims
based on facts or conditions which occurred or are alleged to have occurred
prior to expiration or termination.
6. GENERAL PROVISIONS
6.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
5
<PAGE>
6.2 Entire Agreement. This Agreement supersedes any and all other
Agreements, whether oral or in writing between the parties with respect to the
employment of the Employee by the Employer.
6.3 Successors and Assigns. This Agreement, all terms and conditions
hereunder, and all remedies arising herefrom, shall inure to the benefit of and
be binding upon Employer, any successor in interest to all or substantially all
of the business and/or assets of the Employer, and the heirs, administrators,
successors and assigns of Employee. Except as provided in the preceding
sentence, the rights and obligation of the parties hereto may not be assigned or
transferred by either party without the prior written consent of the other
party.
6.4 Notices. For purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement, shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid as follows:
If to Employee:
Eric A. McAfee
7502 Fallenleaf Lane
Cupertino, CA 95014
If to Employer:
eCommercial.com, Inc.
95 Enterprise, Ste. 360
Aliso Viejo, CA 92656
Attn: Human Resources
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
6.5 Severability. If any provision of this Agreement is prohibited by or
is unlawful or unenforceable under any applicable law of any jurisdiction as to
such jurisdiction, such provision shall be ineffective to the extent of such
prohibition without invalidating the remaining provisions hereof.
6.6 Section Headings. The section headings used in this Agreement are for
convenience only and shall not affect the construction of any terms of this
Agreement.
6.7 Survival of Obligations. Termination of this Agreement for any reason
shall not relieve Employer or Employee of any obligation accruing or arising
prior to such termination.
6.8 Amendments. This Agreement may be amended only by written agreement of
both Employer and Employee.
6
<PAGE>
6.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original but all of which, when
taken together, shall constitute only one legal instrument. This Agreement shall
become effective when copies hereof, when taken together, shall bear the
signatures of both parties hereto. It shall not be necessary in making proof of
this Agreement to produce or account for more than one such counterpart.
6.10 Fees and Costs. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys fees, costs and necessary disbursements in
addition to any other relief to which that party may be entitled.
6.11 Conflicts With Change in Control Agreement. For any provision of this
agreement which conflicts with any provision of Employee's Change in Control
Agreement, the provision of this Agreement shall take precedence.
"EMPLOYER"
eCommercial.com Inc.
By______________________________
Chief Operating Officer
"EMPLOYEE"
________________________________
Eric A. McAfee
7
<PAGE>
EXHIBIT 10.6
eCommercial.com, Inc.
CHANGE IN CONTROL
and
EXECUTIVE RETENTION AGREEMENT
September 28, 1999
Thomas J. Blakeley
2923 Via San Gorgonio
San Clemente, California 92672
Dear Mr. Blakeley:
eCommercial.com, Inc., for itself, its successors and assigns
(collectively, the "Company") considers it essential to the best interests of
-------
its shareholders to foster the continued employment of key management personnel.
As is the case with many publicly-held corporations, the Board of Directors of
the Company (the "Board") recognizes that the possibility of a change in control
of the Company may exist. This possibility raises a great deal of uncertainty
and questions among management, and could lead to the departure or distraction
of management personnel to the detriment of the Company and its stockholders.
The Board has determined that appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of members of the Company's
senior management, including you, to their assigned duties without distraction
in the face of potentially disturbing circumstances arising from the possibility
of a change in control of the Company.
In order to induce you to remain in the employ of the Company so that you
may continue to exercise your special skills and knowledge on behalf of the
Company, and to assist the Board of Directors in the event a change in control
transaction is considered, the Company agrees that you shall receive the
severance benefits set forth in this letter agreement ("Agreement") in the event
your employment with the Company is terminated within the meaning of this
Agreement following a change in control of the Company (as "Change in Control"
is defined below) during the term or any extended term of this Agreement
This Agreement is not intended to alter materially the compensation and
benefits that you could reasonably expect in the absence of a Change in Control
of the Company and, accordingly, this Agreement, though taking effect upon
execution hereof, will be operative only upon a Change in Control of the
Company, in which event, it will supercede any then existing or operative
employment agreements.
<PAGE>
Thomas J. Blakeley
11/23/99
Page 2
1. Term of Agreement. This Agreement shall commence on the date hereof
-----------------
and shall continue in effect through December 31, 2001; provided, however,
that (i) commencing on January 1, 2002 and each January 1 thereafter, the
term of this Agreement shall automatically be extended for one additional
year unless, not later than September 30 of the preceding year, the Company
shall have given notice to you that it does not wish to extend this
Agreement; (ii) if a "Change in Control" of the Company occurs during the
original or extended term of this Agreement, this Agreement shall continue
in effect for a period of thirty-six (36) months beyond the month in which
such Change in Control occurs; and (iii) the Company shall have no right to
give notice that it does not wish to extend this Agreement during any
period while a tender offer for the purchase of a substantial portion of
the Company's common shares is outstanding or a proxy contest for the
election of directors to the Board is in progress or the Company is
conducting discussions or taking any other action which is reasonably
likely to lead to a Change in Control, and no purported notice by the
Company that it does not wish to extend this Agreement shall become
effective if a Change in Control actually occurs during the period of 180
days following the delivery of such notice to you.
2. Change in Control. No benefits shall be payable hereunder unless
-----------------
there shall have been a Change in Control of the Company as set forth
below. For purposes of this Agreement a Change in Control of the Company
shall mean a change in control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), whether or not the Company is then subject to such
------------
reporting requirement; provided that, without limitation, such a Change in
Control shall be deemed to have occurred if (i) any "person" (as such term
is used in Section 13(d) and 14(d) of the Exchange Act), other than a
trustee or other fiduciary holding securities under an employee benefit
plan of the Company, is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities
of the Company representing thirty-five percent (35%) or more of the
combined voting power of the Company's then outstanding voting securities;
(ii) there is a merger or consolidation of the Company in which the Company
does not survive as an independent public company; (iii) the business or
businesses of the Company for which your services are principally performed
are disposed of by the Company pursuant to a partial or complete
liquidation of the Company, a sale of assets (including stock of a
subsidiary) of the Company, or otherwise; or (iv) during any period of two
(2) consecutive years during the term of this Agreement, individuals who,
at the beginning of such period constitute the Board, cease for any reason
to constitute at least a majority thereof, unless the election of each
director who was not a director at the beginning of such period has been
approved in advance by directors representing at least two-thirds of the
directors then in office who were directors at the beginning of the period.
No transaction which effects a mere reincorporation of the Company, or a
transaction which reorganizes the Company, shall be considered a "Change in
Control" for purposes of this Agreement.
3. Termination After Change In Control. If any of the events described in
-----------------------------------
Section 2 hereof constituting a Change in Control have occurred, you shall
be entitled to the benefits provided in Section 4 hereof upon the
termination of your employment during the term of this
<PAGE>
Thomas J. Blakeley
11/23/99
Page 3
Agreement, unless such termination is because of (a) your death or
disability or (b) by you other than for Good Reason.
3.1. Disability. If, as a result of your incapacity due to physical
----------
or mental illness, you shall have been absent from the full-time
performance of your duties with the Company for six (6) consecutive
months, and within thirty (30) days after written notice of
termination is given you shall not have returned to the full-time
performance of your duties, your employment may be terminated for
"Disability." Termination by the Company or you of your employment
based on "Retirement" shall mean termination in accordance with the
Company's retirement policy at normal retirement age generally
applicable to its salaried employees or in accordance with any
retirement arrangement established with your consent with respect to
you.
3.2. Cause. Termination by the Company of your employment for
-----
"Cause" shall mean termination upon (A) the willful and continued
failure by you to substantially perform your duties with the Company
(other than any such failure resulting from your incapacity due to
physical or mental illness or any such actual or anticipated failure
after the issuance of a Notice of Termination, as defined in
Subsection 3.4, by you for Good Reason) after a written demand for
substantial performance is delivered to you by the Board, which demand
specifically identifies the manner in which the Board believes that
you have not substantially performed your duties, or (B) the willful
engaging by you in conduct which is demonstrably and materially
injurious to the Company, monetarily or otherwise. For purposes of
this subsection, no act, or failure to act, on your part shall be
deemed "willful" unless done, or omitted to be done, by you not in
good faith and without reasonable belief that your action or omission
was in the best interest of the Company. Notwithstanding the
foregoing, you shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to you a copy of a
resolution duly adopted by the affirmative vote of not less than
three-quarters (3/4) of the entire membership of the Board at a
meeting of the Board called and held for such purpose (after
reasonable notice to you and an opportunity for you, together with
your counsel, to be heard before the Board), finding that in the good
faith opinion of the Board you were guilty of conduct set forth above
in clauses (A) or (B) of the first sentence of this Subsection and
specifying the particulars thereof in detail.
3.3. Good Reason. You shall be entitled to terminate your employment
-----------
for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean, without your express written consent, any of the following:
3.3.1. a substantial adverse alteration in the nature or
status of your responsibilities from those in effect immediately
prior to a Change in Control;
3.3.2. the transfer of your responsibilities to an office or
location more than 25 miles more distant from your place of
residence immediately prior to a Change in Control, or the
Company requiring you to be based anywhere other than the
metropolitan area in which you are based prior to a Change in
Control, except for
<PAGE>
Thomas J. Blakeley
11/23/99
Page 4
required travel on the Company's business to an extent
substantially consistent with your business travel obligations
prior to the Change in Control;
3.3.3. a reduction by the Company in your annual base salary, bonus
computation, as in effect on the date hereof or as the same may
be increased from time to time;
3.3.4. the failure by the Company, without your consent, to pay to
you any portion of your current compensation, or to pay to you
any portion of an installment of deferred compensation under any
deferred compensation program of the Company within seven (7)
days of the date such compensation is due;
3.3.5. the failure by the Company to continue in effect any
compensation plan in which you participate, unless an equitable
and substantially equivalent arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to
such plan, or the failure by the Company to continue your
participation therein on a basis not materially less favorable,
both in terms of the amount of benefits provided and the level of
your participation relative to other participants, as existed at
the time of the Change in Control;
3.3.6. the failure by the Company to continue to provide you with
benefits substantially similar to those enjoyed by you under any
of the Company's pension, retirement, savings, deferred
compensation, auto allowance, life insurance, medical, health and
accident, or disability plans (whether or not qualified under the
Internal Revenue Code) in which you were participating at the
time of a Change in Control, the taking of any action by the
Company which would directly or indirectly materially reduce any
of such benefits or deprive you of any material fringe benefit
enjoyed by you at the time of the Change in Control, or the
failure by the Company to provide you with the number of paid
vacation days to which you are entitled on the basis of years of
service with the Company in accordance with the Company's normal
vacation policy in effect at the time of the Change in Control;
3.3.7. the failure of the Company to obtain a satisfactory
agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 5 --hereof, or
3.3.8. any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the
requirements of Subsection 3.4 below (and, if applicable, the
requirements of Subsection 3.2 above); for purposes of this
Agreement, no such purported termination shall be effective.
Your right to terminate your employment pursuant to this Subsection
3.3 shall not be affected by your incapacity due to physical or mental illness.
Your continued employment shall not constitute consent to, or a waiver of rights
with respect to, any circumstance constituting Good Reason hereunder.
<PAGE>
Thomas J. Blakeley
11/23/99
Page 5
3.4. Notice of Termination. Any purported termination of your
---------------------
employment by the Company or by you shall be communicated by written
Notice of Termination to the other party hereto in accordance with
Section 6 hereof for purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of your employment under the provision
so indicated.
3.5. Date of Termination. "Date of Termination" shall mean (A) if
-------------------
your employment is terminated for Disability, thirty (30) days after
Notice of Termination is given (provided that you shall not have
returned to the full-time performance of your duties during such
thirty (30) day period), and (B) if your employment is terminated
pursuant to Subsection 3.2 or 3.4 above or for any reason other than
Disability, the date specified in the Notice of Termination (which, in
the case of a termination pursuant to Subsection (ii) above shall not
be less than thirty (30) days, and in the case of a termination
pursuant to Subsection (iii) above shall not be less than thirty (30)
nor more than sixty (60) days, respectively, from the date such Notice
of Termination is given); provided that if within thirty (30) days
after any Notice of Termination is given the party receiving such
Notice of Termination notifies the other party that a dispute exists
concerning the termination, the Date of Termination shall be the date
on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a
final judgment, order or decree of a court of competent jurisdiction
(which is not appealable or the time for appeal therefrom having
expired and no appeal having been perfected); provided further that
the Date of Termination shall be extended by a notice of dispute only
if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Company will
continue to pay you your full compensation in effect when the notice
giving rise to the dispute was given (including, but not limited to,
base salary) and continue you as a participant in all compensation,
pension, benefit and insurance plans in which you were participating
when the notice giving rise to the dispute was given, until the
dispute is finally resolved in accordance with this Subsection.
Amounts paid under this Subsection are in addition to all other
amounts due under this Agreement and shall not be offset against or
reduce any other amounts due under this Agreement.
4. Compensation Following Termination. Following a Change in Control, as
----------------------------------
defined by Section 2, upon termination of your employment or during a
period of disability you shall be entitled to the following benefits:
4.1. During any period that you fail to perform your full-time duties
with the Company as a result of incapacity due to physical or mental
illness, you shall continue to receive your base salary at the rate in
effect at the commencement of any such period, together with all
compensation payable to you under the Company's short-term and long-
<PAGE>
Mr. Thomas J. Blakeley
11/23/99
Page 6
term disability insurance program or other plan during such period,
until this Agreement is terminated pursuant to Section 3 hereof.
Thereafter, your benefits shall be determined in accordance with the
Company's insurance and retirement programs then in effect.
4.2. If your employment shall be terminated by the Company for cause
or by you other than for Good Reason, Disability, Death or Retirement,
the Company shall pay you your full base salary through the Date of
Termination at the rate in effect at the time Notice of Termination is
given, plus all other amounts to which you are entitled under any
compensation plan of the Company at the time such payments are due,
and the Company shall have no further obligations to you under this
Agreement.
4.3. If your employment shall be terminated by the Company or by you
for Retirement, or by reason of your Death, your benefits shall be
determined in accordance with the Company's retirement and insurance
programs then in effect.
4.4. If your employment shall be terminated (a) by the Company other
than for Cause, Retirement or Disability or (b) by you for Good
Reason, then you shall be entitled to the benefits provided below:
4.4.1. The Company shall pay you your full base salary through your
Date of Termination at the rate in effect at the time Notice of
Termination is given, plus all other amounts to which you are
entitled under any compensation plan of the Company, at the time
such payments are due except as otherwise provided below;
4.4.2. In lieu of any further salary payments to you for periods
subsequent to your Date of Termination, the Company shall pay as
severance pay to you a lump sum severance payment (the "Severance
Payment") equal to two (2) times the sum of (x) your annual base
salary in effect immediately prior to the occurrence of the
circumstance giving rise to the Notice of Termination given in
respect thereof, and (y) the amount of any bonus paid to you
during the 12 calendar months preceding the occurrence of the
circumstance which provided the reason for the Notice of
Termination given in respect thereof or, if no bonus was paid the
prior fiscal year because you were hired within the previous
sixteen months, an amount equal to your stated bonus opportunity
for the current fiscal year. In addition, the Company shall pay
your current auto allowance for a 36-month period.
4.4.3. Effective upon your Date of Termination you shall become
vested with all unvested benefits which you have then accrued
under any stock option, retirement or deferred compensation plan,
program or agreement of the Company in which you participate,
payable subject to the same actuarial and interest factors
applicable and in accordance with the options available and
selected by you under such plans or programs.
4.4.4. For a thirty-six (36) month period after such termination,
the Company shall arrange to provide you and any of your
dependents with life, disability,
<PAGE>
Mr. Thomas J. Blakeley
11/23/99
Page 7
accident and health insurance benefits substantially similar to
those which you and any of your dependents were receiving from
the Company immediately prior to the Notice of Termination
(however, you must make the required "employee contribution
payments," if any, to the Company on a monthly basis in the same
amount as before the Date of Termination or, in the case of
termination for Good Reason under paragraph 3.3 of this
Agreement, immediately prior to the reduction of benefits.
4.4.5. The Company shall also pay to you all legal fees and
expenses incurred by you as a result of such termination
(including all such fees and expenses, if any, incurred in
contesting or disputing any such termination or in seeking to
obtain or enforce any right or benefit provided by this
Agreement), except to the extent that the payment of such fees
and expenses would constitute, or would cause any other portion
of the Total Payments to constitute, an Excess Parachute Payment
as defined below.
4.4.6. Reduction For Excess Parachute Payments. In the event that
---------------------------------------
any payment or benefit received or to be received by you in
connection with a Change in Control or the termination of your
employment following a Change in Control (whether pursuant to the
terms of this Agreement or any other plan, arrangement or
agreement with the Company, with any person whose actions result
in a Change in Control or any person affiliated with the Company
or such person (collectively with the Severance Payment, "Total
Payments") would constitute (in whole or in part) an Excess
Parachute Payment, the Severance Payment shall be reduced until
no portion of the Total Payments shall constitute an Excess
Parachute Payment.
4.4.6.1. Within six (6) days following delivery of written
notice by the Company to you of the Company's belief that
there is a payment due or benefit due which will result in
an excess parachute payment as defined in Section 280G of
the Code or any successor provision, the Company and you, at
the Company's expense, shall obtain the opinion of legal
counsel and certified public accountants, as the Company and
you may mutually agree upon, which opinions need not be
unqualified, which sets forth (i) the amount of your Base
Period Income, as defined in Section 280G of the Code, (ii)
the present value of Total Payments, and (iii) the amount
and present value of any excess parachute payments.
4.4.6.2. In the event such opinions determine that there
would be an excess parachute payment, the Termination
Payment hereunder or any other payment determined by such
counsel to be includable in Total Payments shall be reduced
or eliminated in the following order: (i) by the amount of
any options to purchase shares of the Company's capital
stock which have had their vesting rights accelerated
hereunder, and then (ii) by the amount of any cash received
hereunder, so that under the bases of calculation set forth
in such opinions there will be no excess parachute payment.
<PAGE>
Mr. Thomas J. Blakeley
11/23/99
Page 8
4.4.6.3. The provisions of this Section, including the
calculations, notices, and opinions provided for herein
shall be based upon the conclusive presumption that (X) the
compensation and benefits provided herein and (Y) any other
compensation, including but not limited to any accrued
benefits, earned by you prior to the Change in Control of
the Company pursuant to the Company's compensation programs
if such payments would have been made in the future in any
event, even though the timing of such payment is triggered
by the Change in Control of the Company, is reasonable,
provided, however, that in the event such legal counsel so
requests in connection with the Section 280G opinion
required by this Section, the Company and you shall obtain,
at the Company's expense, and the legal counsel may rely on
in providing the opinion, the advice of a firm of recognized
executive compensation consultants as to the reasonableness
of any item of compensation to be received by you.
4.4.6.4. For purposes of this limitation (i) no portion of
the Total Payments, the receipt or enjoyment of which you
shall have effectively waived in writing prior to the date
of payment of the Severance Payment shall be taken into
account; and (ii) no portion of the Total Payments shall be
taken into account which in the opinion of the tax counsel
selected by the Company and acceptable to you does not
constitute a "parachute payment" within the meaning of
section 28OG(b)(2) of the Code
4.4.6.5. In the event that the provisions of Sections 280G
and 4999 of the Code or any successor provision are repealed
without succession this Section shall be of no further force
or effect.
4.4.7. The payment provided for in Section 4.4.2 above shall
be made not later than the fifth day following the Date of
Termination; provided, however, that if the amount of such
payments, and the limitation on such payments set forth in
Section 4.4.6 above, cannot be finally determined on or before
such day, the Company shall pay to you on such day an estimate,
as determined in good faith by the Company, of the minimum amount
of such payments and shall pay the remainder of such payments
(together with interest at the rate provided in Section
1274(b)(2)(B) of the Code) as soon as the amount thereof can be
determined but in no event not later than the thirtieth day after
the Date of Termination. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to
have been due, such excess shall constitute a loan by the Company
to you, payable on the fifth day after demand by the Company
(together with interest at the rate provided in Section 1274 (b)
(2)(B) of the Code).
4.4.8. The Company shall, if requested by you within six (6)
months following the Date of Termination, pay for senior
executive outplacement services.
<PAGE>
Mr. Thomas J. Blakeley
11/23/99
Page 9
4.5. You shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or
otherwise, nor shall the amount of any payment or benefit provided for
in this Section 4 be reduced by any compensation earned by you as the
result of employment by another employer, by retirement benefits, by
offset against any amount claimed to be owing by you to the Company or
otherwise.
5. Successors; Binding Agreement.
-----------------------------
5.1. The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to
assume expressly and agree in writing to perform this Agreement.
Failure of the Company to obtain such assumption and agreement prior
to the effectiveness of any such succession shall be a breach of this
Agreement and shall require the Company to pay to you compensation
from the Company in the same amount and on the same terms as you would
be entitled hereunder following a Change in Control of the Company
coupled with a Termination, except that for purposes of implementing
the foregoing, the date on which any such succession becomes effective
shall be deemed the date on which you shall receive such compensation
from the Company. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
5.2. This Agreement shall inure to the benefit of and be enforceable
by your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisee and legatees. If you should
die while any amount would still be payable to you hereunder if you
had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement
to your devises, legatee or other designee or, if there is no such
designee to your estate.
6. Notice. For purposes of this Agreement, notices and all other
------
communications provided for in this Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
Registered mail, return receipt requested, postage prepaid, addressed to
the respective addresses set forth on the first page of this Agreement,
provided that all notices to the Company shall be directed to the attention
of the Board with a copy to the Secretary of the Company, or to such other
address as either party may have furnished to the other in writing in
accordance herewith, except that notice of a change of address shall be
effective only upon receipt.
7. Miscellaneous. No provision of this Agreement may be modified,
-------------
waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by you and such officer as may be
specifically designated by the Board. No waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with,
any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior
<PAGE>
Mr. Thomas J. Blakeley
11/23/99
Page 10
or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been
made by either party which are not expressly set forth in this Agreement.
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of California.
8. Validity. The invalidity or unenforceability of any provision of this
--------
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9. Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
10. Entire Agreement. This Agreement constitutes the entire agreement of
----------------
the Parties with respect to the subject matter hereof and supersedes any
prior or contemporaneous agreements or understandings relating to the
subject matter hereof.
11. Headings. The headings of the Articles and Paragraphs of this
--------
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
12. Severability. The provisions of this Agreement are severable. The
------------
invalidity, in whole or in part, of any provision of this Agreement shall
not affect the validity or enforceability of any other of its provisions.
If one or more provisions hereof shall be so declared invalid or
unenforceable, the remaining provisions shall remain in full force and
effect and shall be construed in the broadest possible manner to effectuate
the purposes hereof. The parties further agree to replace such void or
unenforceable provisions with provisions which will achieve, to the extent
possible, the economic, business and other purposes of the void or
unenforceable provisions.
13. Attorneys' Fees. In the event any party to this Agreement initiates
---------------
any action, suit, motion, application, arbitration or other proceeding
which concerns the interpretation or enforcement of this Agreement, the
prevailing party in such action, suit, motion, application, arbitration or
other proceeding, or judgment creditor, shall be entitled to recover its
costs and attorneys' fees from the nonprevailing party or judgment debtor,
including costs and fees on appeal, if any.
14. Arbitration. Any dispute or controversy arising under or in connection
-----------
with this Agreement shall be settled exclusively by arbitration in Orange
----------------------------------
County, California in accordance with the rules of the American Arbitration
Association then in effect, Discovery shall be allowed and shall be
governed under the discovery rules of the California Code of Civil
Procedure.
14.1. Judgment may be entered on the arbitrator's award in any court
having jurisdiction; provided, however, that you shall be entitled to
seek specific performance
<PAGE>
Mr. Thomas J. Blakeley
11/23/99
Page 11
of your right to be paid until the Date of Termination during the
pendency of any dispute or controversy arising under or in connection
with this Agreement.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our agreement on this subject.
Sincerely,
eCommercial.com
a Nevada Corporation
By:_______________________________________
Its:_________________________________
AGREED TO THIS ________
day of _______________, 1999
_________________________________
(Signature)
_________________________________
(Print Name)
Approved by the Board of Directors of eCommercial.com on _______________, 1999.
<PAGE>
EXHIBIT 10.7
ECOMMERCIAL.COM, INC.
1999 STOCK OPTION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
I. THE PLAN ................................................................... 1
1.1 Purpose............................................................ 1
1.2 Administration..................................................... 1
1.3 Participation...................................................... 2
1.4 Shares Available Under the Plan.................................... 2
1.5 Grant of Awards.................................................... 2
1.6 Exercise of Awards................................................. 2
1.7 No Transferability; Limited Exception to Transfer Restrictions..... 2
II. OPTIONS..................................................................... 4
2.1 Grants............................................................. 4
2.2 Option Price....................................................... 4
2.3 Option Period...................................................... 5
2.4 Exercise of Options................................................ 5
2.5 Limitations on Grant of Incentive Stock Options.................... 5
III. RESTRICTED STOCK AWARDS..................................................... 6
3.1 Grants............................................................. 6
3.2 Restrictions....................................................... 6
IV. OTHER PROVISIONS............................................................ 6
4.1 Rights of Eligible Employees, Participants & Beneficiaries......... 6
4.2 Adjustments Upon Changes in Capitalization......................... 7
4.3 Termination of Employment.......................................... 7
4.4 Change in Control.................................................. 9
4.5 Government Regulations............................................. 9
4.6 Tax Withholding.................................................... 10
4.7 Amendment, Termination and Suspension.............................. 10
4.8 Privileges of Stock Ownership...................................... 11
4.9 Effective Date of the Plan......................................... 11
4.10 Term of the Plan................................................... 11
4.11 Governing Law...................................................... 11
4.12 Plan Construction.................................................. 11
4.13 Non-Exclusivity of Plan............................................ 11
V. DEFINITIONS................................................................. 12
5.1 Definitions........................................................ 12
</TABLE>
<PAGE>
ECOMMERCIAL.COM, INC.
1999 STOCK OPTION PLAN
I. THE PLAN.
1.1 Purpose.
-------
The purpose of this Plan is to promote the success of the Company, by providing
an additional means to attract, motivate and retain key personnel, consultants,
advisors and knowledgeable Directors through the grant of Awards that provide
added long term incentives for high levels of performance and for significant
efforts to improve the financial performance of the Company. Capitalized terms
used herein are defined in Section 5.1.
1.2 Administration.
--------------
(a) This Plan shall be administered by the Board. Action of the Board with
respect to the administration of this Plan shall be taken pursuant to a majority
vote or the unanimous written consent of its members. In the event action by the
Board is taken by written consent, the action shall be deemed to have been taken
at the time specified in the consent or, if none is specified, at the time of
the last signature. The Board may delegate administrative functions to
individuals who are Officers or employees of the Company.
(b) Subject to the express provisions of this Plan, the Board shall have
the authority to construe and interpret this Plan and any agreements defining
the rights and obligations of the Company and Participants under this Plan, to
further define the terms used in this Plan, to prescribe, amend and rescind
rules and regulations relating to the administration of this Plan, to determine
the duration and purposes of leaves of absence which may be granted to
Participants without constituting a termination of their employment or
consulting services for purposes of this Plan, to accelerate or extend the
exercisability or extend the term of any or all outstanding Awards within the
maximum term of such Awards required by Section 2.3 or applicable law, and to
make all other determinations necessary or advisable for the administration of
this Plan. The determination of the Board on any of the foregoing matters shall
be conclusive.
(c) Any action taken by, or inaction of, the Company, any Subsidiary or
the Board relating to this Plan shall be within the absolute discretion of that
entity or body. No member of the Board, or Officer of the Company or any
Subsidiary, shall be liable for any such action or inaction.
(d) In making any determination or in taking or not taking any action
under this Plan, the Company, any Subsidiary or the Board may obtain and rely
upon the advice of experts, including professional advisors to the Company. No
member of the Board, or Officer of the Company or any Subsidiary, shall be
liable for any such action or determination made or omitted.
-2-
<PAGE>
1.3 Participation.
-------------
Awards may be granted only to Eligible Employees. An Eligible Employee who
has been granted an Award may, if otherwise eligible, be granted additional
Awards if the Board shall so determine.
1.4 Shares Available Under the Plan.
-------------------------------
Subject to the provisions of Section 4.2, the capital stock that may be
delivered under this Plan shall be shares of the Company's authorized but
unissued Common Stock and any shares of its Common Stock held as treasury
shares. The aggregate maximum number of shares of Common Stock that may be
issued or transferred pursuant to Awards (including Incentive Stock Options)
granted under this Plan shall not exceed 2,400,000 shares. The maximum number of
shares that may be subject to Options that are granted during any calendar year
to any individual shall not exceed 100,000 shares. Each of the foregoing
numerical limits shall be subject to adjustment as contemplated by this Section
1.4 and Section 4.2. If any Option shall lapse or be cancelled or terminate
without having been exercised in full, or any Common Stock subject to a
Restricted Stock Award shall not vest, the unpurchased, unvested or
nontransferred shares subject thereto shall again be available for purposes of
this Plan.
1.5 Grant of Awards.
---------------
Subject to the express provisions of this Plan, the Board shall determine from
the class of Eligible Employees those individuals to whom Awards under this Plan
shall be granted, the terms of Awards (which need not be identical) and the
number of shares of Common Stock subject to each Award. Each Award shall be
subject to the terms and conditions set forth in this Plan and such other terms
and conditions established by the Board as are not inconsistent with the purpose
and provisions of this Plan. The grant of an Award is made on the Award Date.
1.6 Exercise of Awards.
------------------
An Option shall be deemed to be exercised when the Secretary of the Company
receives written notice of such exercise from the Participant, together with
payment of the purchase price made in accordance with Section 2.2(a), except to
the extent payment may be permitted to be made following delivery of written
notice of exercise in accordance with Section 2.2(b). Notwithstanding any other
provision of this Plan, the Board may impose, by rule and in Awards Agreements,
such conditions upon the exercise of Awards (including, without limitation,
conditions limiting the time of exercise to specified periods) as may be
required to satisfy applicable regulatory requirements.
1.7 No Transferability; Limited Exception to Transfer Restrictions.
--------------------------------------------------------------
(a) Unless otherwise expressly provided below (or pursuant to) this
Section 1.7, by applicable law and by the Award Agreement, as the same may be
amended, (i) all Awards are non-transferable and shall not be subject in any
manner to sale, transfer, anticipation, alienation, assignment, pledge,
encumbrance or charge; Awards shall be exercised only by the Participant; and
(ii) amounts payable or shares issuable pursuant to an Award shall be delivered
only to (or for the account of) the Participant.
-3-
<PAGE>
(b) The Board may permit Awards to be exercised by and paid to certain
persons or entities related to the Participant, including but not limited to
members of the Participant's immediate family and/or charitable institutions, or
to such other persons or entities as may be approved by the Board, pursuant to
such conditions and procedures as the Board may establish. Any permitted
transfer shall be subject to the condition that the Board receive evidence
satisfactory to it that the transfer is being made for estate and/or tax
planning purposes on a gratuitous or donative basis and without consideration
(other than minimal consideration). Notwithstanding the foregoing, Incentive
Stock Options and Restricted Stock Awards shall be subject to any and all
additional transfer restrictions under the Code.
(c) The exercise and transfer restrictions in Section 1.7(a) shall not
apply to: (i) transfers to the Company; (ii) the designation of a beneficiary to
receive benefits in the event of the Participant's death or, if the Participant
has died, transfers to or exercise by the Participant's beneficiary, or in the
absence of a validly designated beneficiary, transfers by will or the laws of
descent and distribution; (iii) transfers pursuant to a QDRO order if approved
or ratified by the Board; (iv) if the Participant has suffered a Total
Disability, permitted transfers or exercises on behalf of the Participant by his
legal representative; or (v) the authorization by the Board of "cashless
exercise" procedures with third parties who provide financing for the purpose of
(or who otherwise facilitate) the exercise of Awards consistent with applicable
laws and the express authorization of the Board.
II. OPTIONS.
2.1 Grants.
------
One or more Options may be granted to any Eligible Employee or Consultant.
Each Option so granted shall be designated by the Board as either a Nonqualified
Stock Option or an Incentive Stock Option; provided, however, that consultants
or advisors may not be granted Incentive Stock Options under the Plan.
2.2 Option Price.
------------
(a) The purchase price per share of Common Stock covered by each Option
shall be determined by the Board, but in the case of Incentive Stock Options
shall not be less than 100% (110% in the case of a Participant who owns more
than 10% of the total combined voting power of all classes of stock of the
Company) of the Fair Market Value of the Common Stock on the date the Incentive
Stock Option is granted. The purchase price of any shares purchased shall be
paid in full at the time of each purchase in one or a combination of the
following methods: (i) in cash or by check payable to the order of the Company,
(ii) if authorized by the Board or specified in the Option being exercised, by a
promissory note made by the Participant in favor of the Company, upon the terms
and conditions determined by the Board, and secured by the Common Stock issuable
upon exercise in compliance with applicable law (including, without limitation,
state corporate law and federal margin requirements) or (iii) if authorized by
the Board or specified in the Option being exercised, by shares of Common Stock
of the Company already owned by the Participant; provided, however, that any
shares delivered which were initially acquired upon exercise of a stock option
must have been owned by the Participant at
-4-
<PAGE>
least six months as of the date of delivery. Shares of Common Stock used to
satisfy the exercise price of an Option shall be valued at their Fair Market
Value on the date of exercise.
(b) In addition to the payment methods described in subsection (a), the
Option may provide that the Option can be exercised and payment made by
delivering a properly executed exercise notice together with irrevocable
instructions to a bank or broker to promptly deliver to the Company the amount
of sale or loan proceeds necessary to pay the exercise price and, unless
otherwise allowed by the Board, any applicable tax withholding under Section
4.6. The Company shall not be obligated to deliver certificates for the shares
unless and until it receives full payment of the exercise price therefor.
2.3 Option Period.
-------------
Each Option and all rights or obligations thereunder shall expire on such
date as shall be determined by the Board, but not later than 10 years after the
Award Date, and shall be subject to earlier termination as hereinafter provided.
2.4 Exercise of Options.
-------------------
(a) Subject to Sections 4.2 and 4.4, an Option may become exercisable or
vest, in whole or in part, on the date or dates specified in the Award Agreement
and thereafter shall remain exercisable until the expiration or earlier
termination of the Option. An Option may be exercisable or vest on the Award
Date.
(b) The Board may, at any time after grant of the Option and from time to
time, increase the number of shares exercisable at any time so long as the total
number of shares subject to the Option is not increased. No Option shall be
exercisable except in respect of whole shares, and fractional share interests
shall be disregarded. Not less than 100 shares of Common Stock may be purchased
at one time unless the number purchased is the total number at the time
available for purchase under the terms of the Option.
2.5 Limitations on the Grant or Exercise of Incentive Stock Options.
---------------------------------------------------------------
(a) To the extent that the aggregate fair market value of stock with
respect to which Incentive Stock Options first become exercisable by a
Participant in any calendar year exceeds $100,000, taking into account both
Common Stock subject to Incentive Stock Options under this Plan and stock
subject to Incentive Stock Options under all other plans of the Company, such
options shall be treated as Nonqualified Stock Options. For purposes of
determining whether the $100,000 limit is exceeded, the fair market value of
stock subject to options shall be determined as of the date the options are
awarded. In reducing the number of options treated as Incentive Stock Options to
meet the $100,000 limit, the most recently granted options shall be reduced
first. To the extent a reduction of simultaneously granted options is necessary
to meet the $100,000 limit, the Company may, in the manner and to the extent
permitted by law, designate which shares of Common Stock are to be treated as
shares acquired pursuant to the exercise of an Incentive Stock Option.
-5-
<PAGE>
(b) There shall be imposed in any Award Agreement relating to Incentive
Stock Options such terms and conditions as are required in order that the Option
be an "incentive stock option" as that term is defined in Section 422 of the
Code.
(c) No Incentive Stock Option may be granted to any person who, at the
time the Incentive Stock Option is granted, owns shares of outstanding Common
Stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company, unless the exercise price of such Option is at least
110% of the Fair Market Value of the stock subject to the Option and such Option
by its terms is not exercisable after the expiration of five years from the date
such Option is granted.
III. RESTRICTED STOCK AWARDS.
3.1 Grants.
------
Subject to Section 1.4, the Board may, in its discretion, grant one or more
Restricted Stock Awards to any Eligible Employee. Each Restricted Stock Award
agreement shall specify the number of shares of Common Stock to be issued to the
Participant, the date of such issuance, the price, if any, to be paid for such
shares by the Participant and the restrictions imposed on such shares, which
restrictions shall not terminate earlier than six months after the Award Date.
3.2 Restrictions.
------------
(a) Shares of Common Stock included in Restricted Stock Awards may not be
sold, assigned, transferred, pledged or otherwise disposed of or encumbered,
either voluntarily or involuntarily, until such shares have vested.
(b) Participants receiving Restricted Stock shall be entitled to dividend
and voting rights for the shares issued even though they are not vested,
provided that such rights shall terminate immediately as to any forfeited
Restricted Stock.
(c) In the event that the Participant shall have paid cash in connection
with the Restricted Stock Award, the Award Agreement shall specify whether and
to what extent such cash shall be returned upon a forfeiture (with or without an
earnings factor).
IV. OTHER PROVISIONS.
4.1 Rights of Eligible Employees, Participants and Beneficiaries.
------------------------------------------------------------
(a) Status as an Eligible Employee shall not be construed as a commitment
that any Award will be granted under this Plan to any Eligible Employee
generally.
(b) Nothing contained in this Plan (or in Award Agreements or in any other
documents related to this Plan or to Awards) shall confer upon any Eligible
Employee or Participant any right to continue in the service or employ of the
Company or constitute any contract or agreement of service or employment, or
interfere in any way with the right of the Company to reduce such person's
compensation or other benefits or to terminate the services or employment of
such Eligible Employee or Participant, with or without cause. In addition,
nothing contained
-6-
<PAGE>
in this Plan or any document related thereto shall affect any independent
contractual right of any Eligible Employee or Participant. Nothing contained in
this Plan or any document related hereto shall influence the construction or
interpretation of the Company's Articles of Incorporation or Bylaws regarding
service on the Board.
(c) Options payable under this Plan shall be payable in shares and no
special or separate reserve, fund or deposit shall be made to assure payment of
such Options. No Participant, Beneficiary or other person shall have any right,
title or interest in any fund or in any specific asset (including shares of
Common Stock) of the Company by reason of any Award granted hereunder. Neither
the provisions of this Plan (or of any documents related hereto), nor the
creation or adoption of this Plan, nor any action taken pursuant to the
provisions of this Plan shall create, or be construed to create, a trust of any
kind or a fiduciary relationship between the Company and any Participant,
Beneficiary or other person. To the extent that a Participant, Beneficiary or
other person acquires a right to receive an Award hereunder, such right shall be
no greater than (and will be subordinate to) the right of any unsecured general
creditor of the Company.
4.2 Adjustments Upon Changes in Capitalization.
------------------------------------------
(a) If the outstanding shares of Common Stock are changed into or
exchanged for cash or a different number or kind of shares or securities of the
Company or of another issuer, or if additional shares or new or different
securities are distributed with respect to the outstanding shares of the Common
Stock, through a reorganization or merger to which the Company is a party, or
through a combination, consolidation, recapitalization, reclassification, stock
split, stock dividend, reverse stock split, stock consolidation or other capital
change or adjustment, an appropriate adjustment shall be made in the number and
kind of shares or other consideration that is subject to or may be delivered
under this Plan and pursuant to outstanding Awards, consistent with Section 4.5.
A corresponding adjustment to the consideration payable with respect to Awards
granted prior to any such change and to the price, if any, paid in connection
with Restricted Stock Awards shall also be made subject to the provisions of
Section 4.5. Any such adjustment, however, shall be made without change in the
total payment, if any, applicable to the portion of the Award not exercised but
with a corresponding adjustment in the price for each share.
(b) In adjusting Awards to reflect the changes described in this Section
4.2, or in determining that no such adjustment is necessary, the Board may rely
upon the advice of in-house or independent counsel and accountants of the
Company, and the determination of the Board shall be conclusive. No fractional
shares of stock shall be issued under this Plan on account of any such
adjustment.
4.3 Termination of Employment.
-------------------------
(a) If the Participant's service to or employment by the Company
terminates for any reason other than Retirement, death or Total Disability, the
Participant shall have, subject to earlier termination pursuant to or as
contemplated by Section 2.3, thirty (30) days or such shorter period as is
provided in the Award Agreements from the date of termination of services or
employment to exercise any Option to the extent it shall have become exercisable
on the date of
-7-
<PAGE>
termination of employment, and any Option not exercisable on that date shall
terminate. Notwithstanding the preceding sentence, in the event the Participant
is discharged for cause as determined by the Board in its sole discretion, all
Options shall lapse immediately upon such termination of services or employment.
(b) If the Participant's service to or employment by the Company
terminates as a result of Retirement or Total Disability, the Participant or
Participant's Personal Representative, as the case may be, shall have, subject
to earlier termination pursuant to or as contemplated by Section 2.3, three (3)
months or such shorter period as is provided in the Award Agreements from the
date of termination of services or employment to exercise any Option to the
extent it shall have become exercisable by the date of termination of services
or employment and any Option not exercisable on that date shall terminate.
(c) If the Participant's service to or employment by the Company
terminates as a result of death while the Participant is rendering services to
the Company or is employed by the Company or during the three (3) month period
referred to in subsection (b) above, the Participant's Option shall be
exercisable by the Participant's Beneficiary, subject to earlier termination
pursuant to or as contemplated by Section 2.3, during the three (3) month period
or such shorter period as is provided in the Award Agreements following the
Participant's death, as to all or any part of the shares of Common Stock covered
thereby to the extent exercisable on the date of death (or earlier termination).
(d) In the event of termination of services to or employment with the
Company for any reason, (i) shares of Common Stock subject to the Participant's
Restricted Stock Award shall be forfeited in accordance with the provisions of
the related Award Agreement to the extent such shares have not become vested on
that date; and (ii) shares of Common Stock subject to the Participant's
Performance Share Award shall be forfeited in accordance with the provisions of
the related Award Agreement to the extent such shares have not been issued or
become issuable on that date.
(e) In the event of termination of services to or employment with the
Company for any reason, other than discharge for cause, the Board may, in its
discretion, to the extent that the Award has not yet fully vested, increase the
vested portion of the Participant's Award upon such terms as the Board shall
determine.
(f) Upon forfeiture of a Restricted Stock Award pursuant to this Section
4.3, the Participant, or his or her Beneficiary or Personal Representative, as
the case may be, shall transfer to the Company the portion of the Restricted
Stock Award not vested at the date of termination of services or employment,
without payment of any consideration by the Company for such transfer unless the
Participant paid a purchase price in which case repayment, if any, of that price
shall be governed by the Award Agreement. Notwithstanding any such transfer to
the Company, or failure, refusal or neglect to transfer, by the Participant, or
his or her Beneficiary or Personal Representative, as the case may be, such
nonvested portion of any Restricted Stock Award shall be deemed transferred
automatically to the Company on the date of termination of services or
employment. The Participant's original acceptance of the Restricted Stock Award
shall constitute his or her appointment of the Company and each of its
authorized representatives
-8-
<PAGE>
as attorney(s)-in-fact to effect such transfer and to execute such documents as
the Company or such representatives deem necessary or advisable in connection
with such transfer.
4.4 Change in Control.
-----------------
(a) If a Change in Control of the Company shall have been approved by the
Board prior to the consummation of such Change in Control, each outstanding
Option shall be deemed to have accelerated and be fully vested on and as of the
date that is thirty (30) days prior to the date on which such Change in Control
is anticipated and the Board shall cause notice to be given to each holder of an
issued and outstanding Option at least thirty (30) days prior to the
consummation of such Change in Control of the acceleration of such Options
pursuant to such Change in Control. Each Option holder shall thereafter have the
right to exercise such Option in accordance with its terms during the thirty
(30) day period prior to the consummation of such Change in Control. If any such
Option is not so exercised prior to the consummation of such Change in Control,
then any outstanding and unexercised Options shall terminate as of the date such
Change in Control is consummated. Upon the consummation of such Change in
Control, the Restricted Stock shall immediately vest free of restrictions;
subject, however, to compliance with applicable regulatory requirements,
including without limitation Section 422 of the Code.
(b) A Change in Control of the Company shall be deemed to mean (i) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which all or substantially
all of the shares of Common Stock would be converted into cash, securities or
other property, or a combination thereof, 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,
of the assets of the Company, (iii) the approval by the shareholders of the
Company of any plan or proposal for the liquidation or dissolution of the
Company, (iv) if any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), becomes the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of 50% or more of the Company's outstanding Common Stock or (v)
any change in control of a nature required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act or any
successor regulation of substantially similar import, regardless of whether the
Company is subject to such reporting requirement.
4.5 Government Regulations.
----------------------
This Plan, the granting and vesting of Awards under this Plan and the
issuance or transfer of shares of Common Stock (and/or the payment of money)
pursuant thereto are subject to compliance with all applicable federal and state
laws, rules and regulations (including but not limited to state and federal
securities law and federal margin requirements) and to such approvals by any
listing, regulatory or governmental authority as may, in the opinion of counsel
for the Company, be necessary or advisable in connection therewith. Any
securities delivered under this Plan shall be subject to such restrictions, and
the person acquiring such securities shall, if requested by the Company, provide
such assurances and representations to the Company as the
-9-
<PAGE>
Company may deem necessary or desirable to assure compliance with all applicable
legal requirements.
4.6 Tax Withholding.
---------------
Upon the disposition by a Participant or other person of shares of Common
Stock acquired pursuant to the exercise of an Incentive Stock Option prior to
satisfaction of the holding period requirements of Section 422 of the Code, or
upon the exercise of a Nonqualified Stock Option or the vesting of a Restricted
Stock Award the Company shall have the right at its option to (i) require such
Participant or such other person to pay by cash or check payable to the Company,
the amount of any taxes which the Company may be required to withhold with
respect to such transactions or (ii) deduct from amounts paid in cash the amount
of any taxes which the Company may be required to withhold with respect to such
cash amounts.
The above notwithstanding, in any case where a tax is required to be
withheld in connection with the issuance or transfer of shares of Common Stock
under this Plan, the Participant may elect, pursuant to such rules as the Board
may establish, to have the Company reduce the number of such shares issued or
transferred by the appropriate number of shares to accomplish such withholding.
4.7 Amendment, Termination and Suspension.
-------------------------------------
(a) The Board may, at any time, terminate or, from time to time, amend,
modify or suspend this Plan (or any part hereof). In addition, the Board may,
from time to time, amend or modify any provision of this Plan except Sections
4.4, and with the consent of the Participant, make such modifications of the
terms and conditions of such Participant's Award as it shall deem advisable. The
Board, with the consent of the Participant, may also amend the terms of any
Option to provide that the Option price of the shares remaining subject to the
original Award shall be reestablished at a price not less than 100% of the Fair
Market Value of the Common Stock on the effective date of the amendment. No
modification of any other term or provision of any Option which is amended in
accordance with the foregoing shall be required, although the Board may, in its
discretion, make such further modifications of any such Option as are not
inconsistent with or prohibited by this Plan. No Awards may be granted during
any suspension of this Plan or after its termination.
(b) If an amendment would materially (i) increase the benefits accruing to
Participants, (ii) increase the aggregate number of shares which may be issued
under this Plan, or (iii) modify the requirements of eligibility for
participation in this Plan, the amendment shall be approved by the Board and, to
the extent then required by applicable law or deemed necessary or desirable by
the Board, by a majority of the shareholders.
(c) In the case of Awards issued before the effective date of any
amendment, suspension or termination of this Plan, such amendment, suspension or
termination of the Plan shall not, without specific action of the Board and the
consent of the Participant, in any way modify, amend, alter or impair any rights
or obligations under any Award previously granted under the Plan.
-10-
<PAGE>
4.8 Privileges of Stock Ownership.
-----------------------------
Except as otherwise expressly authorized by the Board or under this Plan,
a Participant shall not be entitled to any privilege of stock ownership as to
any shares of Common Stock not actually delivered to and held of record by him
or her. No adjustment will be made for dividends or other rights as a
shareholder for which a record date is prior to such date of delivery.
4.9 Effective Date of the Plan.
--------------------------
This Plan shall be effective on and as of April 19, 1999 (the "Effective
Date"), subject to its approval by the Board, and subject to approval by the
shareholders of the Company.
4.10 Term of the Plan.
----------------
Unless previously terminated by the Board, this Plan shall terminate ten
(10) years after the Effective Date of the Plan, and no Awards shall be granted
under it thereafter, but such termination shall not affect any Award theretofore
granted.
4.11 Governing Law.
-------------
This Plan and the documents evidencing Awards and all other related
documents shall be governed by, and construed in accordance with, the laws of
the State of Delaware. If any provision shall be held by a court of competent
jurisdiction to be invalid and unenforceable, the remaining provisions of this
Plan shall continue to be fully effective.
4.12 Plan Construction.
-----------------
(a) It is the intent of the Company that transactions in and affecting
Awards in the case of Participants who are or may be subject to Section 16 of
the Exchange Act satisfy any then applicable requirements of Rule 16b-3 so that
such persons (unless they otherwise agree) will be entitled to the benefits of
such rule or other exemptive rules under Section 16 of the Exchange Act in
respect of those transactions and will not be subjected to avoidable liability
thereunder. If any provision of the Plan or of any Award would frustrate or
otherwise conflict with the intent expressed above, that provision to the extent
possible shall be interpreted as to avoid such conflict. If the conflict remains
irreconcilable, the Board may disregard the provision if it concludes that to do
so furthers the interest of the Company and is consistent with the purposes of
the Plan as to such persons in the circumstances.
(b) It is the further intent of the Company that Options with an exercise
or base price not less than Fair Market Value on the date of grant that are
granted to or held by a person subject to Section 16 of the Exchange Act shall
qualify as performance-based compensation under Section 162(m) of the Code, and
this Plan shall be interpreted consistent with such intent.
4.13 Non-Exclusivity of Plan.
-----------------------
Nothing in this plan shall limit or be deemed to limit the authority of
the Board to grant options, stock awards or authorize any other compensations
under any other plan or authority.
-11-
<PAGE>
V. DEFINITIONS.
5.1 Definitions.
-----------
(a) "Award" means an Option, which may be designated as a Nonqualified Stock
Option or an Incentive Stock Option, or a Restricted Stock Award.
(b) "Award Agreement" means a written agreement setting forth the terms of
an Award.
(c) "Award Date" means the date upon which the Board took the action granting
an Award or such later date as is prescribed by the Board.
(d) "Beneficiary" means the person, persons, trust or trusts entitled by will
or the laws of descent and distribution to receive the benefits specified under
this Plan in the event of a Participant's death.
(e) "Board" means the Board of Directors of the Company.
(f) "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
(g) "Commission" means the Securities and Exchange Commission.
(h) "Common Stock" means the Common Stock of the Company.
(i) "Company" means ECOMMERCIAL.COM, INC., a Nevada corporation, and its
successors.
(j) "Director" means a member of the Board or any person performing similar
functions with respect to the Company.
(k) "Eligible Employee" means (i) an Officer or employee of the Company and
(ii) any individual consultant or advisor who renders or has rendered bona fide
services to the Company and who is selected to participate in this Plan by the
Board.
(l) "Event" is synonymous with "Change of Control" as defined in Section
4.4(b).
(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(n) "Fair Market Value" means (i) if the stock is listed or admitted to trade
on a national securities exchange, the closing price of the stock, as published
in the Western Edition of The Wall Street Journal, of the principal national
securities exchange on which the stock is so listed or admitted to trade, on
such date, or, if there is no trading of the stock on such date, then the
closing price of the stock as quoted on the next preceding date on which there
was trading in such shares; (ii) if the stock is not listed or admitted to trade
on a national securities exchange, the last price for the stock on such date, as
furnished by the National Association of Securities Dealers, Inc. ("NASD")
through the NASDAQ National Market Reporting System or a similar organization if
the NASD is no longer reporting such information; (iii) if the stock is not
listed or admitted to trade on a national securities exchange and is not
reported on the National Market
-12-
<PAGE>
Reporting System, the mean between the low bid and high asked price for the
stock on such date, as furnished by the NASD; or (iv) if the stock is not listed
or admitted to trade on a national securities exchange, is not reported on the
National Market Reporting System and if bid and asked prices for the stock are
not furnished by the NASD or a similar organization, the values established by
the Board for purposes of the Plan.
(o) "Incentive Stock Option" means an option which is designated as an
incentive stock option within the meaning of Section 422 of the Code, the award
of which contains such provisions as are necessary to comply with that section.
(p) "Nonqualified Stock Option" means an option which is designated as a
Nonqualified Stock Option and shall include any Option intended as an Incentive
Stock Option that fails to meet applicable legal requirements thereof. Any
Option granted hereunder that is not designated as an Incentive Stock Option
shall be deemed to be designated a Nonqualified Stock Option under this Plan and
not an incentive stock option under the Code.
(q) "Officer" means a president, vice-president, secretary, treasurer or
principal financial officer, controller or principal accounting officer and any
person routinely performing corresponding functions with respect to the Company.
(r) "Option" means an option to purchase Common Stock under this Plan. An
Option shall be designated by the Board as a Nonqualified Stock Option or an
Incentive Stock Option.
(s) "Participant" means an Eligible Employee who has been granted an Award.
(t) "Performance Share Award" means an Award of a right to receive shares of
Common Stock or an Award with respect to which the vesting of shares of Common
Stock subject to such Award is contingent upon, among other conditions, the
attainment of performance objectives specified by the Board.
(u) "Personal Representative" means the person or persons who, upon the
disability or incompetence of a Participant, shall have acquired on behalf of
the Participant by legal proceeding or otherwise the power to exercise the
rights and receive the benefits specified in this Plan.
(v) "Plan" means the ECOMMERCIAL.COM, INC. 1999 Stock Option Plan.
(w) "QDRO" means an order requiring the transfer of an Award or portion
thereof pursuant to a state domestic relations law to the spouse, former spouse,
child or other dependent of a Participant. Such order must be in a form
substantially identical to a qualified domestic relations order as defined by
the Code or Title I of the Employee Retirement Income Security Act of 1974, as
amended.
(x) "Restricted Stock" means those shares of Common Stock issued pursuant to
a Restricted Stock Award which are subject to the restrictions set forth in the
related Award Agreement.
-13-
<PAGE>
(y) "Restricted Stock Award" means an award of a fixed number of shares of
Common Stock to the Participant subject, however, to payment of such
consideration, if any, and such forfeiture provisions, as are set forth in the
Award Agreement.
(z) "Retirement" means retirement from employment by or providing services to
the Company or any Subsidiary after age 65 and, in the case of employees, in
accordance with the retirement policies of the Company then in effect.
(aa) "Rule 16b-3" means Rule 16b-3 as promulgated by the Commission pursuant
to the Exchange Act as amended from time to time.
(ab) "Securities Act" means the Securities Act of 1933, as amended.
(ac) "Subsidiary" means any corporation or other entity a majority or more of
whose outstanding voting stock or voting power is beneficially owned directly or
indirectly by the Company.
(ad) "Total Disability" means a "permanent and total disability" within the
meaning of Section 22(e)(3) of the Code.
-14-
<PAGE>
EXHIBIT 10.8
INDEMNIFICATION AGREEMENT
-------------------------
This Agreement is made as of the 25th day of October, 1999, by and between
Eric A. McAfee, an individual ("McAfee") and eCommercial.com, Inc., a Nevada
corporation ("eCommercial.com").
Subject to the terms of this agreement, McAfee hereby agrees to fully
reimburse eCommercial.com, Inc. for any and all claims, losses, fines,
settlements, judgments, liabilities, damages, fees, expenses and costs
associated with those claims asserted against Wireless Netcom, Inc. (a
predecessor company to eCommercial.com) in that action filed by Thomas H. Casey,
Chapter 7 Trustee for Voxel, Inc. (the "Trustee"), entitled In Re:Voxel, Case
-----------
No. SA98-17977-LR, and Casey v. WNC, pending in the United States Bankruptcy
Court for the Central District of California (the "Adversary Proceeding")
(collectively, the "Fees and Costs").
eCommercial.com shall advance reasonable fees and costs for attorneys
selected by eCommercial.com for its defense in the Adversary Proceeding;
attorneys fees and costs for McAfee's defense in the Adversary Proceeding,
settlement amounts related to the Adversary Proceeding, if any, and amounts for
the purchase of Voxel creditor claims, if any. McAfee shall agree to the
payment of any reasonable settlement or creditor purchases by eCommercial.com.
Any amounts advanced by eCommercial.com in the Adversary Proceeding
pursuant to this agreement shall be repaid to eCommercial.com by McAfee either
in an equivalent value of common shares (value to be determined by the trailing
twenty-trading-day average closing price of the publicly-traded shares of
eCommercial.com as of the date of the transfer of shares by McAfee to
eCommercial.com) or in cash, at the sole election of McAfee, within six months
after the date of final disposition of the Voxel matter by eCommercial.com.
This obligation is collateralized by five hundred thousand (500,000) shares
(the "Pledged Shares") of eCommercial.com common stock pledged to
eCommercial.com by McAfee to secure the performance of this agreement. This
Indemnification Agreement is not a personal obligation of McAfee and is not
personally guaranteed by McAfee. In no event shall eCommercial.com have any
rights against McAfee other than the right to receive the portion of the Pledged
Shares required for performance by McAfee of this agreement at the time that
amounts are due from McAfee.
This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and their respective successors, assigns
(including any direct or indirect successor by purchase, merger, consolidation,
or otherwise to all or substantially all of the business or assets of the
Company), and estates. This Agreement shall continue in effect regardless of
whether McAfee continues to serve as an officer or director of the Company or
another enterprise at the Company's request.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but in making proof hereof it shall not be
necessary to produce or account for more than one such counterpart.
1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and signed as of the day and year first above written.
_________________________________________
Eric McAfee
Accepted by:
eCommercial.com, Inc.
By: _____________________________________
Thomas Blakeley
Chief Executive Officer & President
2
<PAGE>
EXHIBIT 10.9
eCommercial.com, Inc.
INDEMNITY AGREEMENT
This Indemnity Agreement, dated as of November 15, 1999, is made by and between
eCommercial.com, Inc., a Nevada corporation (the "Company"), and
___________________ (the "Indemnitee").
RECITALS
--------
A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors, officers or agents of corporations
unless they are protected by comprehensive liability insurance or
indemnification, due to increased exposure to litigation costs and risks
resulting from their service to such corporations, and due to the fact that the
exposure frequently bears no reasonable relationship to the compensation of such
directors, officers and other agents.
B. The statutes and judicial decisions regarding the duties of directors
and officers are often difficult to apply, ambiguous, or conflicting, and
therefore fail to provide such directors, officers and agents with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take.
C. Plaintiffs often seek damages in such large amounts and the costs of
litigation may be so enormous (whether or not the case is meritorious), that the
defense and/or settlement of such litigation is often beyond the personal
resources of directors, officers and other agents.
D. The Company believes that it is unfair for its directors, officers and
agents and the directors, officers and agents of its subsidiary to assume the
risk of huge judgments and other expenses which may occur in cases in which the
director, officer or agent received no personal profit and in cases where the
director, officer or agent was not culpable.
E. The Company recognizes that the issues in controversy in litigation
against a director, officer or agent of a corporation such as the Company or its
subsidiary are often related to the knowledge, motives and intent of such
director, officer or agent, that he is usually the only witness with knowledge
of the essential facts and exculpating circumstances regarding such matters, and
that the long period of time which usually elapses before the trial or other
disposition of such litigation often extends beyond the time that the director,
officer or agent can reasonably recall such matters; and may extend beyond the
normal time for retirement for such director, officer or agent with the result
that he, after retirement or in the event of his death, his spouse, heirs,
executors or administrators, may be faced with limited ability and undue
hardship in maintaining an adequate defense, which may discourage such a
director, officer or agent from serving in that position.
F. Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
talented and experienced individuals to serve as directors, officers and agents
of the Company and its subsidiary and to encourage such individuals to take the
business risks necessary for the success of the Company
<PAGE>
and its subsidiary, it is necessary for the Company to contractually indemnify
its directors, officers and agents and the directors, officers and agents of its
subsidiary, and to assume for itself maximum liability for expenses and damages
in connection with claims against such directors, officers and agents in
connection with their service to the Company and its subsidiary, and has further
concluded that the failure to provide such contractual indemnification could
result in great harm to the Company and its subsidiary and the Company's
stockholders.
G. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director, officer or agent of the Company and/or one or
more subsidiary of the Company free from undue concern for claims for damages
arising out of or related to such services to the Company and/or one or more
subsidiary of the Company.
H. Indemnitee is willing to serve, or to continue to serve, the Company
and/or one or more subsidiary of the Company, provided that he is furnished the
indemnity provided for herein.
AGREEMENT
---------
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Definitions.
-----------
(a) Agent. For the purposes of this Agreement, "agent" of the Company
-----
means any person who is or was a director, officer, employee or other agent of
the Company or a subsidiary of the Company; or is or was serving at the request
of, for the convenience of, or to represent the interests of the Company or a
subsidiary of the Company as a director, officer, employee or agent of another
foreign or domestic corporation, partnership, joint venture, trust or other
enterprise; or was a director, officer, employee or agent of a foreign or
domestic corporation which was a predecessor corporation of the Company or a
subsidiary of the Company, or was a director, officer, employee or agent of
another enterprise at the request of, for the convenience of, or to represent
the interests of such predecessor corporation.
(b) Expenses. For purposes of this Agreement, "expenses" include all
--------
out-of-pocket costs of any type or nature whatsoever (including, without
limitation, all attorneys' fees and related disbursements), actually and
reasonably incurred by the Indemnitee in connection with either the
investigation, defense or appeal of a proceeding or establishing or enforcing a
right to indemnification under this Agreement; provided, however, that
"expenses" shall not include any judgments, fines, ERISA excise taxes or
penalties, or amounts paid in settlement of a proceeding.
(c) Proceeding. For the purposes of this Agreement, "proceeding"
----------
means any threatened, pending, or completed action, suit or other proceeding,
whether civil, criminal, administrative, or investigative.
(d) Subsidiary. For purposes of this Agreement, "subsidiary" means
----------
any corporation of which more than 50% of the outstanding voting securities is
owned directly or indirectly by the Company.
2
<PAGE>
2. Agreement to Serve. The Indemnitee agrees to serve and/or continue to
------------------
serve as agent of the Company, at its will (or under separate agreement, if such
agreement exists), in the capacity Indemnitee currently serves as an agent of
the Company, so long as he is duly appointed or elected and qualified in
accordance with the applicable provisions of the Bylaws of the Company or any
subsidiary of the Company or until such time as he tenders his resignation in
writing; provided, however, that nothing contained in this Agreement is intended
to create any right to continued employment by Indemnitee.
3. Liability Insurance.
-------------------
(a) Maintenance of D&O Insurance. The Company hereby covenants and
----------------------------
agrees that, so long as the Indemnitee shall continue to serve as an agent of
the Company and thereafter so long as the Indemnitee shall be subject to any
possible proceeding by reason of the fact that the Indemnitee was an agent of
the Company, the Company, subject to Section 3(c), shall promptly obtain and
maintain in full force and effect directors' and officers' liability insurance
("D&O Insurance") in reasonable amounts from established and reputable insurers.
(b) Rights and Benefits. In all policies of D&O Insurance, the
-------------------
Indemnitee shall be named as an insured in such a manner as to provide the
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if the Indemnitee is a director; or of the
Company's officers, if the Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, if the Indemnitee is not a director
or officer but is a key employee.
(c) Limitation on Required Maintenance of D&O Insurance.
---------------------------------------------------
Notwithstanding the foregoing, the Company shall have no obligation to obtain or
maintain D&O Insurance if: (i) the Company determines in good faith that (A)
such insurance is not reasonably available, and (B) the premium costs for such
insurance are disproportionate to the amount of coverage provided, or (C) the
coverage provided by such insurance is limited by exclusions so as to provide an
insufficient benefit, or (ii) the Indemnitee is covered by similar insurance
maintained by a subsidiary of the Company.
4. Mandatory Indemnification. Subject to Section 9 below, the Company
-------------------------
shall indemnify the Indemnitee as follows:
(a) Successful Defense. To the extent the Indemnitee has been
------------------
successful on the merits or otherwise in defense of any proceeding (including,
without limitation, an action by or in the right of the Company) to which the
Indemnitee was a party by reason of the fact that he is or was an Agent of the
Company at any time, against all expenses of any type whatsoever actually and
reasonably incurred by him in connection with the investigation, defense or
appeal of such proceeding.
(b) Third Party Actions. If the Indemnitee is a person who was or is
-------------------
a party or is threatened to be made a party to any proceeding (other than an
action by or in the right of the Company) by reason of the fact that he is or
was an agent of the Company, or by reason of anything done or not done by him in
any such capacity, the Company shall indemnify the Indemnitee against any and
all expenses and liabilities of any type whatsoever (including, but not
3
<PAGE>
limited to, judgments, fines, ERISA excise taxes and penalties, and amounts paid
in settlement) actually and reasonably incurred by him in connection with the
investigation, defense, settlement or appeal of such proceeding, provided the
Indemnitee acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Company and its stockholders, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
(c) Derivative Actions. If the Indemnitee is a person who was or is a
------------------
party or is threatened to be made a party to any proceeding by or in the right
of the Company by reason of the fact that he is or was an Agent of the Company,
or by reason of anything done or not done by him in any such capacity, the
Company shall indemnify the Indemnitee against all expenses actually and
reasonably incurred by him in connection with the investigation, defense,
settlement, or appeal of such proceeding, provided the Indemnitee acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company and its stockholders; except that no indemnification
under this subsection 4(c) shall be made in respect to any claim, issue or
matter as to which such person shall have been finally adjudged to be liable to
the Company by a court of competent jurisdiction if the court in which such
proceeding was brought shall determine upon application that, such
indemnification is unlawful.
(d) Actions where Indemnitee is Deceased. If the Indemnitee is a
------------------------------------
person who was or is a party or is threatened to be made a party to any
proceeding by reason of the fact that he is or was an agent of the Company, or
by reason of anything done or not done by him in any such capacity, and if prior
to, during the pendency of after completion of such proceeding Indemnitee
becomes deceased, the Company shall indemnify the Indemnitee's heirs, executors
and administrators against any and all expenses and liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
and penalties, and amounts paid in settlement) actually and reasonably incurred
to the extent Indemnitee would have been entitled to indemnification pursuant to
Sections 4(a), 4(b), or 4(c) above were Indemnitee still alive.
(e) Notwithstanding the foregoing, the Company shall not be obligated
to indemnify the Indemnitee for expenses or liabilities of any type whatsoever
(including, but not limited to, judgments, fines, ERISA excise taxes and
penalties, and amounts paid in settlement) for which payment is actually made to
or on behalf of Indemnitee under a valid and collectible insurance policy of D&O
Insurance, or under a valid and enforceable indemnity clause, by-law or
agreement.
5. Partial Indemnification. If the Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding, but not entitled, however, to indemnification for all of
the total amount hereof, the Company shall nevertheless indemnify the Indemnitee
for such total amount except as to the portion hereof to which the Indemnitee is
not entitled.
6. Mandatory Advancement of Expenses. Subject to Section 8(a) below, the
---------------------------------
Company shall advance all expenses incurred by the Indemnitee in connection with
the investigation, defense, settlement or appeal of any proceeding to which the
Indemnitee is a party
4
<PAGE>
or is threatened to be made a party by reason of the fact that the Indemnitee is
or was an agent of the Company. Indemnitee hereby undertakes to repay such
amounts advanced only if, and to the extent that, it shall be determined
ultimately that the Indemnitee is not entitled to be indemnified by the Company
as authorized hereby. The advances to be made hereunder shall be paid by the
Company to the Indemnitee within twenty (20) days following delivery of a
written request therefor by the Indemnitee to the Company. In the event that the
Company fails to pay expenses as incurred by the Indemnitee as required by this
paragraph, Indemnitee may seek mandatory injunctive relief from any court having
jurisdiction to require the Company to pay expenses as set forth in this
paragraph. If Indemnitee seeks mandatory injunctive relief pursuant to this
paragraph, it shall not be a defense to enforcement of the Company's obligations
set forth in this paragraph that Indemnitee has an adequate remedy at law for
damages.
7. Notice and Other Indemnification Procedures.
-------------------------------------------
(a) Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.
(b) If, at the time of the receipt of a notice of the commencement of
a proceeding pursuant to Section 7(a) hereof, the Company has D&O Insurance in
effect, the Company shall give prompt notice of the commencement of such
proceeding to the insurers in accordance with the procedures set forth in the
respective policies. The Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of the Indemnitee, all
amounts payable as a result of such proceeding in accordance with the terms of
such policies.
(c) In the event the Company shall be obligated to pay the expenses of
any proceeding against the Indemnitee, the Company, if appropriate, shall be
entitled to assume the defense of such proceeding, with counsel approved by the
Indemnitee, upon the delivery to the Indemnitee of written notice of its
election so to do. After delivery of such notice, approval of such counsel by
the Indemnitee and the retention of such counsel by the Company, the Company
will not be liable to the Indemnitee under this Agreement for any fees of
counsel subsequently incurred by the Indemnitee with respect to the same
proceeding, provided that (i) the Indemnitee shall have the right to employ his
counsel in any such proceeding at the Indemnitee's expense; and (ii) if (A) the
employment of counsel by the Indemnitee has been previously authorized by the
Company, (B) the Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and the Indemnitee in the conduct of
any such defense, or (C) the Company shall not, in fact, have employed counsel
to assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
5
<PAGE>
8. Exceptions. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance expenses
------------------------------
to the Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by the Indemnitee and not by way of defense, unless (i) such
indemnification is expressly required to be made by law, or (ii) the proceeding
was authorized by the Board.
(b) Lack of Good Faith. To indemnify the Indemnitee for any expenses
------------------
incurred by the Indemnitee with respect to any proceeding instituted by the
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
(c) Unauthorized Settlements. To indemnify the Indemnitee under this
------------------------
Agreement for any amounts paid in settlement of a proceeding unless the Company
consents to such settlement, which consent shall not be unreasonably withheld.
9. Non-exclusivity. The provisions for indemnification and advancement of
---------------
expenses set forth in this Agreement shall not be deemed exclusive of any other
rights which the Indemnitee may have under any provision of law, the Company's
Certificate of Incorporation or Bylaws, the vote of the Company's stockholders
or disinterested directors, other agreements, or otherwise, both as to action in
his official capacity and to action in another capacity while occupying his
position as an agent of the Company, and the Indemnitee's rights hereunder shall
continue after the Indemnitee has ceased acting as an agent of the Company and
shall inure to the benefit of the heirs, executors and administrators of the
Indemnitee.
10. Enforcement. Any right to indemnification or advances granted by this
-----------
Agreement to Indemnitee shall be enforceable by or on behalf of Indemnitee in
any court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim is
made within ninety (90) days of request therefor. Indemnitee, in such
enforcement action, if successful in whole or in part, shall be entitled to be
paid also the expense of prosecuting his claim. It shall be a defense to any
action for which a claim for indemnification is made under this Agreement (other
than an action brought to enforce a claim for expenses pursuant to Section 6
hereof, provided that the required undertaking has been tendered to the Company)
that Indemnitee is not entitled to indemnification because of the limitations
set forth in Sections 4 and 8 hereof. Neither the failure of the Corporation
(including its Board of Directors or its stockholders) to have made a
determination prior to the commencement of such enforcement action that
indemnification of Indemnitee is proper in the circumstances, nor an actual
determination by the Company (including its Board of Directors or its
stockholders) that such indemnification is improper, shall be a defense to the
action or create a presumption that Indemnitee is not entitled to
indemnification under this Agreement or otherwise.
6
<PAGE>
11. Subrogation. In the event of payment under this Agreement, the Company
-----------
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all documents reasonably required and
shall do all reasonable acts that may be necessary to secure such rights and to
enable the Company effectively to bring suit to enforce such rights.
12. Survival of Rights.
------------------
(a) All agreements and obligations of the Company contained herein
shall continue during the period Indemnitee is an agent of the Company and shall
continue thereafter so long as Indemnitee shall be subject to any possible claim
or threatened, pending or completed action, suit or proceeding, whether civil,
criminal, arbitrational, administrative or investigative, by reason of the fact
that Indemnitee was serving in the capacity referred to herein.
(b) The Company shall require any successor to the Company (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company, expressly to assume
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform if no such succession had taken
place.
13. Interpretation of Agreement. It is understood that the parties hereto
---------------------------
intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent permitted by law
including those circumstances in which indemnification would otherwise be
discretionary.
14. Severability. If any provision or provisions of this Agreement shall
------------
be held to be invalid, illegal or unenforceable for any reason whatsoever, (i)
the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 13 hereof.
15. Term. This Agreement will remain in effect from the date of execution
----
until such time as the Company completes a successful reincorporation as a
Delaware corporation.
16. Modification and Waiver. No supplement, modification or amendment of
-----------------------
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
17. Notice. All notices, requests, demands and other communications under
------
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee or (ii) if mailed by
certified or registered mail with postage
7
<PAGE>
prepaid, on the third business day after the mailing date. Addresses for notice
to either party are as shown on the signature page of this Agreement, or as
subsequently modified by written notice.
18. Governing Law. This Agreement shall be governed exclusively by and
-------------
construed according to the laws of the State of Nevada as applied to contracts
between Nevada residents entered into and to be performed entirely within
Nevada.
The parties hereto have entered into this Indemnity Agreement effective as
of the date first above written.
THE COMPANY:
eCommercial.com, Inc.
By: __________________________________
Title: _______________________________
Address: _____________________________
______________________________________
______________________________________
INDEMNITEE:
______________________________________
Name
Address: _____________________________
______________________________________
______________________________________
8
<PAGE>
EXHIBIT 10.10
TEMPORARY SPACE AGREEMENT
-------------------------
AEW/PARKER, LLC
c/o Parker Properties, Inc.
95 Enterprise
Suite 300
Aliso Viejo, California 92656
Date: June 3, 1999
eCommercial.com
2923 Via San Gorgonia
San Clemente, California 92672
Attention: Mr. Tom Blakeley
Re: That certain Lease (the "Lease") dated June 3, 1999 between
AEW \ Parker, LLC, a California limited liability company ("Landlord")
and eCommercial.com, a Nevada corporation ("Tenant") for space (the
"Premises") more particularly described in the Lease and located on
the third (3rd) floor of the building located at 101 Enterprise, Aliso
Viejo, California (the "Building").
Ladies and Gentlemen:
As additional consideration for Tenant's having entered into the Lease with
Landlord and for other good and valuable consideration, the receipt of which is
hereby acknowledged, Landlord and Tenant hereby agree as follows.
1. Temporary Premises. Landlord hereby agrees to lease to Tenant and
------------------
Tenant hereby agrees to lease from Landlord certain premises (the "Temporary
Premises") known as Suite 360 located on the third (3rd) floor of the building
located at 95 Enterprise, Aliso Viejo, California (the "Temporary Premises
Building"), which Temporary Premises contains approximately 1,561 rentable
square feet and is delineated on Exhibit "A" attached hereto and made a part
hereof, in its "as is" condition as of the date hereof.
2. Term. The term of Tenant's lease of the Temporary Premises shall
----
commence upon the date upon which Landlord and Tenant have fully executed and
delivered the Lease, and shall continue until the "Lease Commencement Date," as
that term is defined in the Lease, at which time Tenant's lease of the Temporary
Premises shall automatically terminate and be of no further force or effect.
3. Rent. Tenant shall be obligated to pay Base Rent in monthly
----
installments of Three Thousand Seven Hundred Forty-Six and 40/100 Dollars
($3,746.40) in connection with Tenant's lease of the Temporary Premises. Tenant
shall not be required to pay Tenant's Share of Operating Expenses in connection
with Tenant's occupancy of the Temporary Premises.
4. Incorporation of Lease Provisions. Except to the extent such
---------------------------------
provisions conflict with this Temporary Space Agreement, the following Articles
and/or Sections of the Lease are hereby incorporated herein as if stated in
their entirety: Articles 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16,
18, 19, 20, 23, 24, 25, 26, 27, 28, and 29 of the Lease and Exhibit B attached
to the Lease. Landlord and Tenant specifically agree that Articles 17, 21, and
22 of the Lease, Exhibits A, B, C, E and G attached to the Lease shall have no
applicability to this Temporary Space Agreement.
5. Letter of Credit. Landlord and Tenant agree that the "L-C," as that
----------------
term is defined in the Lease, shall secure the obligations of Tenant under this
Temporary Space Agreement. Accordingly, in the event that Tenant defaults with
respect to any of the provisions of this Temporary Space Agreement, then
Landlord may, but shall not be obligated to, draw upon the L-C, in accordance
with the terms of Section 21.2 of the Lease.
6. Lease in Full Force and Effect. Except as explicitly set forth in this
------------------------------
Temporary Space Agreement, all defined terms herein shall have their respective
meanings as set forth in the Lease and the terms and provisions of the Lease
shall be and remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have caused this Temporary Space
Agreement to be executed on the day and date first above written.
"Landlord":
AEW/PARKER, LLC,
a California limited liability company
By: Eastrich Aliso, LLC,
a Delaware limited liability company,
Member - Manager
By: /s/ James Flynn
-------------------------------
James Flynn
Authorized Signatory
The Foregoing Is Accepted And
Agreed To:
"Tenant":
eCommercial.com,
a Nevada corporation
By: /s/ [ILLEGIBLE]
--------------------------------
Its: President / CEO
-----------------------------
By: /s/ [ILLEGIBLE]
--------------------------------
Its: SECRETARY
-----------------------------
-2-
<PAGE>
EXHIBIT A
---------
TEMPORARY PREMISES
------------------
[PLAN APPEARS HERE]
EXHIBIT A
<PAGE>
FIRST AMENDMENT TO LEASE
------------------------
This FIRST AMENDMENT TO LEASE ("First Amendment") is made and entered into
as of the 17th day of August, 1999 by and between OTR, an Ohio general
partnership, as nominee of the State Teachers Retirement Board of Ohio,
a statutory organization created by the laws of the State of Ohio ("Landlord"),
and eCommercial.com, Inc., a Nevada corporation ("Tenant").
R E C I T A L S:
- - - - - - - -
A. AEW/Parker, LLC, a California limited liability company, predecessor
in interest to Landlord ("Prior Landlord") and Tenant entered into that certain
Lease dated June 3, 1999 (the "Lease"), whereby Prior Landlord leased to Tenant
and Tenant leased from Prior Landlord those certain premises consisting of
approximately 11,115 rentable (9,857 usable) square feet of space (the "Original
Premises") and located on the third (3rd) floor of that certain building located
at 101 Enterprise, Aliso Viejo, California ("Building").
B. Tenant desires to expand the Original Premises to include that certain
space consisting of approximately 1,236 rentable square feet of space located on
the third (3rd) floor of the Building and commonly known as suite 310 (the
"Expansion Premises"), as delineated on Exhibit "A" attached hereto and made a
----------
part hereof, and to make other modifications to the Lease, and in connection
therewith, Landlord and Tenant desire to amend the Lease as hereinafter
provided.
A G R E E M E N T:
- - - - - - - - -
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Capitalized Terms. All capitalized terms when used herein shall have
-----------------
the same meaning as is given such terms in the Lease unless expressly superseded
by the terms of this First Amendment.
2. Addition to Original Premises. Effective as of August 18, 1999 (the
-----------------------------
"Expansion Commencement Date"), Tenant shall lease from Landlord and Landlord
shall lease to Tenant the Expansion Premises. Consequently, effective upon the
Expansion Commencement Date, the Original Premises shall be increased to
include the Expansion Premises. Landlord and Tenant hereby acknowledge that such
addition of the Expansion Premises to the Original Premises shall, effective as
of the Expansion Commencement Date, increase the size of the Premises to
approximately 12,351 rentable square feet. The Original Premises and the
Expansion Premises shall hereinafter collectively be referred to as the
"Premises," and shall be collectively known as Suite 340.
3. Expansion Term. The term of Tenant's lease of the Expansion Premises
--------------
(the "Expansion Term") shall expire coterminously with Tenant's lease of the
Original Premises on the "Lease Expiration Date," as that term is defined in the
Lease.
4. Base Rent for the Expansion Premises. Commencing on the Expansion
------------------------------------
Commencement Date and continuing until the end of the thirtieth (30th) month of
Tenant's lease of the Original Premises (i.e., the date that Tenant's payment of
Base Rent for the Original Premises increases pursuant to the terms of the
Lease) (the "Adjustment Date"), Tenant shall pay to Landlord monthly
installments of Base Rent for the Expansion Premises in the amount of Two
Thousand Nine Hundred Sixty-Six and 40/100 Dollars ($2,966.40) (i.e., $2.40 per
rentable square foot of the Expansion Premises per month multiplied by 1,236
rentable square feet), and commencing on the day after the Adjustment Date and
continuing until the Lease Expiration Date, Tenant shall pay to Landlord monthly
installments of Base Rent for the Expansion Premises in the amount of Three
Thousand Ninety and No/100 Dollars ($3,090.00) (i.e., $2.50 per rentable square
foot of the Expansion Premises per month multiplied by 1,236 rentable square
feet). Upon Tenant's execution and delivery of this First Amendment, Tenant
shall pay to Landlord the Base Rent payable for the Expansion Premises for the
first full month of the Expansion Term.
5. Tenant's Share of Direct Expenses. Except as specifically set forth in
---------------------------------
this Section 5, commencing on the Expansion Commencement Date, Tenant shall pay
Tenant's Share of Direct Expenses in connection with the Expansion Premises in
accordance with the terms of Article 4 of the Lease; provided that with respect
to Tenant's Share of Direct Expenses in connection with the Expansion Premises,
the following shall apply:
5.2.1 Tenant's Share shall equal 1.54% and
5.2.2 the Base Year shall be the calendar year 1999.
<PAGE>
EXHIBIT A
---------
OUTLINE OF EXPANSION PREMISES
-----------------------------
-1-
<PAGE>
6. Expansion Improvements. Tenant shall accept the Expansion Premises in
----------------------
its presently existing, "as-is" condition. Except as specifically set forth
herein, Landlord shall not be obligated to provide or pay for any improvement
work or services related to the improvement of the Expansion Premises.
7. Security Deposit. Notwithstanding anything in the Lease to the
----------------
contrary, the Security Deposit held by Landlord pursuant to the Lease, as
amended hereby, shall equal Thirty Thousand Eight Hundred Seventy-Seven and
50/100 Dollars ($30,877.50). Landlord and Tenant acknowledge that, in accordance
with Article 21 of the Lease, Tenant has previously delivered the sum of Twenty-
Seven Thousand Seven Hundred Eighty-Seven and 50/100 Dollars ($27,787.50) (the
"Existing Security Deposit") to Landlord as security for the faithful
performance by Tenant of the terms, covenants and conditions of the Lease with
respect to the Original Premises. Concurrently with Tenant's execution of this
First Amendment, Tenant shall deposit with Landlord an amount equal to Three
Thousand Ninety and No/100 Dollars ($3,090.00) to be held by Landlord as a part
of the Security Deposit. To the extent that the total amount held by Landlord at
any time as security for the Lease, as hereby amended, is less than Thirty
Thousand Eight Hundred Seventy-Seven and 50/100 Dollars ($30,877.50), Tenant
shall pay the difference to Landlord within ten (10) days following Tenant's
receipt of notice thereof from Landlord. Except as set forth herein, Landlord
shall hold the Security Deposit in accordance with the terms of Article 21 of
the Lease.
8. Parking. Effective as of the Expansion Commencement Date and
-------
continuing throughout the Expansion Term, Tenant shall be entitled to rent up to
four (4) unreserved parking passes on a monthly basis in connection with
Tenant's lease of the Expansion Premises (the "Expansion Parking Passes").
Except as set forth in this Section 8, Tenant shall lease the Expansion Parking
Passes in accordance with the provisions of Article 28 of the Office Lease.
9. Brokers. Landlord and Tenant hereby warrant to each other that they
-------
have had no dealings with any real estate broker or agent in connection with the
negotiation of this First Amendment other than CB Richard Ellis, Inc. (the
"Broker"), and that they know of no other real estate broker or agent who is
entitled to a commission in connection with this First Amendment. Each party
agrees to indemnify and defend the other party against and hold the other party
harmless from any and all claims, demands, losses, liabilities, lawsuits,
judgements, and costs and expenses (including, without limitation, reasonable
attorneys' fees) with respect to any leasing commission or equivalent
compensation alleged to be owing on account of the indemnifying party's dealings
with any real estate broker or agent, other than the Broker. The terms of this
Section 9 shall survive the expiration or earlier termination of this First
Amendment.
10. No Further Modification. Except as set forth in this First Amendment,
-----------------------
all of the terms and provisions of the Lease shall apply with respect to the
Expansion Premises and shall remain unmodified and in full force and effect.
IN WITNESS WHEREOF, this First Amendment has been executed as of the day
and year first above written.
"LANDLORD" "TENANT"
OTR, an Ohio general partnership, as eCommercial.com, Inc.,
nominee of the State Teachers Retirement a Nevada corporation
Board of Ohio, a statutory organization
created by the laws of the State of Ohio By: /s/ [ILLEGIBLE]
------------------------------
By: /s/ William A. Shurman Its: Chief Financial Officer
------------------------------- -------------------------
William A. Shurman
Its: Director, Western Region
--------------------------
By: ______________________________
By: _______________________________
Its: _________________________
Its: __________________________
-2-
<PAGE>
EXHIBIT "A"
[FLOOR PLAN APPEARS HERE]
* LOCATION OF FULL HT. 18" WIDE SUNLIGHT
<PAGE>
EXHIBIT "A"
[FLOOR PLAN APPEARS HERE]
* LOCATION OF FULL HT. 18" WIDE SIDELIGHT
<PAGE>
SUMMIT
LEASE
AEW/PARKER, LLC,
a California limited liability company
as Landlord,
and
eCommercial.com,
a Nevada corporation
as Tenant.
<PAGE>
SUMMIT
------
SUMMARY OF BASIC LEASE INFORMATION
----------------------------------
The undersigned hereby agree to the following terms of this Summary of
Basic Lease Information (the "Summary"). This Summary is hereby incorporated
into and made a part of the attached Lease (this Summary and the Lease to be
known collectively as the "Lease") which pertains to the building which is
located at 101 Enterprise, Aliso Viejo, California (the "Building"). Each
reference in the Lease to any term of this Summary shall have the meaning as set
forth in this Summary for such term. In the event of a conflict between the
terms of this Summary and the Lease, the terms of the Lease shall prevail. Any
capitalized terms used herein and not otherwise defined herein shall have the
meaning as set forth in the Lease.
TERMS OF LEASE
(References are to the Lease) DESCRIPTION
- ----------------------------- -----------
1. Date: June 3, 1999.
2. Landlord: AEW/Parker, LLC, a California limited
liability company
3. Address of Landlord
(Section 29.14): 95 Enterprise
-------------
Suite 300
Aliso Viejo, California 92656
Attention: Todd Burnight, Esq.
and
Allen, Matkins, Leck, Gamble & Mallory LLP
1999 Avenue of the Stars
Suite 1800
Los Angeles, California 90067
Attention: Anton N. Natsis, Esq.
4. Tenant: eCommercial.com, a Nevada corporation
5. Address of Tenant
(Section 29.14): Mr. Tom Blakeley
-------------
2923 Via San Gorgonia
San Clemente, California 92672
with a copy of Notices to:
Law Offices of Colyn B. Desatnik
Koll Center Irvine - Transamerica Tower
18201 Von Karman Avenue
Suite 650
Irvine, California 92612
Attention: Colyn B Desatnik, Esq.
6. Premises (Article 1): Approximately 11,115 rentable (9,857
--------- usable) square feet of space located on
the third (3rd) floor of the Building,
known as Suite 350, as set forth on
Exhibit A attached hereto.
7. Term (Article 2).
---------
7.1 Lease Term: Five (5) years.
7.2 Lease Commencement Date The earlier of (i) the date Tenant
commences business in the Premises, and
(ii) the date the Premises are Ready for
Occupancy, which Lease Commencement Date
is anticipated to be September 7, 1999.
7.3 Lease Expiration Date The last day of the month in which the 5th
anniversary of the Lease Commencement Date
occurs.
8. Base Rent (Article 3):
---------
Monthly Monthly Rental
Period of Time During Installment Rate per Rentable
the Lease Term of Base Rent Square Foot
---------- ------------ -----------
Months 1 - 30 $26,676.00 $2.40
Months 31 - 60 $27,787.50 $2.50
9. Additional Rent (Article 4).
---------
9.1 Base Year: Calendar year 1999.
(ii)
<PAGE>
9.2 Tenant's Share of Direct
Expenses: 13.83%
10. Use (Article 5): General office use, including an
---------
enclosed studio for the in-house
production of Tenant's internet
commercials only.
11. Security Deposit (Article 21): $27,787.50.
----------
12. Parking Pass Ratio (Article 28): Four (4) unreserved parking passes
----------
for every 1,000 usable square feet
of the Premises, plus three (3)
reserved parking spaces.
13. Brokers (Section 29.21): CB Richard Ellis, Inc.
3501 Jamboree Road
Suite 100
Newport Beach, California 92660
and
All American Properties
26002 Mira Linda Street
Lake Forest, California 92630
14. Tenant Improvement Allowance
(Section 2 of Exhibit B): $27.00 per usable square foot of
the Premises
(iii)
<PAGE>
INDEX
-----
<TABLE>
<CAPTION>
ARTICLE SUBJECT MATTER PAGE
- ------- -------------- ----
<S> <C>
1. PROJECT, BUILDING AND PREMISES....................................................................................... 1
2. INITIAL LEASE TERM; OPTION TERM...................................................................................... 1
3. BASE RENT............................................................................................................ 1
4. ADDITIONAL RENT...................................................................................................... 2
5. USE OF PREMISES...................................................................................................... 4
6. SERVICES AND UTILITIES............................................................................................... 4
7. REPAIRS.............................................................................................................. 4
8. ADDITIONS AND ALTERATIONS............................................................................................ 5
9. COVENANT AGAINST LIENS............................................................................................... 5
10. INSURANCE............................................................................................................ 5
11. DAMAGE AND DESTRUCTION............................................................................................... 6
12. NONWAIVER............................................................................................................ 7
13. CONDEMNATION......................................................................................................... 7
14. ASSIGNMENT AND SUBLETTING............................................................................................ 7
15. OWNERSHIP AND REMOVAL OF TRADE FIXTURES.............................................................................. 8
16. HOLDING OVER......................................................................................................... 9
17. ESTOPPEL CERTIFICATES................................................................................................ 9
18. SUBORDINATION........................................................................................................ 9
19. DEFAULTS; REMEDIES................................................................................................... 9
20. FORCE MAJEURE........................................................................................................ 10
21. SECURITY DEPOSIT; LETTER OF CREDIT................................................................................... 10
22. INTENTIONALLY DELETED................................................................................................ 11
23. SIGNS................................................................................................................ 11
24. COMPLIANCE WITH LAW.................................................................................................. 11
25. LATE CHARGES......................................................................................................... 11
26. LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT................................................................. 11
27. ENTRY BY LANDLORD.................................................................................................... 11
28. TENANT PARKING....................................................................................................... 11
29. MISCELLANEOUS PROVISIONS............................................................................................. 12
</TABLE>
EXHIBITS
- --------
A OUTLINE OF PREMISES
B TENANT WORK LETTER
C NOTICE OF LEASE TERM DATES
D RULES AND REGULATIONS
E ESTOPPEL CERTIFICATE
F RECOGNITION OF COVENANTS, CONDITIONS AND RESTRICTIONS
G FORM OF LETTER OF CREDIT
(iv)
<PAGE>
INDEX OF MAJOR DEFINED TERMS
----------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Rent.............................................................................................................. 2
After-Hours HVAC............................................................................................................. 4
Alterations.................................................................................................................. 5
Base Rent.................................................................................................................... 2
Base Year.................................................................................................................... 2
Brokers...................................................................................................................... 13
Building..................................................................................................................... 1
CC&Rs........................................................................................................................ 15
Common Areas................................................................................................................. 1
Cost Pools................................................................................................................... 2
Direct Expenses.............................................................................................................. 2
Estimate..................................................................................................................... 3
Estimate Statement........................................................................................................... 3
Estimated Excess............................................................................................................. 3
Excess....................................................................................................................... 3
Expense Year................................................................................................................. 2
Force Majeure................................................................................................................ 10
Hazardous Material........................................................................................................... 14
HVAC......................................................................................................................... 4
Landlord Parties............................................................................................................. 5
L-C.......................................................................................................................... 10
L-C Amount................................................................................................................... 10
L-C Security Deposit......................................................................................................... 10
Lease Commencement Date...................................................................................................... 1
Lease Expiration Date........................................................................................................ 1
Lease Term................................................................................................................... 1
Notices...................................................................................................................... 13
Operating Expenses........................................................................................................... 2
Original Tenant.............................................................................................................. 1
Other Improvements........................................................................................................... 14
Permitted Use................................................................................................................ 4
Premises..................................................................................................................... 1
Project...................................................................................................................... 1
Proposition 13............................................................................................................... 3
Provider..................................................................................................................... 14
Renovations.................................................................................................................. 14
Rent......................................................................................................................... 2
Security Deposit............................................................................................................. 10
Statement.................................................................................................................... 3
Subject Space................................................................................................................ 7
Tax Expenses................................................................................................................. 3
Tenant's Security System..................................................................................................... 4
Tenant's Share............................................................................................................... 3
Transfer..................................................................................................................... 8
Transfer Notice.............................................................................................................. 7
Transfer Premium............................................................................................................. 8
Transferee................................................................................................................... 7
Transfers.................................................................................................................... 7
</TABLE>
(v)
<PAGE>
LEASE
-----
This Lease, which includes the preceding Summary of Basic Lease
Information (the "Summary") attached hereto and incorporated herein by this
reference (the Lease and Summary to be known sometimes collectively hereafter as
the "Lease"), dated as of the date set forth in Section 1 of the Summary, is
---------
made by and between AEW \ PARKER, LLC, a California limited liability company
("Landlord"), and eCommercial.com, a Nevada corporation ("Tenant").
1. PROJECT, BUILDING AND PREMISES
------------------------------
1.1 Project, Building and Premises. Upon and subject to the terms,
------------------------------
covenants and conditions hereinafter set forth in this Lease, Landlord hereby
leases to Tenant and Tenant hereby leases from Landlord the premises set forth
in Section 6 of the Summary (the "Premises"), which Premises is located in the
---------
"Building," as that term is defined in this Section 1. The Premises are a part
---------
of the building (the "Building") located at 101 Enterprise, Aliso Viejo,
California and is a part of the mixed use project known as the "Summit". The
term "Project," as used in this Lease, shall mean (i) the Building and the
"Common Areas," as that term is defined below, (ii) the land (which is improved
with landscaping and other improvements) upon which the Building and the Common
Areas are located, (iii) the other office buildings located adjacent to the
Building and the land upon which such adjacent office buildings are located,
(iv) the parking facility servicing the Building (the "Building Parking
Facility"), and (v) at Landlord's discretion, any additional real property,
areas, land, buildings or other improvements added thereto outside of the
Project. Tenant shall have the non-exclusive right to use and enjoy in common
with other tenants in the Building those portions of the Project which are
provided for use in common by Tenant and any other tenants of the Project (the
"Common Areas"). Subject to Landlord's reasonable rules and regulations and
access control procedures, Tenant shall have the right of access to the Premises
twenty-four (24) hours per day, seven (7) days per week during the "Lease Term,"
as that term is defined in Article 2 of this Lease. Except as specifically set
---------
forth in this Lease and in the Tenant Work Letter attached hereto as Exhibit B,
Landlord shall not be obligated to provide or pay for any improvement work or
services related to the improvement of the Premises. Tenant also acknowledges
that Landlord has made no representation or warranty regarding the condition of
the Premises or the Building or the Project except as specifically set forth in
this Lease and the Tenant Work Letter.
1.2 Verification of Rentable Square Feet of Premises and Building.
-------------------------------------------------------------
For purposes of this Lease, "rentable square feet" and "usable square feet"
shall be calculated pursuant to Standard Method of Measuring Floor Area in
Office Building, ANSI Z65.1 - 1996 ("BOMA"). The rentable and usable square feet
of the Premises and the Building are subject to verification from time to time
by Landlord's space planner/architect and such verification shall be made in
accordance with the provisions of this Section 1.2.__The determination of
-----------
Landlord's space planner/architect shall be conclusive and binding upon the
parties. In the event that Landlord's space planner/architect determines that
the amounts thereof shall be different from those set forth in this Lease, all
amounts, percentages and figures appearing or referred to in this Lease based
upon such incorrect amount (including, without limitation, the amount of the
"Rent" and any "Security Deposit," as those terms are defined in Section 4.1 and
-----------
Article 21 of this Lease, respectively) shall be modified in accordance with
- ----------
such determination effective as of the date of such determination. If such
determination is made, it will be confirmed in writing by Landlord to Tenant.
2. INITIAL LEASE TERM; OPTION TERM
-----------------------
2.1 Initial Lease Term. The terms and provisions of this Lease shall
be effective as of the date of this Lease except for the provisions of this
Lease relating to the payment of "Rent," as that term is defined in Section 4.1,
below. The term of this Lease (the "Lease Term") shall be as set forth in
Section 7.1 of the Summary and shall commence on the date (the "Lease
- -----------
Commencement Date") set forth in Section 7.2 of the Summary (subject to the
-----------
terms of the Tenant Work Letter) and shall terminate on the date (the "Lease
Expiration Date") set forth in Section 7.3 of the Summary, unless sooner
-----------
terminated or extended as hereinafter provided. For purposes of this Lease, the
term "Lease Year" shall mean each consecutive twelve (12) month period during
the Lease Term. At any time during the Lease Term, Landlord may deliver to
Tenant a notice of Lease Term dates in the form as set forth in Exhibit C,
attached hereto, which notice Tenant shall execute and return to Landlord within
five (5) days of receipt thereof.
2.2 Option Term.
-----------
2.2.1 Option Right. Landlord hereby grants the Tenant originally
------------
named in this Lease (the "Original Tenant") one (1) option to extend the Lease
Term for a period of five (5) years (the "Option Term"), which option shall be
exercisable only by written notice delivered by Tenant to Landlord as provided
below, provided that, as of the date of delivery of such notice, Tenant is not
in default under this Lease and Tenant has not previously been in default under
this Lease more than once. Upon the proper exercise of such option to extend,
and provided that, as of the end of the initial Lease Term, Tenant is not in
default under this Lease and Tenant has not previously been in default under
this Lease more than once, the Lease Term, it applies the Premises, shall be
extended for a period of five (5) years. The rights contained in this Section
-------
2.2 shall be personal to the Original Tenant and may only be exercised by the
- ---
Original Tenant (and not any assignee, sublessee or other transferee of the
Original Tenant's interest in this Lease) if the Original Tenant occupies the
entire Premises.
2.2.2 Option Rent. The rent payable by Tenant during the Option
-----------
Term (the "Option Rent") shall be equal to the rent (including additional rent
and considering any "base year" or "expense stop" applicable thereto), including
all escalations, at which tenants, as of the commencement of the Option Term are
leasing non-sublease, non-encumbered space comparable in size, location and
quality to the Premises for a comparable lease term, which comparable space is
located in the Building, taking into consideration the following concessions:
(a) rental abatement concessions, if any, being granted such tenants in
connection with such comparable space and (b) tenant improvements or allowances
provided or to be provided for such comparable space, taking into account, and
deducting the value of, the existing improvements in the Premises, such value to
be based upon the age, quality and layout of the improvements and the extent to
which the same could be utilized by Tenant based upon the fact that the precise
tenant improvements existing in the Premises are specifically suitable to
Tenant.
2.2.3 Exercise of Options. The option contained in this Section
------------------- -------
2.2 shall be exercised by Tenant, if at all, and only in the following manner:
- ---
(i) Tenant shall deliver written notice to Landlord not more than twelve (12)
months nor less than eleven (11) months prior to the expiration of the initial
Lease Term, stating that Tenant is interested in exercising its option; (ii)
Landlord, after receipt of Tenant's notice, shall deliver notice (the "Option
Rent Notice") to Tenant not less than ten (10) months prior to the expiration of
the initial Lease Term, setting forth the Option Rent; and (iii) if Tenant
wishes to exercise such option, Tenant shall, on or before the earlier of (A)
the date occurring nine (9) months prior to the expiration of the initial Lease
Term, and (B) the date occurring thirty (30) days after Tenant's receipt of the
Option Rent Notice, exercise the option by delivering written notice thereof to
Landlord.
3. BASE RENT Tenant shall pay, without notice or demand, except as
---------
otherwise set forth in this Lease, to Landlord at its office in the Building,
check for lawful money of the United States of America, base rent ("Base Rent")
as set forth in Section 8 of the Summary, payable in equal monthly installments
---------
as set forth in Section 8 of the Summary in advance on or before the first day
---------
of each month during the Lease Term, without any setoff or deduction whatsoever,
except as otherwise set forth in this Lease. The Base Rent
<PAGE>
for the first full month of the Lease Term, which occurs after the expiration of
any free rent period, shall be paid at the time of Tenant's execution of this
Lease. If any rental payment date (including the Lease Commencement Date) falls
on a day of the month other than the first day of such month or if any rental
payment is for a period which is shorter than one month, then the rental for any
such fractional month shall be a proportionate amount of a full calendar month's
rental. All other payments or adjustments required to be made under the terms of
this Lease that require proration on a time basis shall be prorated on the same
basis.
4. ADDITIONAL RENT
---------------
4.1 Additional Rent. In addition to paying the Base Rent specified in
---------------
Article 3 of this Lease, Tenant shall pay as additional rent Tenant's Share of
- ---------
the annual Direct Expenses, which are in excess of Direct Expenses incurred in
the "Base Year," as that term is defined in Section 4.2.1 of this Lease. Such
-------------
additional rent, together with any and all other amounts payable by Tenant to
Landlord pursuant to the terms of this Lease, shall be hereinafter collectively
referred to as the "Additional Rent." The Base Rent and Additional Rent are
herein collectively referred to as the "Rent." Without limitation on other
obligations of Tenant which shall survive the expiration of the Lease Term, the
obligations of Tenant to pay the Additional Rent provided for in this Article 4
---------
shall survive the expiration of the Lease Term.
4.2 Definitions. As used in this Article 4, the following terms shall
----------- ---------
have the meanings hereinafter set forth:
4.2.1 "Base Year" shall be the period set forth in Section 9.1 of the
-----------
Summary.
4.2.2 "Direct Expenses" shall mean "Operating Expenses" and "Tax
Expenses."
4.2.3 "Expense Year" shall mean each calendar year in which any
portion of the Lease Term falls, through and including the calendar year in
which the Lease Term expires, provided that Landlord, upon notice to Tenant, may
change the Expense Year from time to time to any other twelve (12) consecutive
month period, and in the event of any such change, Tenant's Share of Direct
Expenses shall be equitably adjusted for any Expense Year involved in any such
change.
4.2.4 "Operating Expenses" shall mean all expenses, costs and amounts
of every kind and nature which Landlord shall pay during any Expense Year
because of or in connection with the ownership, management, maintenance, repair,
replacement, restoration or operation of the Project, including, without
limitation, any amounts paid for (i) the cost of supplying all utilities, the
cost of operating, maintaining, repairing, renovating and managing the utility
systems, mechanical systems, sanitary and storm drainage systems, and any
escalator and/or elevator systems, and the cost of supplies and equipment and
maintenance and service contracts in connection therewith; (ii) the cost of
licenses, certificates, permits and inspections and the cost of contesting the
validity or applicability of any governmental enactments which may affect
Operating Expenses, and the costs incurred in connection with the implementation
and operation of a transportation system management program or similar program;
(iii) the cost of insurance carried by Landlord, in such amounts as Landlord may
reasonably determine or as may be required by any mortgagees or the lessor of
any underlying or ground lease affecting the Project and/or the Building; (iv)
the cost of landscaping, relamping, and all supplies, tools, equipment and
materials used in the operation, repair and maintenance of the Project; (v) the
cost of parking area repair, restoration, and maintenance, including, but not
limited to, resurfacing, repainting, restriping, and cleaning; (vi) fees,
charges and other costs, including consulting fees, legal fees and accounting
fees, of all contractors engaged by Landlord or otherwise reasonably incurred by
Landlord in connection with the management, operation, maintenance and repair of
the Building and Project; (vii) any equipment rental agreements or management
agreements (including the cost of any management fee and the fair rental value
of any office space provided thereunder); (viii) wages, salaries and other
compensation and benefits of all persons engaged in the operation, management,
maintenance or security of the Project, and employer's Social Security taxes,
unemployment taxes or insurance, and any other taxes which may be levied on such
wages, salaries, compensation and benefits; provided, that if any employees of
Landlord provide services for more than one building of Landlord, then a
prorated portion of such employees' wages, benefits and taxes shall be included
in Operating Expenses based on the portion of their working time devoted to the
Building; (ix) payments under any easement, license, operating agreement,
declaration, restrictive covenant, underlying or ground lease (excluding rent),
or instrument pertaining to the sharing of costs by the Project; (x) operation,
repair, maintenance and replacement of all systems and equipment, and components
thereof; (xi) the cost of janitorial service, alarm and security service, window
cleaning, trash removal, replacement of wall and floor coverings, ceiling tiles
and fixtures in lobbies, corridors, restrooms and other common or public areas
or facilities, maintenance and replacement of curbs and walkways, repair to
roofs and re-roofing; (xii) amortization (including interest on the unamortized
cost) of the cost of acquiring or the rental expense of personal property used
in the maintenance, operation and repair of the Building and Project; and (xiii)
the cost of any capital improvements or other costs (I) which are intended as a
labor-saving device or to effect other economies in the operation or maintenance
of the Building or Project, (II) made to the Building or Project that are
required under any governmental law or regulation, or (III) which are reasonably
determined by Landlord to be in the best interest of the Building and/or
Project; provided, however, that if any such cost described in (I), (II) or
(III), above, is a capital expenditure, such cost shall be amortized (including
interest on the unamortized cost) over its useful life as Landlord shall
reasonably determine. If Landlord is not furnishing any particular work or
service (the cost of which, if performed by Landlord, would be included in
Operating Expenses) to a tenant who has undertaken to perform such work or
service in lieu of the performance thereof by Landlord, Operating Expenses shall
be deemed to be increased by an amount equal to the additional Operating
Expenses which would reasonably have been incurred during such period by
Landlord if it had at its own expense furnished such work or service to such
tenant. If the Project is not at least ninety-five percent (95%) occupied
during all or a portion of any Expense Year, Landlord shall make an appropriate
adjustment to the variable components of Operating Expenses for such year or
applicable portion thereof, employing sound accounting and management
principles, to determine the amount of Operating Expenses that would have been
paid had the Project been ninety-five percent (95%) occupied; and the amount so
determined shall be deemed to have been the amount of Operating Expenses for
such year, or applicable portion thereof. The electrical component of Operating
Expenses during all Expense Years shall be deemed to be at least as great as the
electrical component of Operating Expenses during the Base Year. In no event
shall expenses for the repair, restoration and maintenance of the parking area
be offset by any revenue generated from such parking area. Landlord shall have
the right, from time to time, to equitably allocate some or all of the Operating
Expenses among different tenants of the Building or Project (the "Cost Pools").
Such Cost Pools may include, but shall not be limited to, the office space
tenants of the Building or Project and the retail space tenants of the Building
or Project. Notwithstanding anything to the contrary set forth in this Article
4, when calculating Direct Expenses for the Base Year, Operating Expenses shall
exclude market-wide labor-rate increases due to extraordinary circumstances,
including, but not limited to, boycotts and strikes, and utility rate increases
due to extraordinary circumstances including, but not limited to, conservation
surcharges, boycotts, embargoes or other shortages.
4.2.5 "Tax Expenses" shall mean all federal, state, county, or local
governmental or municipal taxes, fees, charges or other impositions of every
kind and nature, whether general, special, ordinary or extraordinary (including,
without limitation, real estate taxes, general and special assessments, special
assessment district payments, transit taxes, leasehold taxes or taxes based upon
the receipt of rent, including gross receipts or sales taxes applicable to the
receipt of rent, unless required to be paid by Tenant, personal property taxes
imposed upon the fixtures, machinery, equipment, apparatus, systems and
equipment,
-2-
<PAGE>
appurtenances, furniture and other personal property used in connection with the
Project), which Landlord shall pay because of or in connection with the
ownership, leasing and operation of the Project or Landlord's interest therein.
If in any Expense Year subsequent to the Base Year, the amount of Tax Expenses
decreases below the amount of Tax Expenses in the Base Year, then for purposes
of such Expense Year and all subsequent Expense Years, the Base Year Tax
Expenses shall be deemed to be reduced by the amount of such decrease. Tax
Expenses shall include, without limitation: (i) any tax on Landlord's rent,
right to rent or other income from the Project or as against Landlord's business
of leasing any of the Project; (ii) any assessment, tax, fee, levy or charge in
addition to, or in substitution, partially or totally, of any assessment, tax,
fee, levy or charge previously included within the definition of real property
tax, it being acknowledged by Tenant and Landlord that Proposition 13 was
adopted by the voters of the State of California in the June 1978 election
("Proposition 13") and that assessments, taxes, fees, levies and charges may be
imposed by governmental agencies for such services as fire protection, street,
sidewalk and road maintenance, refuse removal and for other governmental
services formerly provided without charge to property owners or occupants. It is
the intention of Tenant and Landlord that all such new and increased
assessments, taxes, fees, levies, and charges and all similar assessments,
taxes, fees, levies and charges be included within the definition of Tax
Expenses for purposes of this Lease; (iii) any assessment, tax, fee, levy, or
charge allocable to or measured by the area of the Premises or the rent payable
hereunder, including, without limitation, any gross income tax with respect to
the receipt of such rent, or upon or with respect to the possession, leasing,
operating, management, maintenance, alteration, repair, use or occupancy by
Tenant of the Premises, or any portion thereof; and (iv) Any assessment, tax,
fee, levy or charge, upon this transaction or any document to which Tenant is a
party, creating or transferring an interest or an estate in the Premises. For
purposes of this Lease, Tax Expenses shall be calculated as if the tenant
improvements in the Building were fully constructed and the Project (including
any parking structure), the Building, and all tenant improvements in the
Building were fully assessed for real estate tax purposes, and accordingly,
during the portion of any Expense Year, Tax Expenses shall be deemed to be
increased appropriately.
4.2.6 "Tenant's Share" shall mean the percentage set forth in Section
-------
9.2 of the Summary. Tenant's Share was calculated by multiplying the number of
- ---
rentable square feet of the Premises, as set forth in Section 6 of the Summary,
by 100, and dividing the product by the total number of rentable square feet in
the Building.
4.3 Calculation and Payment of Additional Rent.
------------------------------------------
4.3.1 Calculation of Excess and Underage. If for any Expense Year
----------------------------------
ending or commencing within the Lease Term, Tenant's Share of Direct Expenses
for such Expense Year exceeds Tenant's Share of Direct Expenses for the Base
Year, then Tenant shall pay to Landlord, in the manner set forth in Section
-------
4.3.2, below, and as Additional Rent, an amount equal to the excess (the
- -----
"Excess").
4.3.2 Statement of Actual Direct Expenses and Payment by Tenant.
---------------------------------------------------------
Following the end of each Expense Year, Landlord shall give to Tenant a
statement (the "Statement") which Statement shall state the actual Direct
Expenses incurred or accrued for such preceding Expense Year, and which shall
indicate the amount, if any, of any Excess or underage. Upon receipt of the
Statement for each Expense Year ending during the Lease Term, if an Excess is
present, Tenant shall pay, with its next installment of Base Rent, the full
amount of the Excess for such Expense Year, less the amounts, if any, paid
during such Expense Year as "Estimated Excess," as that term is defined in
Section 4.3.3 below. Even though the Lease Term has expired and Tenant has
- -------------
vacated the Premises, when the final determination is made of Tenant's Share of
the Direct Expenses for the Expense Year in which this Lease terminates, if an
Excess is present, Tenant shall, within thirty (30) days of receipt of a
Statement setting forth the Excess, pay to Landlord an amount as calculated
pursuant to the provisions of Section 4.3.1 of this Lease. The provisions of
-------------
this Section 4.3.2 shall survive the expiration or earlier termination of the
-------------
Lease Term.
4.3.3 Statement of Estimated Direct Expenses. Landlord, at
--------------------------------------
Landlord's option, may elect to give Tenant a yearly expense estimate statement
(the "Estimate Statement") which Estimate Statement shall set forth Landlord's
reasonable estimate (the "Estimate") of what the total amount of Direct Expenses
for the then-current Expense Year shall be and the estimated Excess (the
"Estimated Excess") as calculated by comparing Tenant's Share of Direct
Expenses, which shall be based upon the Estimate, to Tenant's Share of Direct
Expenses for the Base Year. The failure of Landlord to timely furnish the
Estimate Statement for any Expense Year shall not preclude Landlord from
enforcing its rights to collect any Estimated Excess under this Article 4. If
---------
pursuant to the Estimate Statement an Estimated Excess is calculated for the
then-current Expense Year, Tenant shall pay, with its next installment of Base
Rent, a fraction of the Estimated Excess for the then-current Expense Year
(reduced by any amounts paid pursuant to the last sentence of this Section
-------
4.3.3). Such fraction shall have as its numerator the number of months which
have elapsed in such current Expense Year to the month of such payment, both
months inclusive, and shall have twelve (12) as its denominator. Until a new
Estimate Statement is furnished, Tenant shall pay monthly, with the monthly Base
Rent installments, an amount equal to one-twelfth (1/12) of the total Estimated
Excess set forth in the previous Estimate Statement delivered by Landlord to
Tenant.
4.4 Taxes and Other Charges for Which Tenant Is Directly Responsible.
----------------------------------------------------------------
Tenant shall reimburse Landlord upon demand for any and all taxes or assessments
required to be paid by Landlord (except to the extent included in Tax Expenses
by Landlord), excluding state, local and federal personal or corporate income
taxes measured by the net income of Landlord from all sources and estate and
inheritance taxes, whether or not now customary or within the contemplation of
the parties hereto, when:
4.4.1 Said taxes are measured by or reasonably attributable to the
cost or value of Tenant's equipment, furniture, fixtures and other personal
property located in the Premises, or by the cost or value of any leasehold
improvements made in or to the Premises by or for Tenant, to the extent the cost
or value of such leasehold improvements exceeds the cost or value of a building
standard build-out as determined by Landlord regardless of whether title to such
improvements shall be vested in Tenant or Landlord;
4.4.2 Said taxes are assessed upon or with respect to the possession,
leasing, operation, management, maintenance, alteration, repair, use or
occupancy by Tenant of the Premises or any portion of the Project (including the
Building Parking Facility);
4.4.3 Said taxes are assessed upon this transaction or any document
to which Tenant is a party creating or transferring an interest or an estate in
the Premises; or
4.4.4 Said assessments are levied or assessed upon the Project or any
part thereof or upon Landlord and/or by any governmental authority or entity,
and relate to the construction, operation, management, use, alteration or repair
of mass transit improvements.
4.5 Landlord's Books and Records. Within sixty (60) days after receipt of
----------------------------
a Statement by Tenant, if Tenant disputes the amount of Additional Rent set
forth in the Statement, a corporate officer of Tenant or an independent
certified public accountant (which accountant is a member of a nationally
recognized accounting firm and is working on a noncontingent fee basis),
designated
-3-
<PAGE>
and paid for by Tenant, may, after reasonable notice to Landlord and
at reasonable times, inspect Landlord's records at Landlord's offices, provided
that Tenant is not then in default under this Lease and Tenant has paid all
amounts required to be paid under the applicable Estimate Statement and
Statement, as the case may be. In connection with such inspection, Tenant and
Tenant's agents must agree in advance to follow Landlord's reasonable rules and
procedures regarding inspections of Landlord's records, and shall execute a
commercially reasonable confidentiality agreement regarding such inspection.
Tenant's failure to dispute the amount of Additional Rent set forth in any
Statement within sixty (60) days following Tenant's receipt of such Statement
shall be deemed to be Tenant's approval of such Statement and Tenant,
thereafter, waives the right or ability to dispute the amounts set forth in such
Statement. If after such inspection, Tenant still disputes such Additional
Rent, a determination as to the proper amount shall be made, at Tenant's
expense, by an independent certified public accountant (the "Accountant")
selected by Landlord and subject to Tenant's reasonable approval; provided that
if such determination by the Accountant proves that Direct Expenses were
overstated by more than five percent (5.0%), then the cost of the Accountant and
the cost of such determination shall be paid for by Landlord.
5. USE OF PREMISES Tenant shall use the premises only for the purpose as set
---------------
forth in Section 10 of the Summary (the "Permitted Use") and for no other use or
----------
purpose, unless first approved in writing by Landlord, which approval Landlord
may withhold in its sole discretion. Tenant shall not rent, license or otherwise
allow third parties to operate the production studio in the Premises. Tenant
agrees that it shall not use, or permit any person to use, the Premises or any
part thereof for any use or purpose contrary to the provisions of the Rules and
Regulations set forth in Exhibit D, attached hereto, or in violation of the laws
---------
of the United States of America, the State of California, or the ordinances,
regulations or requirements of any local, municipal or county governing body or
other lawful authorities having jurisdiction over the Building or Project.
Tenant shall comply with all recorded covenants, conditions, and restrictions,
and the provisions of all ground or underlying leases, now or hereafter
affecting the Project. Tenant shall not use or allow another person or entity to
use any part of the Premises for the storage, use, treatment, manufacture or
sale of hazardous materials or hazardous substances (as defined under applicable
laws).
6. SERVICES AND UTILITIES
----------------------
6.1 Standard Tenant Services. Landlord shall provide the following
------------------------
services and utilities twenty-four (24) hours per day on every day during the
Lease Term, unless otherwise stated below.
6.1.1 Subject to reasonable change implemented by Landlord and all
governmental rules, regulations and guidelines applicable thereto, Landlord
shall provide heating and air conditioning when necessary for normal comfort for
normal office use in the Premises ("HVAC") from Monday through Friday from 7
a.m. to 7 p.m., and on Saturday from 8:00 a.m. to 2:00 p.m., except for the date
of observation of nationally or locally recognized holidays, in Landlord's sole
discretion (collectively, the "Holidays"). The daily time periods identified
hereinabove are sometimes referred to as the "Business Hours."
6.1.2 Landlord shall at all times provide electricity to the Premises
(including adequate electrical wiring and facilities for connection to Tenant's
lighting fixtures and other equipment) for lighting and power suitable for the
Permitted Use. Landlord shall also provide (i) city water for use in connection
with any plumbing fixtures now or hereafter installed in the Premises and the
Building in accordance with this Lease, (ii) janitorial services five (5) days
per week except the date of observation of the Holidays, in and about the
Premises, and (iii) nonexclusive automatic passenger elevator service at all
times. If Tenant uses electricity, water or heat or air conditioning in excess
of that supplied by Landlord pursuant to Section 6.1 of this Lease, Tenant shall
pay to Landlord, upon billing, the cost of such excess consumption, the cost of
the installation, operation, and maintenance of equipment which is installed in
order to supply such excess consumption, and the cost of the increased wear and
tear on existing equipment caused by such excess consumption; and Landlord may
install devices to separately meter any increased use and in such event Tenant
shall pay the increased cost directly to Landlord, on demand, including the cost
of such additional metering devices. Landlord may increase the hours or days
during which air conditioning, heating and ventilation are provided to the
Premises and the Building to accommodate the usage by tenants occupying two-
thirds or more of the rentable square feet of the Building or to conform to
practices of other buildings in the area comparable to the Building.
6.1.3 Landlord shall provide twenty-four (24) hours per day, every
day of the year, on site access control systems and procedures. Tenant may, at
its own expense, install its own security system ("Tenant's Security System") in
the Premises, which security system shall be subject to Landlord's reasonable
approval; provided, however, that Tenant shall coordinate the installation and
operation of Tenant's Security System with Landlord to assure that Tenant's
Security System is compatible with Landlord's security system, if any, and the
Building systems and equipment, and to the extent that Tenant's Security System
is not compatible with Landlord's security system and the Building systems and
equipment, Tenant shall not be entitled to install or operate the Tenant's
Security System. Tenant shall be solely responsible, at Tenant's sole cost and
expense, for the monitoring, operation and removal of Tenant's Security System.
6.2 After-Hours Use. Upon request by Tenant, Landlord shall provide heat,
---------------
ventilation and cooling adequate for the comfortable use and occupancy of the
Premises outside Business Hours (the "After-Hours HVAC"). Tenant shall pay
Landlord within thirty (30) days of demand for any such After-Hours HVAC at the
hourly cost established by Landlord for such After-Hours HVAC.
6.3 Interruption of Use. Tenant agrees that Landlord shall not be liable
-------------------
for damages, by abatement of rent or otherwise, for failure to furnish or delay
in furnishing any service (including telephone and telecommunication services),
or for any diminution in the quality or quantity thereof, when such failure or
delay or diminution is occasioned, in whole or in part, by repairs,
replacements, or improvements, by any strike, lockout or other labor trouble, by
inability to secure electricity, gas, water, or other fuel at the Building after
reasonable effort to do so, by any accident or casualty whatsoever, by act or
default of Tenant or other parties, or by any other cause beyond Landlord's
reasonable control; and such failures or delays or diminution shall never be
deemed to constitute an eviction or disturbance of Tenant's use and possession
of the Premises or relieve Tenant from paying rent or performing any of its
obligations under this Lease. Furthermore, Landlord shall not be liable under
any circumstances for a loss of, or injury to, property or for injury to, or
interference with, Tenant's business, including, without limitation, loss of
profits, however occurring, through or in connection with or incidental to a
failure to furnish any services or utilities.
7. REPAIRS Tenant shall, at Tenant's own expense, keep the Premises,
-------
including all improvements, fixtures and furnishings therein, in first class
order, repair and condition at all times during the Lease Term. In addition,
Tenant shall, at Tenant's own expense but under the supervision and subject to
the prior approval of Landlord, and within any reasonable period of time
specified by Landlord, promptly and adequately repair all damage to the Premises
and replace or repair all damaged or broken fixtures and appurtenances; provided
however, that, at Landlord's option, or if Tenant fails to make such repairs,
Landlord may, but need not, make such repairs and replacements, and Tenant shall
pay Landlord the cost thereof, including a percentage of the cost thereof (to be
uniformly established for the Project) sufficient to reimburse Landlord for all
overhead, general conditions, fees and other costs or expenses arising from
Landlord's involvement with such repairs and replacements forthwith upon being
billed for same. Landlord may, but shall not be required to, enter the Premises
at all reasonable times to make such repairs, alterations, improvements and
additions
-4-
<PAGE>
to the Premises or to the Building or to any equipment located in the Building
as Landlord shall desire or deem necessary or as Landlord may be required to do
by governmental or quasi-governmental authority or court order or decree. Tenant
hereby waives and releases its right to make repairs at Landlord's expense under
Sections 1941 and 1942 of the California Civil Code, or under any similar law,
statute, or ordinance now or hereafter in effect.
8. ADDITIONS AND ALTERATIONS
-------------------------
8.1 Landlord's Consent to Alterations. Tenant may not make any
---------------------------------
improvements, alterations, additions or changes to the Premises (collectively,
the "Alterations") without first procuring the prior written consent of Landlord
to such Alterations, which consent shall be requested by Tenant not less than
thirty (30) days prior to the commencement thereof, and which consent shall not
be unreasonably withheld by Landlord. The construction of the initial
improvements to the Premises shall be governed by the terms of the Tenant Work
Letter attached hereto as Exhibit B, and not the terms of this Article 8.
--------- ---------
8.2 Manner of Construction. Landlord may impose, as a condition of its
----------------------
consent to all Alterations or repairs of the Premises or about the Premises,
such requirements as Landlord in its sole discretion may deem desirable,
including, but not limited to, the requirement that upon Landlord's request,
Tenant shall, at Tenant's expense, remove such Alterations upon the expiration
or any early termination of the Lease Term, and/or the requirement that Tenant
utilize for such purposes only contractors, materials, mechanics and materialmen
selected by Landlord. All work with respect to any Alterations must be done in
a good and workmanlike manner, by properly licensed and insured contractors, in
compliance with all applicable laws and with Landlord's construction rules and
regulations, and diligently prosecuted to completion to the end that the
Premises shall at all times be a complete unit except during the period of work.
In performing the work of any such Alterations, Tenant shall have the work
performed in such manner as not to obstruct access to the Building or Project or
the common areas for any other tenant of the Building, and as not to obstruct
the business of Landlord or other tenants of the Project, or interfere with the
labor force working in the Project. In the event that Tenant makes any
Alterations, Tenant agrees to carry "Builder's All Risk" insurance in an amount
approved by Landlord covering the construction of such Alterations, and such
other insurance as Landlord may require, it being understood and agreed that all
of such Alterations shall be insured by Tenant pursuant to Article 10 of this
----------
Lease immediately upon completion thereof. In addition, Landlord may, in its
discretion, require Tenant to obtain a lien and completion bond or some
alternate form of security satisfactory to Landlord in an amount sufficient to
ensure the lien-free completion of such Alterations and naming Landlord as a co-
obligee. Upon completion of any Alterations, Tenant agrees to cause a Notice of
Completion to be recorded in the office of the Recorder of the county in which
the Building is located in accordance with Section 3093 of the Civil Code of the
State of California or any successor statute, and Tenant shall deliver to the
Building management office a reproducible copy of the "as built" drawings of the
Alterations.
8.3 Payment for Improvements. In the event Tenant orders any Alteration
------------------------
or repair work directly from Landlord, or from the contractor selected by
Landlord, the charges for such work shall be deemed Additional Rent under this
Lease, payable upon billing therefor, either periodically during construction or
upon the substantial completion of such work, at Landlord's option. Upon
completion of such work, Tenant shall deliver to Landlord, if payment is made
directly to contractors, evidence of payment, contractors' affidavits and full
and final waivers of all liens for labor, services or materials. Whether or not
Tenant orders any work directly from Landlord, Tenant shall pay to Landlord a
percentage of the cost of such work (such percentage, which shall vary depending
upon whether or not Tenant orders the work directly from Landlord, to be
established on a uniform basis for the Project) sufficient to compensate
Landlord for all overhead, general conditions, fees and other costs and expenses
arising from Landlord's involvement with such work.
8.4 Landlord's Property. All Alterations, improvements, fixtures and/or
-------------------
permanently affixed equipment which may be installed or placed in or about the
Premises, and all signs installed in, on or about the Premises, from time to
time, shall be at the sole cost of Tenant and shall be and become the property
of Landlord. Notwithstanding the foregoing, Tenant shall have the right to
remove its equipment and trade fixtures from the Premises. Furthermore,
Landlord may, by written notice to Tenant prior to the end of the Lease Term, or
given upon any earlier termination of this Lease, require Tenant at Tenant's
expense to remove such Alterations and to repair any damage to the Premises,
Building and Project caused by such removal. If Tenant fails to complete such
removal and/or to repair any damage caused by the removal of any trade fixtures,
equipment, or Alterations, Landlord may do so and may charge the cost thereof to
Tenant. Tenant shall be required, at Tenant's sole cost and expense, to return
the Premises to a Building standard condition, as reasonably determined by
Landlord, upon the expiration or earlier termination of the Lease Term; provided
that Landlord shall have the right to perform such restoration work at Tenant's
sole cost and expense. Tenant hereby indemnifies and holds Landlord harmless
from any liability, cost, obligation, expense or claim of lien in any manner
relating to the installation, placement, removal or financing of any such
Alterations, improvements, fixtures and/or equipment in, on or about the
Premises.
9. COVENANT AGAINST LIENS Tenant has no authority or power to cause or permit
----------------------
any lien or encumbrance of any kind whatsoever, whether created by act of
Tenant, operation of law or otherwise, to attach to or be placed upon the
Project, Building or Premises, and any and all liens and encumbrances created by
Tenant shall attach to Tenant's interest only. Landlord shall have the right at
all times to post and keep posted on the Premises any notice which it deems
necessary for protection from such liens. Tenant covenants and agrees not to
suffer or permit any lien of mechanics or materialmen or others to be placed
against the Project, the Building or the Premises with respect to work or
services properly and legitimately claimed to have been performed for or
materials claimed to have been furnished to Tenant or the Premises, and, in case
of any such lien attaching or notice of any lien, Tenant covenants and agrees to
cause it to be immediately released and removed of record. Notwithstanding
anything to the contrary set forth in this Lease, in the event that such lien is
not released and removed on or before the date notice of such lien is delivered
by Landlord to Tenant, Landlord, at its sole option, may immediately take all
action necessary to release and remove such lien, without any duty to
investigate the validity thereof, and all sums, costs and expenses, including
reasonable attorneys' fees and costs, incurred by Landlord in connection with
such lien shall be deemed Additional Rent under this Lease and shall immediately
be due and payable by Tenant.
10. INSURANCE
---------
10.1 Indemnification and Waiver. To the extent not prohibited by law,
--------------------------
Landlord, its partners and their respective officers, agents, servants,
employees, and independent contractors (collectively, "Landlord Parties") shall
not be liable for any damage either to person or property or resulting from the
loss of use thereof, which damage is sustained by Tenant or by other persons
claiming through Tenant. Tenant shall indemnify, defend, protect, and hold
harmless Landlord Parties from any and all loss, cost, damage, expense and
liability (including without limitation court costs and reasonable attorneys'
fees) incurred in connection with or arising from any cause in, on or about the
Premises, any acts, omissions or negligence of Tenant or any person claiming by,
through or under Tenant, or of the contractors, agents, servants, employees,
invitees, guests or licensees of Tenant or any such person in, on, or about the
Project, or any breach of the terms of this Lease, either prior to, during, or
after the expiration of the Lease Term, provided that the terms of the foregoing
indemnity shall not apply to the gross negligence or wilful misconduct of
Landlord. The provisions of
-5-
<PAGE>
this Section 10.1 shall survive the expiration or sooner termination of this
------------
Lease with respect to any claims or liability occurring prior to such expiration
or termination.
10.2 Tenant's Compliance with Landlord's Fire and Casualty Insurance.
---------------------------------------------------------------
Tenant shall, at Tenant's expense, comply as to the Premises with all insurance
company requirements pertaining to the use of the Premises. If Tenant's conduct
or use of the Premises causes any increase in the premium for such insurance
policies, then Tenant shall reimburse Landlord for any such increase. Tenant, at
Tenant's expense, shall comply with all rules, orders, regulations or
requirements of the American Insurance Association (formerly the National Board
of Fire Underwriters) and with any similar body.
10.3 Tenant's Insurance. Tenant shall maintain Commercial General
------------------
Liability Insurance covering the insured against claims of bodily injury,
personal injury and property damage arising out of Tenant's operations, assumed
liabilities or use of the Premises, including a Broad Form Commercial General
Liability endorsement covering the insuring provisions of this Lease and the
performance by Tenant of the indemnity agreements set forth in Section 10.1 of
------------
this Lease, for limits of liability not less than $5,000,000.00 for each
occurrence and $5,000,000.00 annual aggregate, with 0% Insured's participation.
In addition, Tenant shall carry Physical Damage Insurance covering (i) all
office furniture, trade fixtures, office equipment, merchandise and all other
items of Tenant's property on the Premises installed by, for, or at the expense
of Tenant, and (ii) all other improvements, alterations and additions to the
Premises, including any improvements, alterations or additions installed at
Tenant's request above the ceiling of the Premises or below the floor of the
Premises. Such insurance shall be written on an "all risks" of physical loss or
damage basis, for the full replacement cost value new without deduction for
depreciation of the covered items and in amounts that meet any co-insurance
clauses of the policies of insurance and shall include a vandalism and malicious
mischief endorsement, sprinkler leakage coverage and earthquake sprinkler
leakage coverage.
10.4 Form of Policies. The minimum limits of policies of insurance
----------------
required of Tenant under this Lease shall in no event limit the liability of
Tenant under this Lease. Such insurance shall (i) name Landlord, and any other
party it so specifies, as an additional insured; (ii) specifically cover the
liability assumed by Tenant under this Lease, including, but not limited to,
Tenant's obligations under Section 10.1 of this Lease; (iii) be issued by an
------------
insurance company having a rating of not less than A-X in Best's Insurance Guide
or which is otherwise acceptable to Landlord and licensed to do business in the
state in which the Building is located; (iv) be primary insurance as to all
claims thereunder and provide that any insurance carried by Landlord is excess
and is non-contributing with any insurance requirement of Tenant; (v) provide
that said insurance shall not be canceled or coverage changed unless thirty (30)
days' prior written notice shall have been given to Landlord and any mortgagee
or ground or underlying lessor of Landlord. Tenant shall deliver said policy or
policies or certificates thereof to Landlord on or before the Lease Commencement
Date and at least thirty (30) days before the expiration dates thereof. In the
event Tenant shall fail to procure such insurance, or to deliver such policies
or certificate, Landlord may, at its option, procure such policies for the
account of Tenant, and the cost thereof shall be paid to Landlord as Additional
Rent within five (5) days after delivery to Tenant of bills therefor.
10.5 Subrogation. Landlord and Tenant agree to have their respective
-----------
insurance companies issuing property damage insurance waive any rights of
subrogation that such companies may have against Landlord or Tenant, as the case
may be, so long as the insurance carried by Landlord and Tenant, respectively,
is not invalidated thereby. As long as such waivers of subrogation are
contained in their respective insurance policies, Landlord and Tenant hereby
waive any right that either may have against the other on account of any loss or
damage to their respective property to the extent such loss or damage is
insurable under policies of insurance for fire and all risk coverage, theft,
public liability, or other similar insurance.
10.6 Additional Insurance Obligations. Tenant shall carry and maintain
--------------------------------
during the entire Lease Term, at Tenant's sole cost and expense, increased
amounts of the insurance required to be carried by Tenant pursuant to this
Article 10, and such other reasonable types of insurance coverage and in such
reasonable amounts covering the Premises and Tenant's operations therein, as may
be reasonably requested by Landlord.
11. DAMAGE AND DESTRUCTION
----------------------
11.1 Repair of Damage to Premises by Landlord. If the Premises or any
----------------------------------------
common areas of the Building serving or providing access to the Premises shall
be damaged by fire or other casualty, Landlord shall promptly and diligently,
subject to reasonable delays for insurance adjustment or other matters beyond
Landlord's reasonable control, and subject to all other terms of this Article
-------
11, restore the base, shell and core of the Premises and such common areas.
Such restoration shall be to substantially the same condition of the base, shell
and core of the Premises and common areas prior to the casualty, except for
modifications required by zoning and building codes and other laws or by the
holder of a mortgage on the Building, or the lessor of a ground or underlying
lease with respect to the Project and/or the Building, or any other
modifications to the common areas deemed desirable by Landlord, provided access
to the Premises and any common restrooms serving the Premises shall not be
materially impaired. Notwithstanding any other provision of this Lease, upon the
occurrence of any damage to the Premises, Tenant shall assign to Landlord (or to
any party designated by Landlord) all insurance proceeds payable to Tenant under
Tenant's insurance carried under Section 10.3 of this Lease, and Landlord shall
repair any injury or damage to the Tenant Improvements installed in the Premises
and shall return such Tenant Improvements to their original condition; provided
that if the cost of such repair by Landlord exceeds the amount of insurance
proceeds received by Landlord from Tenant's insurance carrier, as assigned by
Tenant, the cost of such repairs shall be paid by Tenant to Landlord prior to
Landlord's repair of the damage. In connection with such repairs and
replacements, Tenant shall, prior to the commencement of construction, submit to
Landlord, for Landlord's review and approval, all plans, specifications and
working drawings relating thereto, and Landlord shall select the contractors to
perform such improvement work. Landlord shall not be liable for any
inconvenience or annoyance to Tenant or its visitors, or injury to Tenant's
business resulting in any way from such damage or the repair thereof; provided
however, that if such fire or other casualty shall have damaged the Premises or
common areas necessary to Tenant's occupancy, and if such damage is not the
result of the wilful misconduct of Tenant or Tenant's employees, contractors,
licensees, or invitees, Landlord shall allow Tenant a proportionate abatement of
Rent, during the time and to the extent the Premises are unfit for occupancy for
the purposes permitted under this Lease, and not occupied by Tenant as a result
thereof.
11.2 Landlord's Option to Repair. Notwithstanding the terms of Section
--------------------------- -------
11.1 of this Lease, Landlord may elect not to rebuild and/or restore the
- ----
Premises and/or Building and instead terminate this Lease by notifying Tenant in
writing of such termination within sixty (60) days after the date of discovery
of such damage, such notice to include a termination date giving Tenant ninety
(90) days to vacate the Premises, but Landlord may so elect only if the Building
or Project shall be damaged by fire or other casualty or cause, whether or not
the Premises are affected, and one or more of the following conditions is
present: (i) repairs cannot reasonably be completed within one hundred eighty
(180) days of the date of discovery of damage (when such repairs are made
without the payment of overtime or other premiums); (ii) the holder of any
mortgage on the Building or Project or ground or underlying lessor with respect
to the Project and/or the Building shall require that the insurance proceeds or
any portion thereof be used to retire the mortgage debt, or shall terminate the
ground or underlying lease, as the case may be; or (iii) the damage is not fully
covered, except for deductible amounts, by Landlord's insurance policies. In
addition, in the event that the Premises, the Building or the Project is
-6-
<PAGE>
destroyed or damaged to any substantial extent during the last twelve (12)
months of the Lease Term, then notwithstanding anything contained in this
Article 11, Landlord shall have the option to terminate this Lease by giving
- ----------
written notice to Tenant of the exercise of such option within thirty (30) days
after the date of such damage or destruction, in which event this Lease shall
cease and terminate as of the date of such notice. Upon any such termination of
this Lease pursuant to this Section 11.2, Tenant shall pay the Base Rent and
------------
Additional Rent, properly apportioned up to such date of termination, and both
parties hereto shall thereafter be freed and discharged of all further
obligations hereunder, except as provided for in provisions of this Lease which
by their terms survive the expiration or earlier termination of the Lease Term.
11.3 Waiver of Statutory Provisions. The provisions of this Lease,
------------------------------
including this Article 11, constitute an express agreement between Landlord and
----------
Tenant with respect to any and all damage to, or destruction of, all or any part
of the Premises, the Building or any other portion of the Project, and any
statute or regulation of the state in which the Building is located, including,
without limitation, Sections 1932(2) and 1933(4) of the California Civil Code,
with respect to any rights or obligations concerning damage or destruction in
the absence of an express agreement between the parties, and any other statute
or regulation, now or hereafter in effect, shall have no application to this
Lease or any damage or destruction to all or any part of the Premises, the
Building or any other portion of the Project.
12. NONWAIVER No waiver of any provision of this Lease shall be implied by (i)
---------
any failure of either party to insist in any instance on the strict keeping,
observance or performance of any covenant or agreement contained in this Lease
or exercise any election contained in this Lease, or (ii) any failure of either
party to enforce any remedy on account of the violation of such provision, even
if such violation shall continue or be repeated subsequently. Any waiver by
either party of any provision of this Lease may only be in writing, and no
express waiver shall affect any provision other than the one specified in such
waiver and that one only for the time and in the manner specifically stated.
13. CONDEMNATION If the whole or any part of the Premises, Building or Project
------------
shall be taken by power of eminent domain or condemned by any competent
authority for any public or quasi-public use or purpose, or if any adjacent
property or street shall be so taken or condemned, or reconfigured or vacated by
such authority in such manner as to require the use, reconstruction or
remodeling of any part of the Premises, Building or Project, or if Landlord
shall grant a deed or other instrument in lieu of such taking by eminent domain
or condemnation, Landlord shall have the option to terminate this Lease upon
ninety (90) days' notice, provided such notice is given no later than one
hundred eighty (180) days after the date of such taking, condemnation,
reconfiguration, vacation, deed or other instrument. If more than twenty-five
percent (25%) of the rentable square feet of the Premises is taken, or if access
to the Premises is substantially impaired, Tenant shall have the option to
terminate this Lease upon ninety (90) days' notice, provided such notice is
given no later than one hundred eighty (180) days after the date of such taking.
Landlord shall be entitled to receive the entire award or payment in connection
therewith, except that Tenant shall have the right to file any separate claim
available to Tenant for any taking of Tenant's personal property and fixtures
belonging to Tenant and removable by Tenant upon expiration of the Lease Term
pursuant to the terms of this Lease, and for moving expenses, so long as such
claim does not diminish the award available to Landlord, its ground lessor with
respect to the Project or its mortgagee, and such claim is payable separately to
Tenant. All Rent shall be apportioned as of the date of such termination, or the
date of such taking, whichever shall first occur. If any part of the Premises
shall be taken, and this Lease shall not be so terminated, the Rent shall be
proportionately abated. Tenant hereby waives any and all rights it might
otherwise have pursuant to Section 1265.130 of the California Code of Civil
Procedure.
14. ASSIGNMENT AND SUBLETTING
-------------------------
14.1 Transfers. Tenant shall not, without the prior written consent of
---------
Landlord, assign, mortgage, pledge, encumber or otherwise transfer, this Lease
or any interest hereunder, permit any assignment or other such foregoing
transfer of this Lease or any interest hereunder by operation of law, or sublet
the Premises or any part thereof (all of the foregoing are hereinafter sometimes
referred to collectively as "Transfers" and any person to whom any Transfer is
made or sought to be made is hereinafter sometimes referred to as a
"Transferee"). To request Landlord's consent to any Transfer, Tenant shall
notify Landlord in writing, which notice (the "Transfer Notice") shall include
(i) the proposed effective date of the Transfer, which shall not be less than
forty-five (45) days after the date of delivery of the Transfer Notice, (ii) a
description of the portion of the Premises to be transferred (the "Subject
Space"), (iii) all of the terms of the proposed Transfer and the consideration
therefor, including a calculation of the "Transfer Premium," as that term is
defined in Section 14.3 below, in connection with such Transfer, the name and
------------
address of the proposed Transferee, and a copy of all existing and/or proposed
documentation pertaining to the proposed Transfer, including all existing
operative documents to be executed to evidence such Transfer or the agreements
incidental or related to such Transfer, (iv) current financial statements of the
proposed Transferee certified by an officer, partner or owner thereof, and any
other information required by Landlord, which will enable Landlord to determine
the financial responsibility, character, and reputation of the proposed
Transferee, nature of such Transferee's business and proposed use of the Subject
Space, and such other information as Landlord may reasonably require, and (v) a
processing fee in the amount of Three Hundred and No/100 Dollars ($300.00) (the
"Pre-paid Processing Fee"). Any Transfer made without Landlord's prior written
consent shall, at Landlord's option, be null, void and of no effect, and shall,
at Landlord's option, constitute a default by Tenant under this Lease. Whether
or not Landlord shall grant consent, Tenant shall pay Landlord's actual review
and processing fees in excess of the Pre-paid Processing Fee, as well as any
reasonable legal fees incurred by Landlord, within thirty (30) days after
written request by Landlord.
14.2 Landlord's Consent. Landlord shall not unreasonably withhold its
------------------
consent to any proposed Transfer of the Subject Space to the Transferee on the
terms specified in the Transfer Notice. The parties hereby agree that it shall
be reasonable under this Lease and under any applicable law for Landlord to
withhold consent to any proposed Transfer where one or more of the following
apply, without limitation as to other reasonable grounds for withholding
consent:
14.2.1 The Transferee is of a character or reputation or engaged in a
business which is not consistent with the quality of the Project, or would be a
significantly less prestigious occupant of the Project than Tenant;
14.2.2 The Transferee intends to use the Subject Space for purposes
which are not permitted under this Lease;
14.2.3 The Transferee is either a governmental agency or
instrumentality thereof;
14.2.4 The Transferee is not a party of reasonable financial worth
and/or financial stability in light of the responsibilities involved under the
Lease on the date consent is requested;
14.2.5 The proposed Transfer would cause Landlord to be in violation
of another lease or agreement to which Landlord is a party, or would give an
occupant of the Building a right to cancel its lease;
-7-
<PAGE>
14.2.6 The terms of the proposed Transfer will allow the Transferee
to exercise a right of renewal, right of expansion, right of first offer, or
other similar right held by Tenant (or will allow the Transferee to occupy space
leased by Tenant pursuant to any such right);
14.2.7 The Transfer occurs during the period from the Lease
Commencement Date until the earlier of (i) the fourth anniversary of the Lease
Commencement Date or (ii) the date at least ninety-five percent (95%) of the
rentable square feet of the Project is leased, and the rent charged by Tenant to
such Transferee during the term of such Transfer (the "Transferee's Rent"),
calculated using a present value analysis, is less than ninety-five percent
(95%) of the rent being quoted by Landlord at the time of such Transfer for
comparable space in the Project for a comparable term (the "Quoted Rent"),
calculated using a present value analysis; or
14.2.8 Either the proposed Transferee, or any person or entity which
directly or indirectly, controls, is controlled by, or is under common control
with, the proposed Transferee, (i) occupies space in the Project at the time of
the request for consent, (ii) is negotiating with Landlord to lease space in the
Project at such time, or (iii) has negotiated with Landlord during the twelve
(12)-month period immediately preceding the Transfer Notice.
If Landlord consents to any Transfer pursuant to the terms of this Section
-------
14.2 (and does not exercise any recapture rights Landlord may have under Section
- ---- -------
14.4 of this Lease), Tenant may within six (6) months after Landlord's consent,
- ----
but not later than the expiration of said six-month period, enter into such
Transfer of the Premises or portion thereof, upon substantially the same terms
and conditions as are set forth in the Transfer Notice furnished by Tenant to
Landlord pursuant to Section 14.1 of this Lease.
------------
14.3 Transfer Premium. If Landlord consents to a Transfer, as a condition
----------------
thereto which the parties hereby agree is reasonable, Tenant shall pay to
Landlord any "Transfer Premium," as that term is defined in this Section 14.3,
------------
received by Tenant from such Transferee. "Transfer Premium" shall mean all
rent, additional rent or other consideration payable by such Transferee in
excess of the Rent and Additional Rent payable by Tenant under this Lease on a
per rentable square foot basis if less than all of the Premises is transferred.
"Transfer Premium" shall also include, but not be limited to, key money and
bonus money paid by Transferee to Tenant in connection with such Transfer, and
any payment in excess of fair market value for services rendered by Tenant to
Transferee or for assets, fixtures, inventory, equipment, or furniture
transferred by Tenant to Transferee in connection with such Transfer. In the
calculations of the Rent (as it relates to the Transfer Premium calculated under
this Section 14.3), and the Transferee's Rent and Quoted Rent under Section 14.2
------------ ------------
of this Lease, the Rent paid during each annual period for the Subject Space,
and the Transferee's Rent and the Quoted Rent, shall be computed after adjusting
such rent to the actual effective rent to be paid, taking into consideration any
and all leasehold concessions granted in connection therewith, including, but
not limited to, any rent credit and tenant improvement allowance. For purposes
of calculating any such effective rent, all such concessions shall be amortized
on a straight-line basis over the relevant term.
14.4 Landlord's Option as to Subject Space. Notwithstanding anything to
-------------------------------------
the contrary contained in this Article 14, Landlord shall have the option, by
----------
giving written notice to Tenant within thirty (30) days after receipt of any
Transfer Notice, to recapture the Subject Space. Such recapture notice shall
cancel and terminate this Lease with respect to the Subject Space as of the
effective date of the proposed Transfer until the last day of the term of the
Transfer as set forth in the Transfer Notice. In the event of a recapture by
Landlord, if this Lease shall be canceled with respect to less than the entire
Premises, the Rent reserved herein shall be prorated on the basis of the number
of rentable square feet retained by Tenant in proportion to the number of
rentable square feet contained in the Premises, and this Lease as so amended
shall continue thereafter in full force and effect, and upon request of either
party, the parties shall execute written confirmation of the same.
14.5 Effect of Transfer. If Landlord consents to a Transfer, (i) the
------------------
terms and conditions of this Lease shall in no way be deemed to have been waived
or modified, (ii) such consent shall not be deemed consent to any further
Transfer by either Tenant or a Transferee, (iii) Tenant shall deliver to
Landlord, promptly after execution, an original executed copy of all
documentation pertaining to the Transfer in form reasonably acceptable to
Landlord, (iv) Tenant shall furnish upon Landlord's request a complete
statement, certified by an independent certified public accountant, or Tenant's
chief financial officer, setting forth in detail the computation of any Transfer
Premium Tenant has derived and shall derive from such Transfer, and (v) no
Transfer relating to this Lease or agreement entered into with respect thereto,
whether with or without Landlord's consent, shall relieve Tenant or any
guarantor of the Lease from liability under this Lease. Landlord or its
authorized representatives shall have the right at all reasonable times to audit
the books, records and papers of Tenant relating to any Transfer, and shall have
the right to make copies thereof. If the Transfer Premium respecting any
Transfer shall be found understated, Tenant shall, within thirty (30) days after
demand, pay the deficiency and Landlord's costs of such audit, and if
understated by more than ten percent (10%), Landlord shall have the right to
cancel this Lease upon thirty (30) days' notice to Tenant.
14.6 Additional Transfers. For purposes of this Lease, the term
--------------------
"Transfer" shall also include (i) if Tenant is a partnership, the withdrawal or
change, voluntary, involuntary or by operation of law, of twenty-five percent
(25%) or more of the partners, or transfer of twenty-five percent or more of
partnership interests, within a twelve (12)-month period, or the dissolution of
the partnership without immediate reconstitution thereof, and (ii) if Tenant is
a closely held corporation (i.e., whose stock is not publicly held and not
traded through an exchange or over the counter), (A) the dissolution, merger,
consolidation or other reorganization of Tenant, the sale or other transfer of
more than an aggregate of twenty-five percent (25%) of the voting shares of
Tenant (other than to immediate family members by reason of gift or death),
within a twelve (12)-month period, or (C) the sale, mortgage, hypothecation or
pledge of more than an aggregate of twenty-five percent (25%) of the value of
the unencumbered assets of Tenant within a twelve (12) month period.
15. OWNERSHIP AND REMOVAL OF TRADE FIXTURES
------------------------------
15.1 Surrender of Premises. No act or thing done by Landlord or any agent
---------------------
or employee of Landlord during the Lease Term shall be deemed to constitute an
acceptance by Landlord of a surrender of the Premises unless such intent is
specifically acknowledged in a writing signed by Landlord. The delivery of keys
to the Premises to Landlord or any agent or employee of Landlord shall not
constitute a surrender of the Premises or effect a termination of this Lease,
whether or not the keys are thereafter retained by Landlord, and notwithstanding
such delivery Tenant shall be entitled to the return of such keys at any
reasonable time upon request until this Lease shall have been properly
terminated.
15.2 Removal of Tenant Property by Tenant. Upon the expiration of the
------------------------------------
Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject
to the provisions of this Article 15, quit and surrender possession of the
----------
Premises to Landlord in as good order and condition as when Tenant took
possession and as thereafter improved by Landlord and/or Tenant, reasonable wear
and tear excepted. Upon such expiration or termination, Tenant shall, without
expense to Landlord, remove or cause to be removed from the Premises all debris
and rubbish, and such items of furniture, equipment, free-standing cabinet work,
and other articles of
-8-
<PAGE>
personal property owned by Tenant or installed or placed by Tenant at its
expense in the Premises, and such similar articles of any other persons claiming
under Tenant, as Landlord may, in its sole discretion, require to be removed,
and Tenant shall repair at its own expense all damage to the Premises, Building
and Project resulting from such removal.
16. HOLDING OVER If Tenant holds over after the expiration of the Lease Term
------------
hereof, with or without the express or implied consent of Landlord, such tenancy
shall be from month-to-month only, and shall not constitute a renewal hereof or
an extension for any further term, and in such case Base Rent shall be payable
at a monthly rate equal to one hundred fifty percent (150%) of the Base Rent
applicable during the last rental period of the Lease Term under this Lease.
Such month-to-month tenancy shall be subject to every other term, covenant and
agreement contained herein. Nothing contained in this Article 16 shall be
----------
construed as consent by Landlord to any holding over by Tenant, and Landlord
expressly reserves the right to require Tenant to surrender possession of the
Premises to Landlord as provided in this Lease upon the expiration or other
termination of this Lease. The provisions of this Article 16 shall not be
----------
deemed to limit or constitute a waiver of any other rights or remedies of
Landlord provided herein or at law. If Tenant fails to surrender the Premises
upon the termination or expiration of this Lease, in addition to any other
liabilities to Landlord accruing therefrom, Tenant shall protect, defend,
indemnify and hold Landlord harmless from all loss, costs (including reasonable
attorneys' fees) and liability resulting from such failure, including, without
limiting the generality of the foregoing, any claims made by any succeeding
tenant founded upon such failure to surrender, and any lost profits to Landlord
resulting therefrom.
17. ESTOPPEL CERTIFICATE. Within ten (10) days following a request in writing
--------------------
by Landlord, Tenant shall execute and deliver to Landlord an estoppel
certificate, which, as submitted by Landlord, shall be substantially in the form
of Exhibit E, attached hereto, (or such other form as may be required by any
---------
prospective mortgagee or purchaser of the Project, or any portion thereof),
indicating therein any exceptions thereto that may exist at that time, and shall
also contain any other information reasonably requested by Landlord or
Landlord's mortgagee or prospective mortgagee. Tenant shall execute and deliver
whatever other instruments may be reasonably required for such purposes. Failure
of Tenant to timely execute and deliver such estoppel certificate or other
instruments shall constitute an acceptance of the Premises and an acknowledgment
by Tenant that statements included in the estoppel certificate are true and
correct, without exception.
18. SUBORDINATION This Lease is subject and subordinate to all present and
-------------
future ground or underlying leases of the Project and to the lien of any
mortgages or trust deeds, now or hereafter in force against the Project and the
Building, if any, and to all renewals, extensions, modifications, consolidations
and replacements thereof, and to all advances made or hereafter to be made upon
the security of such mortgages or trust deeds, unless the holders of such
mortgages or trust deeds, or the lessors under such ground lease or underlying
leases, require in writing that this Lease be superior thereto. Tenant covenants
and agrees in the event any proceedings are brought for the foreclosure of any
such mortgage, or if any ground or underlying lease is terminated, to attorn,
without any deductions or set-offs whatsoever, to the purchaser upon any such
foreclosure sale, or to the lessor of such ground or underlying lease, as the
case may be, if so requested to do so by such purchaser or lessor, and to
recognize such purchaser or lessor as the lessor under this Lease. Tenant shall,
within five (5) days of request by Landlord, execute such further instruments or
assurances as Landlord may reasonably deem necessary to evidence or confirm the
subordination or superiority of this Lease to any such mortgages, trust deeds,
ground leases or underlying leases. Tenant hereby irrevocably authorizes
Landlord to execute and deliver in the name of Tenant any such instrument or
instruments if Tenant fails to do so, provided that such authorization shall in
no way relieve Tenant from the obligation of executing such instruments of
subordination or superiority. Tenant waives the provisions of any current or
future statute, rule or law which may give or purport to give Tenant any right
or election to terminate or otherwise adversely affect this Lease and the
obligations of the Tenant hereunder in the event of any foreclosure proceeding
or sale.
19. DEFAULTS; REMEDIES
------------------
19.1 Events of Default. The occurrence of any of the following shall
-----------------
constitute a default of this Lease by Tenant:
19.1.1 Any failure by Tenant to pay any Rent or any other charge
required to be paid under this Lease within five (5) days after written notice
that the same is past due, or any part thereof, when due;
19.1.2 Any failure by Tenant to respond to Landlord's request under
Article 17 or 18 within the time permitted therein for such response; or
- ----------------
19.1.3 Any failure by Tenant to observe or perform any other
provision, covenant or condition of this Lease to be observed or performed by
Tenant, including, but not limited to, the Rules and Regulations set forth in
Exhibit D, attached hereto, where such failure continues for fifteen (15) days
- ---------
after written notice thereof from Landlord to Tenant; provided however, that any
such notice shall be in lieu of, and not in addition to, any notice required
under California Code of Civil Procedure Section 1161 or any similar or
successor law; and provided further that if the nature of such default is such
that the same cannot reasonably be cured within a fifteen (15)-day period,
Tenant shall not be deemed to be in default if it diligently commences such cure
within such period and thereafter diligently proceeds to rectify and cure said
default as soon as possible; or
19.1.4 Abandonment, vacation or surrender of the Premises by Tenant.
19.2 Remedies Upon Default. Upon the occurrence of any event of default
---------------------
by Tenant, Landlord shall have, in addition to any other remedies available to
Landlord at law or in equity, the option to pursue any one or more of the
following remedies, each and all of which shall be cumulative and nonexclusive,
without any notice or demand whatsoever.
19.2.1 Terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may,
without prejudice to any other remedy which it may have for possession or
arrearages in rent, enter upon and take possession of the Premises and expel or
remove Tenant and any other person who may be occupying the Premises or any part
thereof, without being liable for prosecution or any claim or damages therefor;
and Landlord may recover from Tenant the following: (i) the worth at the time
of award of any unpaid rent which has been earned at the time of such
termination; plus (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the Lease Term after the time of award
exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus (iv) any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, specifically including but not limited to, brokerage
commissions and advertising expenses incurred, expenses of remodeling the
Premises or any portion thereof for a new tenant, whether for the same or a
different use, and any special concessions made to obtain a new tenant; and (v)
at Landlord's election, such other amounts in addition to or in lieu of the
foregoing as may be permitted from time to time by applicable law.
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<PAGE>
The term "rent" as used in this Section 19.2 shall be deemed to be and to mean
------------
all sums of every nature required to be paid by Tenant pursuant to the terms of
this Lease, whether to Landlord or to others. As used in Paragraphs 19.2.1(i)
--------------------
and (ii), above, the "worth at the time of award" shall be computed by allowing
- --------
interest at the rate set forth in Article 25 of this Lease, but in no case
----------
greater than the maximum amount of such interest permitted by law. As used in
Paragraph 19.2.1(iii) above, the "worth at the time of award" shall be computed
- ---------------------
by discounting such amount at the discount rate of the Federal Reserve Bank of
San Francisco at the time of award plus one percent (1%).
19.2.2 Landlord shall have the remedy described in California Civil
Code Section 1951.4 (lessor may continue lease in effect after lessee's breach
and abandonment and recover rent as it becomes due, if lessee has the right to
sublet or assign, subject only to reasonable limitations). Accordingly, if
Landlord does not elect to terminate this Lease on account of any default by
Tenant, Landlord may, from time to time, without terminating this Lease, enforce
all of its rights and remedies under this Lease, including the right to recover
all rent as it becomes due.
19.3 Sublessees of Tenant. Whether or not Landlord elects to terminate
--------------------
this Lease on account of any default by Tenant, as set forth in this Article 19,
----------
Landlord shall have the right to terminate any and all subleases, licenses,
concessions or other consensual arrangements for possession entered into by
Tenant and affecting the Premises or may, in Landlord's sole discretion, succeed
to Tenant's interest in such subleases, licenses, concessions or arrangements.
In the event of Landlord's election to succeed to Tenant's interest in any such
subleases, licenses, concessions or arrangements, Tenant shall, as of the date
of notice by Landlord of such election, have no further right to or interest in
the rent or other consideration receivable thereunder.
19.4 Waiver of Default. No waiver by Landlord or Tenant of any violation
-----------------
or breach of any of the terms, provisions and covenants herein contained shall
be deemed or construed to constitute a waiver of any other or later violation or
breach of the same or any other of the terms, provisions, and covenants herein
contained. Forbearance by Landlord in enforcement of one or more of the
remedies herein provided upon an event of default shall not be deemed or
construed to constitute a waiver of such default. The acceptance of any Rent
hereunder by Landlord following the occurrence of any default, whether or not
known to Landlord, shall not be deemed a waiver of any such default, except only
a default in the payment of the Rent so accepted.
20. FORCE MAJEURE Any prevention, delay or stoppage due to strikes, lockouts,
-------------
labor disputes, acts of God, inability to obtain services, labor, or materials
or reasonable substitutes therefor, governmental actions, civil commotions, fire
or other casualty, and other causes beyond the reasonable control of the party
obligated to perform, except with respect to the obligations imposed with regard
to Rent and other charges to be paid by Tenant pursuant to this Lease
(collectively, the "Force Majeure"), notwithstanding anything to the contrary
contained in this Lease, shall excuse the performance of such party for a period
equal to any such prevention, delay or stoppage and, therefore, if this Lease
specifies a time period for performance of an obligation of either party, that
time period shall be extended by the period of any delay in such party's
performance caused by a Force Majeure.
21. SECURITY DEPOSIT; LETTER OF CREDIT
----------------------------------
21.1 Security Deposit. Concurrent with Tenant's execution of this Lease,
----------------
Tenant shall deposit with Landlord a security deposit (the "Security Deposit")
in the amount set forth in Section 11 of the Summary. The Security Deposit
----------
shall be held by Landlord as security for the faithful performance by Tenant of
all the terms, covenants, and conditions of this Lease to be kept and performed
by Tenant during the Lease Term. If Tenant defaults with respect to any
provisions of this Lease, including, but not limited to, the provisions relating
to the payment of Rent, Landlord may, but shall not be required to, use, apply
or retain all or any part of the Security Deposit for the payment of any Rent or
any other sum in default, or for the payment of any amount that Landlord may
spend or become obligated to spend by reason of Tenant's default, or to
compensate Landlord for any other loss or damage that Landlord may suffer by
reason of Tenant's default. If any portion of the Security Deposit is so used
or applied, Tenant shall, within five (5) business days after written demand
therefor, deposit cash with Landlord in an amount sufficient to restore the
Security Deposit to its original amount, and Tenant's failure to do so shall be
a default under this Lease. If Tenant shall fully and faithfully perform every
provision of this Lease to be performed by it, the Security Deposit, or any
balance thereof, shall be returned to Tenant, or, at Landlord's option, to the
last assignee of Tenant's interest hereunder, within sixty (60) days following
the expiration of the Lease Term. Tenant shall not be entitled to any interest
on the Security Deposit.
21.2 Letter of Credit.
----------------
21.2.1 Amount and Form of Letter of Credit. Tenant shall deliver to
-----------------------------------
Landlord concurrently with Tenant's execution of this Lease, an unconditional,
clean, irrevocable letter of credit (the "L-C") in the initial amount of Two
Hundred Thirty Thousand Four Hundred and No/100 Dollars ($230,400.00) (the "L-C
Amount"), which L-C shall be issued by a money-center bank (a bank which accepts
deposits, maintains accounts, has a local Orange County office which will
negotiate a letter of credit, and whose deposits are insured by the FDIC)
reasonably acceptable to Landlord, and which L-C shall be in a form and content
as set forth in Exhibit G, attached hereto. Tenant shall pay all expenses,
points and/or fees incurred by Tenant in obtaining the L-C.
21.2.2 Application of the L-C. The L-C shall be held by Landlord as
----------------------
security for the faithful performance by Tenant of all the terms, covenants, and
conditions of this Lease to be kept and performed by Tenant during the initial
Lease Term. The L-C shall not be mortgaged, assigned or encumbered in any
manner whatsoever by Tenant without the prior written consent of Landlord. If
Tenant defaults with respect to any provisions of this Lease, including, but not
limited to, the provisions relating to the payment of Rent, or if Tenant fails
to renew the L-C at least thirty (30) days before its expiration, Landlord may,
but shall not be required to, draw upon all or any portion of the L-C for
payment of any Rent or any other sum in default, or for the payment of any
amount that Landlord may reasonably spend or may become obligated to spend by
reason of Tenant's default, or to compensate Landlord for any other loss or
damage that Landlord may suffer by reason of Tenant's default. The use,
application or retention of the L-C, or any portion thereof, by Landlord shall
not (a) prevent Landlord from exercising any other right or remedy provided by
this Lease or by law, it being intended that Landlord shall not first be
required to proceed against the L-C, nor (b) operate as a limitation on any
recovery to which Landlord may otherwise be entitled. Any amount of the L-C
which is drawn upon by Landlord, but is not used or applied by Landlord shall be
held by Landlord and deemed a security deposit (the "L-C Security Deposit"). If
any portion of the L-C is drawn upon, Tenant shall, within five (5) days after
written demand therefor, either (i) deposit cash with Landlord (which cash shall
be applied by Landlord to the L-C Security Deposit) in an amount sufficient to
cause the sum of the L-C Security Deposit and the amount of the remaining L-C to
be equivalent to the amount of the L-C then required under this Lease or (ii)
reinstate the L-C to the amount then required under this Lease, and if any
portion of the L-C Security Deposit is used or applied, Tenant shall, within
five (5) days after written demand therefor, deposit cash with Landlord (which
cash shall be applied by Landlord to the L-C Security Deposit) in an amount
sufficient to restore the L-C Security Deposit to the amount then required under
this Lease, and Tenant's failure to do so shall be a default under this Lease.
Tenant acknowledges that Landlord has the right to transfer or mortgage its
interest in the Project and the Building and in this Lease and Tenant agrees
that in the event of any such transfer or mortgage, Landlord shall have the
right to transfer or assign the L-C Security Deposit and/or the L-C to the
transferee or mortgagee, and in the event of such transfer, Tenant
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<PAGE>
shall look solely to such transferee or mortgagee for the return of the L-C
Security Deposit and/or the L-C. If Tenant has not been in default under this
Lease, the L-C Amount shall be reduced during the initial Lease Term as follows:
commencing on the first day of the second (2nd) Lease Year, the L-C Amount shall
be reduced to One Hundred Fifteen Thousand and No/100 Dollars ($115,000.00); and
commencing on the first day of the third (3rd) Lease Year, the L-C Amount shall
be reduced to Zero Dollars ($0.00). If Tenant shall fully and faithfully perform
every provision of this Lease to be performed by it, the L-C Security Deposit
and/or the L-C, or any balance thereof, shall be returned to Tenant within
thirty (30) days following the end of the second (2nd) Lease Year.
22. INTENTIONALLY DELETED
---------------------
23. SIGNS
-----
23.1 In General. Tenant shall be entitled, at its sole cost and expense,
----------
to identification signage outside of Tenant's Premises on the floor on which
Tenant's Premises are located. The location, quality, design, style, lighting
and size of such signage shall be consistent with the Landlord's Project
standard signage program and shall be subject to Landlord's prior written
approval, in its sole discretion. Upon the expiration or earlier termination of
this Lease, Tenant shall be responsible, at its sole cost and expense, for the
removal of such signage and the repair of all damage to the Building caused by
such removal.
23.2 Prohibited Signage and Other Items. Any signs, notices, logos,
-----------------------------------
pictures, names or advertisements which are installed and that have not been
individually approved by Landlord may be removed without notice by Landlord at
the sole expense of Tenant. Tenant may not install any signs on the exterior or
roof of the Building, Project, or the common areas of the Building or the
Project. Any signs, window coverings, or blinds (even if the same are located
behind the Landlord approved window coverings for the Building), or other items
visible from the exterior of the Premises, Building or Project are subject to
the prior approval of Landlord, in its sole discretion.
24. COMPLIANCE WITH LAW Tenant shall not do anything or suffer anything to be
-------------------
done in or about the Premises which will in any way conflict with any law,
statute, ordinance or other governmental rule, regulation or requirement now in
force or which may hereafter be enacted or promulgated. At its sole cost and
expense, Tenant shall promptly comply with all such governmental measures, other
than the making of structural changes or changes to the Building's life safety
system. Should any standard or regulation now or hereafter be imposed on
Landlord or Tenant by a state, federal or local governmental body charged with
the establishment, regulation and enforcement of occupational, health or safety
standards for employers, employees, landlords or tenants, then Tenant agrees, at
its sole cost and expense, to comply promptly with such standards or
regulations. The judgment of any court of competent jurisdiction or the
admission of Tenant in any judicial action, regardless of whether Landlord is a
party thereto, that Tenant has violated any of said governmental measures, shall
be conclusive of that fact as between Landlord and Tenant.
25. LATE CHARGES If any installment of Rent or any other sum due from Tenant
------------
shall not be received by Landlord or Landlord's designee within five (5) days
after said amount is due, or if any check delivered to Landlord by Tenant shall
be properly, and not as a result of error on the part of any bank, returned for
insufficient funds, then Tenant shall pay to Landlord a late charge equal to six
percent (6%) of the amount due. In addition to the late charge, in the event any
check is returned for insufficient funds, Tenant shall pay to Landlord, as
additional rent, the sum of $25.00. The late charge shall be deemed Additional
Rent and the right to require it shall be in addition to all of Landlord's other
rights and remedies hereunder or at law and shall not be construed as liquidated
damages or as limiting Landlord's remedies in any manner. In addition to the
late charge described above, any Rent or other amounts owing hereunder which are
not paid when due shall thereafter bear interest until paid at a rate per annum
equal to the highest rate permitted by applicable law. In the event that more
than one (1) check of Tenant is properly, and not as a result of error on the
part of any bank, returned for insufficient funds in any twelve (12) month
period, Landlord shall have the right to require that any or all subsequent
payments by Tenant to Landlord be in the form of cash, money order, cashier's or
certified check drawn on an institution acceptable to Landlord, notwithstanding
any prior practice of accepting payments in any different form.
26. DEFAULT; PAYMENTS BY TENANT
----------------------------
26.1 Landlord's Cure. All covenants and agreements to be kept or
---------------
performed by Tenant under this Lease shall be performed by Tenant at Tenant's
sole cost and expense and without any reduction of Rent. If Tenant shall fail
to perform any of its obligations under this Lease, within a reasonable time
after such performance is required by the terms of this Lease, Landlord may, but
shall not be obligated to, after reasonable prior notice to Tenant, make any
such payment or perform any such act on Tenant's part without waiving its right
based upon any default of Tenant and without releasing Tenant from any
obligations hereunder.
26.2 Tenant's Reimbursement. Except as may be specifically provided to
----------------------
the contrary in this Lease, Tenant shall pay to Landlord, within fifteen (15)
days after delivery by Landlord to Tenant of statements therefor: (i) sums
equal to expenditures reasonably made and obligations incurred by Landlord in
connection with the remedying by Landlord of Tenant's defaults pursuant to the
provisions of Section 26.1; (ii) sums equal to all losses, costs, liabilities,
------------
damages and expenses referred to in Article 10 of this Lease; and (iii) sums
----------
equal to all expenditures made and obligations incurred by Landlord in
collecting or attempting to collect the Rent or in enforcing or attempting to
enforce any rights of Landlord under this Lease or pursuant to law, including,
without limitation, all legal fees and other amounts so expended. Tenant's
obligations under this Section 26.2 shall survive the expiration or sooner
------------
termination of the Lease Term.
27. ENTRY BY LANDLORD Landlord reserves the right at all reasonable
-----------------
times and upon reasonable notice to the Tenant to enter the Premises to (i)
inspect them; (ii) show the Premises to prospective purchasers, mortgagees or
tenants, or to the ground or underlying lessors; (iii) post notices of
nonresponsibility; or (iv) alter, improve or repair the Premises or the Building
if necessary to comply with current building codes or other applicable laws, or
for structural alterations, repairs or improvements to the Building.
Notwithstanding anything to the contrary contained in this Article 27, Landlord
----------
may enter the Premises at any time to (A) perform services required of Landlord;
(B) take possession due to any breach of this Lease in the manner provided
herein; and (C) perform any covenants of Tenant which Tenant fails to perform.
Any such entries shall be without the abatement of Rent and shall include the
right to take such reasonable steps as required to accomplish the stated
purposes. Tenant hereby waives any claims for damages or for any injuries or
inconvenience to or interference with Tenant's business, lost profits, any loss
of occupancy or quiet enjoyment of the Premises, and any other loss occasioned
thereby. For each of the above purposes, Landlord shall at all times have a key
with which to unlock all the doors in the Premises. In an emergency, Landlord
shall have the right to use any means that Landlord may deem proper to open the
doors in and to the Premises. Any entry into the Premises in the manner
hereinbefore described shall not be deemed to be a forcible or unlawful entry
into, or a detainer of, the Premises, or an actual or constructive eviction of
Tenant from any portion of the Premises.
28. TENANT PARKING Tenant shall rent parking passes on a monthly basis
throughout the Lease Term in the number set forth in Section 12 of the Summary
to park in the Building Parking Facility. Tenant shall pay to Landlord for
automobile parking passes on a
-11-
<PAGE>
monthly basis the prevailing rate charged for parking passes at the location of
such passes, provided that Landlord currently is not charging for unreserved
parking passes. Tenant shall pay $50.00 for each reserved parking space on a
monthly basis. In addition, Tenant shall pay to Landlord a deposit in an amount
determined by Landlord for each parking pass rented by Tenant, which deposit
shall be returned by Landlord to Tenant when such pass is tendered by Tenant to
Landlord upon the expiration or earlier termination of the Lease Term. Tenant's
continued right to use the parking passes is conditioned upon Tenant abiding by
all rules and regulations which are prescribed from time to time for the orderly
operation and use of the Building Parking Facility and upon Tenant's cooperation
in seeing that Tenant's employees and visitors also comply with such rules and
regulations. Landlord specifically reserves the right to change the size,
configuration, design, layout, location and all other aspects of the Building
Parking Facility and Tenant acknowledges and agrees that Landlord may, without
incurring any liability to Tenant and without any abatement of Rent under this
Lease, from time to time, close-off or restrict access to the Building Parking
Facility, or relocate Tenant's parking passes to other parking structures and/or
surface parking areas within a reasonable distance of the Premises, for purposes
of permitting or facilitating any such construction, alteration or improvements
with respect to the Building Parking Facility or to accommodate or facilitate
renovation, alteration, construction or other modification of other improvements
or structures located on the Project. Landlord may delegate its responsibilities
hereunder to a parking operator in which case such parking operator shall have
all the rights of control attributed hereby to the Landlord and such owner. The
parking rates charged by Landlord for Tenant's parking passes shall be exclusive
of any parking tax or other charges imposed by governmental authorities in
connection with the use of such parking, which taxes and/or charges shall be
paid directly by Tenant or the parking users, or, if directly imposed against
Landlord, Tenant shall reimburse Landlord for all such taxes and/or charges
concurrent with its payment of the parking rates described herein.
29. MISCELLANEOUS PROVISIONS
------------------------
29.1 Binding Effect. Each of the provisions of this Lease shall extend to
--------------
and shall, as the case may require, bind or inure to the benefit not only of
Landlord and of Tenant, but also of their respective successors or assigns,
provided this clause shall not permit any assignment by Tenant contrary to the
provisions of Article 14 of this Lease.
----------
29.2 No Air Rights. No rights to any view or to light or air over any
-------------
property, whether belonging to Landlord or any other person, are granted to
Tenant by this Lease. If at any time any windows of the Premises are
temporarily darkened or the light or view therefrom is obstructed by reason of
any repairs, improvements, maintenance or cleaning in or about the Project, the
same shall be without liability to Landlord and without any reduction or
diminution of Tenant's obligations under this Lease.
29.3 Modification of Lease. Should any current or prospective mortgagee
---------------------
or ground lessor for the Project require a modification or modifications of this
Lease, which modification or modifications will not cause an increased cost or
expense to Tenant or in any other way materially and adversely change the rights
and obligations of Tenant hereunder, then and in such event, Tenant agrees that
this Lease may be so modified and agrees to execute whatever documents are
required therefor and deliver the same to Landlord within ten (10) days
following the request therefor. Should Landlord or any such current or
prospective mortgagee or ground lessor require execution of a short form of
Lease for recording, containing, among other customary provisions, the names of
the parties, a description of the Premises and the Lease Term, Tenant agrees to
execute such short form of Lease and to deliver the same to Landlord within ten
(10) days following the request therefor.
29.4 Transfer of Landlord's Interest. Tenant acknowledges that Landlord
-------------------------------
has the right to transfer all or any portion of its interest in the Project and
Building and in this Lease, and Tenant agrees that in the event of any such
transfer, Landlord shall automatically be released from all liability under this
Lease and Tenant agrees to look solely to such transferee for the performance of
Landlord's obligations hereunder after the date of transfer provided that such
transferee has assumed the obligations of Landlord under this Lease. The
liability of any transferee of Landlord shall be limited to the interest of such
transferee in the Project and Building and such transferee shall be without
personal liability under this Lease, and Tenant hereby expressly waives and
releases such personal liability on behalf of itself and all persons claiming
by, through or under Tenant. Tenant further acknowledges that Landlord may
assign its interest in this Lease to a mortgage lender as additional security
and agrees that such an assignment shall not release Landlord from its
obligations hereunder and that Tenant shall continue to look to Landlord for the
performance of its obligations hereunder.
29.5 Prohibition Against Recording. Except as provided in Section 29.3 of
----------------------------- ------------
this Lease, neither this Lease, nor any memorandum, affidavit or other writing
with respect thereto, shall be recorded by Tenant or by anyone acting through,
under or on behalf of Tenant, and the recording thereof in violation of this
provision shall make this Lease null and void at Landlord's election.
29.6 Relationship of Parties. Nothing contained in this Lease shall be
-----------------------
deemed or construed by the parties hereto or by any third party to create the
relationship of principal and agent, partnership, joint venturer or any
association between Landlord and Tenant, it being expressly understood and
agreed that neither the method of computation of Rent nor any act of the parties
hereto shall be deemed to create any relationship between Landlord and Tenant
other than the relationship of landlord and tenant.
29.7 Application of Payments. Landlord shall have the right to apply
-----------------------
payments received from Tenant pursuant to this Lease, regardless of Tenant's
designation of such payments, to satisfy any obligations of Tenant hereunder, in
such order and amounts as Landlord, in its sole discretion, may elect.
29.8 Time of Essence. Time is of the essence of this Lease and each of
---------------
its provisions.
29.9 Partial Invalidity. If any term, provision or condition contained in
------------------
this Lease shall, to any extent, be invalid or unenforceable, the remainder of
this Lease, or the application of such term, provision or condition to persons
or circumstances other than those with respect to which it is invalid or
unenforceable, shall not be affected thereby, and each and every other term,
provision and condition of this Lease shall be valid and enforceable to the
fullest extent possible permitted by law.
29.10 No Warranty. In executing and delivering this Lease, Tenant has not
-----------
relied on any representation, including, but not limited to, any representation
whatsoever as to the amount of any item comprising Additional Rent or the amount
of the Additional Rent in the aggregate or that Landlord is furnishing the same
services to other tenants, at all, on the same level or on the same basis, or
any warranty or any statement of Landlord which is not set forth herein or in
one or more of the exhibits attached hereto.
29.11 Entire Agreement. It is understood and acknowledged that there are
----------------
no oral agreements between the parties hereto affecting this Lease and this
Lease supersedes and cancels any and all previous negotiations, arrangements,
brochures, agreements and understandings, if any, between the parties hereto or
displayed by Landlord to Tenant with respect to the subject matter thereof, and
none thereof shall be used to interpret or construe this Lease.
-12-
<PAGE>
29.12 Right to Lease. Landlord reserves the absolute right to effect such
--------------
other tenancies in the Project as Landlord in the exercise of its sole business
judgment shall determine to best promote the interests of the Project. Tenant
does not rely on the fact, nor does Landlord represent, that any specific tenant
or type or number of tenants shall, during the Lease Term, occupy any space in
the Project.
29.13 Waiver of Redemption by Tenant. Tenant hereby waives for Tenant and
------------------------------
for all those claiming under Tenant all right now or hereafter existing to
redeem by order or judgment of any court or by any legal process or writ,
Tenant's right of occupancy of the Premises after any termination of this Lease.
29.14 Notices. All notices, demands, statements or communications
-------
(collectively, "Notices") given or required to be given by either party to the
other hereunder shall be in writing, shall be sent by United States certified or
registered mail, postage prepaid, return receipt requested, or delivered
personally (i) to Tenant at the appropriate address set forth in Section 5 of
---------
the Summary, or to such other place as Tenant may from time to time designate in
a Notice to Landlord; or (ii) to Landlord at the addresses set forth in Section
-------
3 of the Summary, or to such other firm or to such other place as Landlord may
- -
from time to time designate in a Notice to Tenant. Any Notice will be deemed
given on the date it is mailed as provided in this Section 29.14 or upon the
-------------
date personal delivery is made. If Tenant is notified of the identity and
address of Landlord's mortgagee or ground or underlying lessor, Tenant shall
give to such mortgagee or ground or underlying lessor written notice of any
default by Landlord under the terms of this Lease by registered or certified
mail, and such mortgagee or ground or underlying lessor shall be given a
reasonable opportunity to cure such default prior to Tenant's exercising any
remedy available to Tenant.
29.15 Landlord Exculpation. It is expressly understood and agreed that
--------------------
notwithstanding anything in this Lease to the contrary, and notwithstanding any
applicable law to the contrary, the liability of Landlord and the Landlord
Parties hereunder (including any successor landlord) and any recourse by Tenant
against Landlord or the Landlord Parties shall be limited solely and exclusively
to an amount which is equal to the interest of Landlord in the Building, and
neither Landlord, nor any of the Landlord Parties shall have any personal
liability therefor, and Tenant hereby expressly waives and releases such
personal liability on behalf of itself and all persons claiming by, through or
under Tenant. Notwithstanding any contrary provision herein, neither Landlord
nor the Landlord Parties shall be liable under any circumstances for injury or
damage to, or interference with, Tenant's business, including but not limited
to, loss of profits, loss of rents or other revenues, loss of business
opportunity, loss of goodwill or loss of use, in each case, however occurring.
29.16 Joint and Several. If there is more than one Tenant, the
-----------------
obligations imposed upon Tenant under this Lease shall be joint and several.
29.17 Authority. If Tenant is a corporation or partnership, each
---------
individual executing this Lease on behalf of Tenant hereby represents and
warrants that Tenant is a duly formed and existing entity qualified to do
business in the state in which the Building is located and that Tenant has full
right and authority to execute and deliver this Lease and that each person
signing on behalf of Tenant is authorized to do so.
29.18 Attorneys' Fees. If either party commences litigation against the
---------------
other for the specific performance of this Lease, for damages for the breach
hereof or otherwise for enforcement of any remedy hereunder, the parties hereto
agree to and hereby do waive any right to a trial by jury and, in the event of
any such commencement of litigation, the prevailing party shall be entitled to
recover from the other party such costs and reasonable attorneys' fees as may
have been incurred, including any and all costs incurred in enforcing,
perfecting and executing such judgment.
29.19 Governing Law. This Lease shall be construed and enforced in
-------------
accordance with the laws of the State of California.
29.20 Submission of Lease. Submission of this instrument for examination
-------------------
or signature by Tenant does not constitute a reservation of or an option for
lease, and it is not effective as a lease or otherwise until execution and
delivery by both Landlord and Tenant.
29.21 Brokers. Landlord and Tenant hereby warrant to each other that they
-------
have had no dealings with any real estate broker or agent in connection with the
negotiation of this Lease, and that they know of no other real estate broker or
agent who is entitled to a commission in connection with this Lease, excepting
only the real estate brokers or agents specified in Section 13 of the Summary
(the "Brokers"). Each party agrees to indemnify and defend the other party
against and hold the other party harmless from any and all claims, demands,
losses, liabilities, lawsuits, judgments, and costs and expenses (including
without limitation reasonable attorneys' fees) with respect to any leasing
commission or equivalent compensation alleged to be owing on account of the
indemnifying party's dealings with any real estate broker or agent, other than
the Brokers.
29.22 Independent Covenants. This Lease shall be construed as though the
---------------------
covenants herein between Landlord and Tenant are independent and not dependent
and Tenant hereby expressly waives the benefit of any statute to the contrary
and agrees that if Landlord fails to perform its obligations set forth herein,
Tenant shall not be entitled to make any repairs or perform any acts hereunder
at Landlord's expense or to any setoff of the Rent or other amounts owing
hereunder against Landlord.
29.23 Project Name and Signage. Landlord shall have the right at any time
------------------------
to change the name of the Project and to install, affix and maintain any and all
signs on the exterior and on the interior of the Project as Landlord may, in
Landlord's sole discretion, desire. Tenant shall not use the name of the
Project or use pictures or illustrations of the Project in advertising or other
publicity, without the prior written consent of Landlord, which consent shall
not be unreasonably withheld.
29.24 Transportation Management. Tenant shall fully comply with all
-------------------------
present or future programs intended to manage parking, transportation or traffic
in and around the Building, and in connection therewith, Tenant shall take
responsible action for the transportation planning and management of all
employees located at the Premises by working directly with Landlord, any
governmental transportation management organization or any other transportation-
related committees or entities.
29.25 Hazardous Material. As used herein, the term "Hazardous Material"
------------------
means any hazardous or toxic substance, material or waste which is or becomes
regulated by any local governmental authority, the state in which the Building
is located or the United States Government. Tenant acknowledges that Landlord
may incur costs (A) for complying with laws, codes, regulations or ordinances
relating to Hazardous Material, or (B) otherwise in connection with Hazardous
Material. Tenant agrees that the costs incurred by Landlord with respect to, or
in connection with, complying with laws, codes, regulations or ordinances
relating to Hazardous Material shall be an Operating Expense, unless the cost of
such compliance, as between Landlord and Tenant, is made the responsibility of
Tenant under this Lease.
-13-
<PAGE>
29.26 Confidentiality. Tenant acknowledges that the content of this Lease
---------------
and any related documents are confidential information. Tenant shall keep such
confidential information strictly confidential and shall not disclose such
confidential information to any person or entity other than Tenant's financial,
legal, and space planning consultants.
29.27 Landlord Renovations. It is specifically understood and agreed that
--------------------
Landlord has no obligation and has made no promises to alter, remodel, improve,
renovate, repair or decorate the Premises, Building, Project or any part thereof
and that no representations respecting the condition of the Premises, Building
or Project have been made by Landlord to Tenant except as specifically set forth
herein or in the Tenant Work Letter. However, Tenant acknowledges that Landlord
is currently renovating or may during the Lease Term renovate, improve, alter,
or modify (collectively, the "Renovations") the Building, Premises, and/or
Project, including without limitation the Building Parking Facility, common
areas, systems and equipment, roof, and structural portions of the same. In
connection with such Renovations, Landlord may, among other things, erect
scaffolding or other necessary structures in the Building or Project, limit or
eliminate access to portions of the Project, including portions of the common
areas, or perform work in the Building or Project, which work may create noise,
dust or leave debris in the Building or Project. Tenant hereby agrees that such
Renovations and Landlord's actions in connection with such Renovations shall in
no way constitute a constructive eviction of Tenant nor entitle Tenant to any
abatement of Rent. Landlord shall have no responsibility or for any reason be
liable to Tenant for any direct or indirect injury to or interference with
Tenant's business arising from the Renovations, nor shall Tenant be entitled to
any compensation or damages from Landlord for loss of the use of the whole or
any part of the Premises or of Tenant's personal property or improvements
resulting from the Renovations or Landlord's actions in connection with such
Renovations, or for any inconvenience or annoyance occasioned by such
Renovations or Landlord's actions in connection with such Renovations.
29.28 Development of the Project.
--------------------------
29.28.1 Subdivision. Landlord reserves the right to further
-----------
subdivide all or a portion of the Project. Tenant agrees to execute and
deliver, upon demand by Landlord and in the form requested by Landlord, any
additional documents needed to conform this Lease to the circumstances resulting
from such subdivision.
29.28.2 The Other Improvements. If portions of the Project or
----------------------
property adjacent to the Project (collectively, the "Other Improvements") are
owned by an entity other than Landlord, Landlord, at its option, may enter into
an agreement with the owner or owners of any or all of the Other Improvements to
provide (i) for reciprocal rights of access and/or use of the Project and the
Other Improvements, (ii) for the common management, operation, maintenance,
improvement and/or repair of all or any portion of the Project and the Other
Improvements, (iii) for the allocation of a portion of the Direct Expenses to
the Other Improvements and the operating expenses and taxes for the Other
Improvements to the Project, and (iv) for the use or improvement of the Other
Improvements and/or the Project in connection with the improvement,
construction, and/or excavation of the Other Improvements and/or the Project.
Nothing contained herein shall be deemed or construed to limit or otherwise
affect Landlord's right to convey all or any portion of the Project or any other
of Landlord's rights described in this Lease.
29.28.3 Construction of Project and Other Improvements. Tenant
----------------------------------------------
acknowledges that portions of the Project and/or the Other Improvements may be
under construction following Tenant's occupancy of the Premises, and that such
construction may result in levels of noise, dust, obstruction of access, etc.
which are in excess of that present in a fully constructed project. Tenant
hereby waives any and all rent offsets or claims of constructive eviction which
may arise in connection with such construction.
29.29 No Discrimination. Tenant covenants by and for itself, its heirs,
-----------------
executors, administrators and assigns, and all persons claiming under or through
Tenant, and this Lease is made and accepted upon and subject to the following
conditions: that there shall be no discrimination against or segregation of any
person or group of persons, on account of race, color, creed, sex, religion,
marital status, ancestry or national origin in the leasing, subleasing,
transferring, use, or enjoyment of the Premises, nor shall Tenant itself, or any
person claiming under or through Tenant, establish or permit such practice or
practices of discrimination or segregation with reference to the selection,
location, number, use or occupancy, of tenants, lessees, sublessees, subtenants
or vendees in the Premises.
29.30 Office and Communications Services.
----------------------------------
29.30.1 The Provider. Landlord has advised Tenant that certain
------------
office and communications services may be offered to tenants of the Building by
a concessionaire under contract to Landlord ("Provider"). Tenant shall be
permitted to contract with Provider for the provision of any or all of such
services on such terms and conditions as Tenant and Provider may agree.
29.30.2 Other Terms. Tenant acknowledges and agrees that: (i)
-----------
Landlord has made no warranty or representation to Tenant with respect to the
availability of any such services, or the quality, reliability or suitability
thereof; (ii) the Provider is not acting as the agent or representative of
Landlord in the provision of such services, and Landlord shall have no liability
or responsibility for any failure or inadequacy of such services, or any
equipment or facilities used in the furnishing thereof, or any act or omission
of Provider, or its agents, employees, representatives, officers or contractors;
(iii) Landlord shall have no responsibility or liability for the installation,
alteration, repair, maintenance, furnishing, operation, adjustment or removal of
any such services, equipment or facilities; and (iv) any contract or other
agreement between Tenant and Provider shall be independent of this Lease, the
obligations of Tenant hereunder, and the rights of Landlord hereunder, and,
without limiting the foregoing, no default or failure of Provider with respect
to any such services, equipment or facilities, or under any contract or
agreement relating thereto, shall have any effect on this Lease or give to
Tenant any offset or defense to the full and timely performance of its
obligations hereunder, or entitle Tenant to any abatement of rent or additional
rent or any other payment required to be made by Tenant hereunder, or constitute
any accrual or constructive eviction of Tenant, or otherwise give rise to any
other claim of any nature against Landlord.
29.31 Child Care Facilities. Tenant acknowledges that any child care
---------------------
facilities located in the Project (the "Child Care Facilities") which are
available to Tenant and Tenant's employees are provided by a third party (the
"Child Care Provider") which is leasing space in the Project, and not by
Landlord. If Tenant or its employees choose to use the Child Care Facilities,
Tenant acknowledges that Tenant and Tenant's employees are not relying upon any
investigation which Landlord may have conducted concerning the Child Care
Provider or any warranties or representation with respect thereto, it being the
sole responsibility of Tenant and the individual user of the Child Care
Facilities to conduct any and all investigations of the Child Care Facilities
prior to making use thereof. Accordingly, Landlord shall have no responsibility
with respect to the quality or care provided by the Child Care Facilities, or
for any acts or omissions of the Child Care Provider. Furthermore, Tenant, for
Tenant and for Tenant's employees, hereby agrees that Landlord, its members and
their respective partners, subpartners, officers, agents, servants, employees,
and independent contractors shall not be liable for, and are hereby released
from any responsibility for any loss, cost, damage, expense or liability, either
to person or property, arising from the use of the Child Care Facilities by
Tenant or Tenant's employees. Tenant hereby covenants that Tenant shall inform
all of Tenant's employees of the provisions of this Section 29.31 prior to such
employees' use of the Child Care Facilities.
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<PAGE>
29.32 CC&Rs. and restrictions currently affecting the Project. Additionally,
-----
Tenant acknowledges that the Project may be subject to any future covenants,
conditions, and restrictions (the "CC&Rs") which Landlord, in Landlord's
discretion, deems reasonably necessary or desirable, and Tenant agrees that this
Lease shall be subject and subordinate to such CC&Rs. Landlord shall have the
right to require Tenant to execute and acknowledge, within fifteen (15) business
days of a request by Landlord, a "Recognition of Covenants, Conditions, and
Restriction," in a form substantially similar to that attached hereto as Exhibit
-------
F, agreeing to and acknowledging the CC&Rs.
- -
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
executed the day and date first above written.
"Landlord":
AEW \ PARKER, LLC,
a California limited liability company
By: Eastrich Aliso, LLC,
a Delaware limited liability company,
Member - Manager
/s/ James Flynn
By:___________________________________
James Flynn
Authorized Signatory
"Tenant":
eCommercial.com,
a Nevada corporation
By: /s/ "Illegible"
--------------------------------------
Its President / CEO
--------------------------------------
By: /s/ "Illegible"
--------------------------------------
Its SECRETARY
--------------------------------------
<PAGE>
EXHIBIT A
---------
OUTLINE OF PREMISES
-------------------
PLAN APPEARS HERE
EXHIBIT A -Page 1
<PAGE>
Exhibit B
---------
TENANT WORK LETTER
------------------
This Tenant Work Letter shall set forth the terms and conditions relating
to the construction of the tenant improvements in the Premises. This Tenant
Work Letter is essentially organized chronologically and addresses the issues of
the construction of the Premises, in sequence, as such issues will arise during
the actual construction of the Premises. All references in this Tenant Work
Letter to Articles or Sections of "this Lease" shall mean the relevant portion
of Articles 1 through 29 of the Office Lease to which this Tenant Work Letter is
---------------------
attached as Exhibit B and of which this Tenant Work Letter forms a part, and all
---------
references in this Tenant Work Letter to Sections of "this Tenant Work Letter"
shall mean the relevant portion of Sections 1 through 6 of this Tenant Work
--------------------
Letter.
SECTION 1
---------
LANDLORD'S INITIAL CONSTRUCTION IN THE PREMISES
-----------------------------------------------
1.1 Base, Shell and Core of the Premises as Constructed by Landlord.
---------------------------------------------------------------
Landlord has constructed, or shall construct, at its sole cost and expense, the
base, shell, and core as set forth on Schedule 1, attached hereto (the "Base,
Shell, and Core").
1.2 Landlord Work. Landlord shall, at Tenant's sole cost and expense,
-------------
cause the construction or installation of the following items on the floor of
the Building containing the Premises (collectively, the "Landlord Work").
Tenant may not change or alter the Landlord Work.
1.2.1 Public Corridor (only as to that portion of the Premises, if
------------------------------------------------------------
any, which occupies only a portion of a floor, rather than an entire floor, of
- ------------------------------------------------------------------------------
the Building). The actual public corridor wall, the standard tenant entries and
- -------------
exits including doors, frames, hardware, and sidelight (if any), and standard
tenant entry signage and exit lights (collectively, the "Public Corridor"),
which Public Corridor is adjacent to the Premises.
1.2.2 Demising Walls Between Tenants (only as to that portion of the
--------------------------------------------------------------
Premises, if any, which occupies only a portion of a floor, rather than an
- --------------------------------------------------------------------------
entire floor, of the Building). One-half of the cost of the demising
- ------------------------------
partitions between tenants which shall include studs, acoustical insulation and
dry wall ready for finish on tenant side only and any necessary penetrations,
fire dampers and sound traps (collectively, the "Demising Walls"), which
Demising Walls are adjacent to the Premises.
1.2.3 Elevator Lobby (only as to that portion of the Premises, if
--------------
any, which occupies only a portion of a floor, rather than an entire floor, of
the Building) (the "Lobby").
SECTION 2
---------
TENANT IMPROVEMENTS
-------------------
2.1 Tenant Improvement Allowance. Tenant shall be entitled to a one-time
----------------------------
tenant improvement allowance (the "Tenant Improvement Allowance") in the amount
of $27.00 per usable square foot of the Premises for the costs relating to the
initial design and construction of Tenant's improvements which are permanently
affixed to the Premises (the "Tenant Improvements"). In addition, Landlord
shall contribute an amount not to exceed $0.12 per usable square foot of the
Premises ("Landlord's Drawing Contribution") toward the cost of one (1)
preliminary space plan to be prepared by "Architect," as that term is defined in
Section 3.1, below, and no portion of the Landlord's Drawing Contribution
remaining, if any, following the completion of construction of the Tenant
Improvements shall be available for use by Tenant. In no event shall Landlord
be obligated to make disbursements pursuant to this Tenant Work Letter in a
total amount which exceeds the sum of the Tenant Improvement Allowance and
Landlord's Drawing Contribution. All Tenant Improvements for which the Tenant
Improvement Allowance has been made available shall be deemed Landlord's
property under the terms of the Lease.
2.2 Disbursement of the Tenant Improvement Allowance. Except as otherwise
------------------------------------------------
set forth in this Tenant Work Letter, the Tenant Improvement Allowance shall be
disbursed by Landlord (each of which disbursements shall be made pursuant to
Landlord's disbursement process) for costs related to the construction of the
Tenant Improvements and for the following items and costs (collectively, the
"Tenant Improvement Allowance Items"): (i) payment of the fees of the
"Architect" and the "Engineers," as those terms are defined in Section 3.1 of
-----------
this Tenant Work Letter, and payment of the fees incurred by, and the cost of
documents and materials supplied by, Landlord and Landlord's consultants in
connection with the preparation and review of the "Construction Drawings," as
that term is defined in Section 3.1 of this Tenant Work Letter; (ii) the cost of
-----------
any changes in the Base, Shell and Core when such changes are required by the
Construction Drawings; (iii) the cost of any changes to the Construction
Drawings or Tenant Improvements required by all applicable building codes (the
"Code"); (iv) the "Landlord Supervision Fee", as that term is defined in Section
-------
4.3.2 of this Tenant Work Letter; and (v) a portion of the costs, as designated
- -----
by Landlord, of the Demising Walls, Public Corridor and Lobby, if any.
2.3 Standard Tenant Improvement Package. Landlord has established
-----------------------------------
specifications (the "Specifications") for the Building standard components to be
used in the construction of the Tenant Improvements in the Premises
(collectively, the "Standard Improvement Package"), which Specifications are set
forth on Schedule 2, attached hereto. The quality of Tenant Improvements shall
be equal to or of greater quality than the quality of the Specifications,
provided that Landlord may, at Landlord's option, require the Tenant
Improvements to comply with certain Specifications. Landlord may make changes
to the Specifications for the Standard Improvement Package from time to time.
SECTION 3
---------
CONSTRUCTION DRAWINGS
---------------------
3.1 Selection of Architect/Construction Drawings. The architect/space
--------------------------------------------
planner designated by Landlord (the "Architect") shall prepare the "Construction
Drawings," as that term is defined in this Section 3.1. The engineering
-----------
consultants designated by Landlord (the "Engineers") shall prepare all plans and
engineering working drawings relating to the structural, mechanical, electrical,
plumbing, HVAC, lifesafety, and sprinkler work of the Tenant Improvements. The
plans and drawings to be prepared by Architect and the Engineers hereunder shall
be known collectively as the "Construction Drawings." All Construction Drawings
shall comply with the drawing format and specifications as determined by
Landlord, and shall be subject to Landlord's approval. Tenant and Architect
shall verify, in the field, the dimensions and conditions as shown on the
relevant portions of the base Building plans, and Tenant and
EXHIBIT B - Page 1
<PAGE>
Architect shall be solely responsible for the same, and Landlord shall have no
responsibility in connection therewith. Landlord's review of the Construction
Drawings as set forth in this Section 3, shall be for its sole purpose and shall
---------
not imply Landlord's review of the same, or obligate Landlord to review the
same, for quality, design, Code compliance or other like matters. Accordingly,
notwithstanding that any Construction Drawings are reviewed by Landlord or its
space planner, architect, engineers and consultants, and notwithstanding any
advice or assistance which may be rendered to Tenant by Landlord or Landlord's
space planner, architect, engineers, and consultants, Landlord shall have no
liability whatsoever in connection therewith and shall not be responsible for
any omissions or errors contained in the Construction Drawings, and Tenant's
waiver and indemnity set forth in this Lease shall specifically apply to the
Construction Drawings.
3.2 Final Space Plan. On or before the date set forth in Schedule 3,
---------------- ----------
attached hereto, Tenant and the Architect shall prepare the final space plan for
Tenant Improvements in the Premises (collectively, the "Final Space Plan"),
which Final Space Plan shall include a layout and designation of all offices,
rooms and other partitioning, their intended use, and equipment to be contained
therein, and shall deliver the Final Space Plan to Landlord for Landlord's
approval.
3.3 Final Working Drawings. The Architect and the Engineers shall
----------------------
complete the architectural and engineering drawings for the Premises, and the
final architectural working drawings in a form which is complete to allow
subcontractors to bid on the work and to obtain all applicable permits
(collectively, the "Final Working Drawings") and shall submit the same to
Landlord for Landlord's approval, and Landlord shall, in turn, submit the same
to Tenant for Tenant's approval, together with a "Final Pricing Plan," which
approval shall be given on or before the date set forth on Schedule 3.
3.4 Permits. The Final Working Drawings shall be approved by Landlord
-------
(the "Approved Working Drawings") prior to the commencement of the construction
of the Tenant Improvements. Landlord shall submit the Approved Working Drawings
to the appropriate municipal authorities for all applicable building permits
necessary to allow "Contractor," as that term is defined in Section 4.1, below,
-----------
to commence and fully complete the construction of the Tenant Improvements (the
"Permits"), and, in connection therewith, Landlord shall coordinate with the
Architect and Contractor in all phases of the permitting process and shall
monitor all plan check numbers and dates of submittal in order to obtain the
Permits. No changes, modifications or alterations in the Approved Working
Drawings may be made without the prior written consent of Landlord, provided
that Landlord may withhold its consent, in its sole discretion, to any change in
the Approved Working Drawings if such change would directly or indirectly delay
the "Substantial Completion" of the Premises as that term is defined in Section
-------
5.1 of this Tenant Work Letter.
- ---
3.5 Time Deadlines. Tenant shall use its best, good faith, efforts and
--------------
all due diligence to cooperate with the Architect, the Engineers, and Landlord
to complete all phases of the Construction Drawings and the permitting process
and to receive the permits, and with Contractor for approval of the "Cost
Proposal," as that term is defined in Section 4.2 of this Tenant Work Letter, as
-----------
soon as possible after the execution of the Lease, and, in that regard, shall
meet with Landlord on a scheduled basis to be determined by Landlord, to discuss
Tenant's progress in connection with the same. The applicable dates for
approval of items, plans and drawings as described in this Section 3, Section 4,
--------- ---------
below, and in this Tenant Work Letter are set forth and further elaborated upon
in Schedule 3 (the "Time Deadlines"), attached hereto. Tenant agrees to comply
----------
with the Time Deadlines.
SECTION 4
---------
CONSTRUCTION OF THE TENANT IMPROVEMENTS
---------------------------------------
4.1 Contractor. A contractor designated by Landlord ("Contractor") shall
----------
construct the Tenant Improvements.
4.2 Cost Proposal. After the Approved Working Drawings are signed by
-------------
Landlord and Tenant, Landlord shall provide Tenant with a cost proposal in
accordance with the Approved Working Drawings, which cost proposal shall
include, as nearly as possible, the cost of all Tenant Improvement Allowance
Items to be incurred by Tenant in connection with the design and construction of
the Tenant Improvements (the "Cost Proposal"). Tenant shall approve and deliver
the Cost Proposal to Landlord within five (5) business days of the receipt of
the same, and upon receipt of the same by Landlord, Landlord shall be released
by Tenant to purchase the items set forth in the Cost Proposal and to commence
the construction relating to such items. The date by which Tenant must approve
and deliver the Cost Proposal to Landlord shall be known hereafter as the "Cost
Proposal Delivery Date".
4.3 Construction of Tenant Improvements by Contractor under the
-----------------------------------------------------------
Supervision of Landlord.
- -----------------------
4.3.1 Over-Allowance Amount. On the Cost Proposal Delivery Date,
---------------------
Tenant shall deliver to Landlord cash in an amount (the "Over-Allowance Amount")
equal to the difference between (i) the amount of the Cost Proposal and (ii) the
amount of the Tenant Improvement Allowance. The Over-Allowance Amount shall be
disbursed by Landlord prior to the disbursement of any then remaining portion of
the Tenant Improvement Allowance, and such disbursement shall be pursuant to the
same procedure as the Tenant Improvement Allowance. In the event that, after
the Cost Proposal Delivery Date, any revisions, changes, or substitutions shall
be made to the Construction Drawings or the Tenant Improvements, any additional
costs which arise in connection with such revisions, changes or substitutions or
any other additional costs shall be paid by Tenant to Landlord immediately upon
Landlord's request as an addition to the Over-Allowance Amount.
4.3.2 Landlord's Retention of Contractor. Landlord shall
----------------------------------
independently retain Contractor, on behalf of Tenant, to construct the Tenant
Improvements in accordance with the Approved Working Drawings and the Cost
Proposal and Landlord shall supervise the construction by Contractor, and Tenant
shall pay a construction supervision and management fee (the "Landlord
Supervision Fee") to Landlord in an amount equal to the product of (i) five
percent (5%) and (ii) an amount equal to the Tenant Improvement Allowance plus
the Over-Allowance Amount (as such Over-Allowance Amount may increase pursuant
to the terms of this Tenant Work Letter).
4.3.3 Contractor's Warranties and Guaranties. Landlord hereby
--------------------------------------
assigns to Tenant all warranties and guaranties by Contractor relating to the
Tenant Improvements, and Tenant hereby waives all claims against Landlord
relating to, or arising out of the construction of, the Tenant Improvements.
4.3.4 Tenant's Covenants. Tenant hereby indemnifies Landlord for any
------------------
loss, claims, damages or delays arising from the actions of Architect on the
Premises or in the Building. Within ten (10) days after completion of
construction of the Tenant Improvements, Tenant shall cause Contractor and
Architect to cause a Notice of Completion to be recorded in the office of the
County Recorder of the county in which the Building is located in accordance
with Section 3093 of the Civil Code of the State of California or any successor
statute and furnish a copy thereof to Landlord upon recordation, failing which,
Landlord may itself execute and file the same on behalf of Tenant as Tenant's
agent for such purpose. In addition, immediately after the Substantial
Completion of
EXHIBIT B - Page 2
<PAGE>
the Premises, Tenant shall have prepared and delivered to the Building a copy of
the "as built" plans and specifications (including all working drawings) for the
Tenant Improvements.
SECTION 5
---------
COMPLETION OF THE TENANT IMPROVEMENTS;
--------------------------------------
LEASE COMMENCEMENT DATE
-----------------------
5.1 Ready for Occupancy. The Premises shall be deemed "Ready for
-------------------
Occupancy" upon the Substantial Completion of the Premises. For purposes of
this Lease, "Substantial Completion" of the Premises shall occur upon the
completion of construction of the Tenant Improvements in the Premises pursuant
to the Approved Working Drawings, with the exception of any punch list items and
any tenant fixtures, work-stations, built-in furniture, or equipment to be
installed by Tenant or under the supervision of Contractor.
5.2 Delay of the Substantial Completion of the Premises. Except as
---------------------------------------------------
provided in this Section 5.2, the Lease Commencement Date shall occur as set
-----------
forth in the Lease and Section 5.1, above. If there shall be a delay or there
-----------
are delays in the Substantial Completion of the Premises or in the occurrence of
any of the other conditions precedent to the Lease Commencement Date, as set
forth in the Lease, as a direct, indirect, partial, or total result of:
5.2.1 Tenant's failure to comply with the Time Deadlines;
5.2.2 Tenant's failure to timely approve any matter requiring
Tenant's approval;
5.2.3 A breach by Tenant of the terms of this Tenant Work Letter
or the Lease;
5.2.4 Changes in any of the Construction Drawings after
disapproval of the same by Landlord or because the same do not comply with Code
or other applicable laws;
5.2.5 Tenant's request for changes in the Approved Working
Drawings;
5.2.6 Tenant's requirement for materials, components, finishes
or improvements which are not available in a commercially reasonable time given
the anticipated date of Substantial Completion of the Premises, as set forth in
the Lease, or which are different from, or not included in, the Standard
Improvement Package;
5.2.7 Changes to the Base, Shell and Core required by the
Approved Working Drawings; or
5.2.8 Any other acts or omissions of Tenant, or its agents, or
employees;
then, notwithstanding anything to the contrary set forth in the Lease or this
Tenant Work Letter and regardless of the actual date of the Substantial
Completion of the Premises, the Lease Commencement Date shall be deemed to be
the date the Lease Commencement Date would have occurred if no Tenant delay or
delays, as set forth above, had occurred.
SECTION 6
---------
MISCELLANEOUS
-------------
6.1 Tenant's Entry Into the Premises Prior to Substantial Completion.
----------------------------------------------------------------
Provided that Tenant and its agents do not interfere with Contractor's work in
the Building and the Premises, Contractor shall allow Tenant access to the
Premises prior to the Substantial Completion of the Premises for the purpose of
Tenant installing overstandard equipment or fixtures (including Tenant's data
and telephone equipment) in the Premises. Prior to Tenant's entry into the
Premises as permitted by the terms of this Section 6.1, Tenant shall submit a
-----------
schedule to Landlord and Contractor, for their approval, which schedule shall
detail the timing and purpose of Tenant's entry. Tenant shall hold Landlord
harmless from and indemnify, protect and defend Landlord against any loss or
damage to the Building or Premises and against injury to any persons caused by
Tenant's actions pursuant to this Section 6.1.
-----------
6.2 Freight Elevators. Landlord shall, consistent with its obligations to
-----------------
other tenants of the Building, make the freight elevator reasonably available to
Tenant in connection with initial decorating, furnishing and moving into the
Premises.
6.3 Tenant's Representative. Tenant has designated Mark Grundy and Tom
-----------------------
Blakeley as its sole representatives with respect to the matters set forth in
this Tenant Work Letter, who, until further notice to Landlord, shall have full
authority and responsibility to act on behalf of the Tenant as required in this
Tenant Work Letter.
6.4 Landlord's Representative. Landlord has designated Don Christeson as
-------------------------
its sole representatives with respect to the matters set forth in this Tenant
Work Letter, who, until further notice to Tenant, shall have full authority and
responsibility to act on behalf of the Landlord as required in this Tenant Work
Letter.
6.5 Tenant's Agents. All subcontractors, laborers, materialmen, and
---------------
suppliers retained directly by Tenant shall all be union labor in compliance
with the then existing master labor agreements.
6.6 Time of the Essence in This Tenant Work Letter. Unless otherwise
----------------------------------------------
indicated, all references herein to a "number of days" shall mean and refer to
calendar days. In all instances where Tenant is required to approve or deliver
an item, if no written notice of approval is given or the item is not delivered
within the stated time period, at Landlord's sole option, at the end of such
period the item shall automatically be deemed approved or delivered by Tenant
and the next succeeding time period shall commence.
6.7 Tenant's Lease Default. Notwithstanding any provision to the contrary
----------------------
contained in this Lease, if an event of default as described in the Lease, or a
default by Tenant under this Tenant Work Letter, has occurred at any time on or
before the Substantial Completion of the Premises, then (i) in addition to all
other rights and remedies granted to Landlord pursuant to the Lease, Landlord
shall have the right to withhold payment of all or any portion of the Tenant
Improvement Allowance and/or Landlord may cause Contractor to cease the
construction of the Premises (in which case, Tenant shall be responsible for any
delay in the Substantial Completion of the Premises caused by such work stoppage
as set forth in Section 5 of this Tenant Work Letter), and (ii) all other
---------
obligations of Landlord under the terms of this Tenant Work Letter shall be
forgiven until such time as such default is cured pursuant to the terms of the
Lease.
EXHIBIT B - Page 3
<PAGE>
SCHEDULE 1 TO EXHIBIT B
-----------------------
BASE, SHELL AND CORE DESCRIPTION
--------------------------------
<TABLE>
<S> <C>
Geometry 1. "L" Shaped Buildings - 28,000 to 30,000 sq. ft. floor plates.
Structure 2. Floor to floor height of 13'6" typical, 14'6" first floor, 13'
6" top floor (allow for roof drains).
3. Spread footings with grade beams at moment frame perimeter.
4. Structural steel building with seismic moment frame at
perimeter.
Lightweight 5. Lightweight concrete on all elevated floors.
Concrete 6. E.I.F.S. spandrels and columns with tinted glass window wall
with parapet and a mechanical equipment screen.
Interior Finish 7. Ground floor public lobby complete and 3rd floor lobby completed with corridors.
8. Finished men's and women's restrooms on all floors with ceramic tile floors and walls.
Vertical 9. Two (2) Hydraulic elevators with standard cab finish.
Movement
Mechanical 10. HVAC-VAV system with hot water terminal reheat, shell building system includes duct risers and
loops, HHW loops and valves and control piping (pneumatic) or wiring (electrical) to each floor.
11. HVAC distribution, ceiling grid and lights in core areas only.
12. Fire Sprinklers distributed with temporary heads and shields at rate of 1/150 sq. ft.
Electrical 13. Electrical panels 120/208 and 277/480 at two locations on each floor.
</TABLE>
SCHEDULE 1 TO EXHIBIT B - Page 1
<PAGE>
SCHEDULE 2 TO EXHIBIT B
-----------------------
STANDARD IMPROVEMENT PACKAGE
----------------------------
TENANT AREA
- -----------
1. Interior Partition Walls
------------------------
a. 2-1/2" 25 - gauge metal studs, 24" on center with seismic bracing
unless noted otherwise.
b. 5/8" Type "x" drywall, one layer each side.
c. Partition taped smooth and sanded to receive paint or wallcovering.
d. R-8 batt insulation in wall cavity.
e. Ceiling insulation to occur 4'-0" each side of partition and to be
Owens Corning "Sonobatts" 3-1/2" R-11.
f. "L" metal trim at termination of partition at ceiling.
g. Stagger and acoustical caulk around electrical outlet and other boxes;
caulk around conduit and other through-the-wall penetrations. Caulk
entire perimeter of wall at floor, exterior wall and ceiling between
"L" metal finished gypsum board and intersecting wall.
h. Secure bottom channel with 1/4" shotpins at 4'-0" O.C. and 6" from
corner.
i. Lateral bracing, number 25 gauge to be attached to the partition with
sheet metal screws at 8'-0" O.C. The brace is to be placed at an
angle of 45 degrees to the horizontal plane ceiling.
2. Demising Partition
------------------
a. 2-1/2, 20 gauge metal studs 24" on center with seismic bracing, unless
noted otherwise.
b. 5/8" Type "x" drywall, one layer each side.
c. R-8 Batt insulation in wall cavity.
d. Ceiling insulation to occur 4'-0" each side of partition - Owens
Corning
3-1/2", R-11 "Sonobatts".
e. Partition taped smooth and sanded to receive paint and/or
wallcovering.
f. Sound boots at all HVAC penetrations.
g. "L" metal trim at termination of partition at ceiling.
h. Straight line termination at building columns, sound sealed gasket
closure at mullion termination.
i. Stagger and acoustic caulk around electrical outlets an other boxes;
caulk around conduit and other through-the-wall-penetrations. Caulk
entire perimeter of wall at floor, exterior wall and ceiling between
"L" metal finished gypsum board and intersecting wall.
j. Secure bottom channel with 1/4" shotpins at 4'-0" O.C. 6" from
corner.
k. 25 gauge lateral bracing to be attached to the partition with sheet
metal screws at 8'-0" O.C. The brace is to be placed at an angle of
45" degrees to the horizontal ceiling plans.
l. Perimeter wall drywall below ceiling line taped smooth and sanded to
receive paint or wallcovering.
3. Interior Door
-------------
a. All doors shall be 3'-0" x 8'-10" x 1-3/4". Doors to be solid core
flush premium grade white quarter sliced maple (premium grade plain
sliced cherry in Building A) with matching hardwood edges, 100% filled
pore utilizing paste wood filler. Finish with two coats clear sealer.
Entry/exit doors to have 20-minute fire rated label attached to hinge
side of door.
b. All frames to have 3'-0" x 8"-10" x 3-3/4" throat. Factory painted
Western Integrated door frame, 20-minute fire rated label attached to
hinge side of frame for rated doors. Building standard color:
c. Lever hardware by Schlage D Series "Sparta" cylindrical
latchset/lockset, satin chrome finish.
d. Butt hinges, 2 pair, Hager BB 1279, ball bearing at doors with
closers, finish to be brushed stainless finish.
e. Norton #8501 parallel arm door closer at corridors be satin chrome
626.
SCHEDULE 2 TO EXHIBIT B - Page 1
<PAGE>
f. Floor mounted door stop, finish to be brushed stainless finish.
g. Fire door gasket at corridors.
4. Tenant Entry Door(s)
--------------------
a. All doors shall be 3'-0" x 8'-10" x 1-3/4". Doors to be solid core
flush premium grade white quarter sliced maple (premium grade plain
sliced cherry in Building A) with matching hardwood edges, 100% filled
pore utilizing paste wood filler. Finish with two coats clear sealer.
Entry/exit doors to have 20-minute fire rated label attached to hinge
side of door.
b. All frames to have 3'-0" x 8"-10" x 3-3/4" throat. Factory painted
Western Integrated door frame, 20-minute fire rated label attached to
hinge side of frame for rated doors. Building standard color:
c. Lever hardware by Schlage L-17 Mortise lockset, satin chrome finish.
d. Butt hinges, 2 pair, Hager AB 700, ball bearing at doors with closers,
finish to be brushed stainless finish.
e. Norton #8501 parallel arm door closer at corridors be satin chrome
626.
f. Floor mounted door stop, finish to be brushed stainless finish.
g. Fire door gasket at corridors.
h. Pair doors to have coordinator and automatic flush bolts by
Glynn-Johnson.
i. Pair doors to have astrogal by Pemko 355CV.
5. Tenant Light Fixture
--------------------
a. 2' x 4" Ultraline (slot grid) housing type throughout Tenant premises.
b. T-8, fluorescent tubes, 3 lamps, 3500 Kelvin.
c. Lithonia "Paralux", or equal, 3" deep cell, return air slots, 277V,
solid state ballasts.
d. Heat exhaust slots, with return air slots.
e. Earthquake clips and wire.
6. Core Light Fixture
------------------
Down Light
a. Fluorescent
b. Lithonia AFV-B Series, or equal, with clear specular alzack reflector.
c. 26/32/42 35K Triple Tube Lamp.
7. Acoustic Ceiling
----------------
a. Chicago metallic "Fineline" steel grid, intermediate duty with white
recess throughout tenant premises.
b. Partition attachment clips.
c. USG "Millennia" tile, 2' x 2' x 3/4", Fineline beveled edge; painted
back.
d. Ground floor ceiling height to be 10', or as noted on the plans.
8. Fire Sprinkler
--------------
a. Drops and heads from existing distribution.
b. Adjustable heads.
c. Semi-recessed heads with white enamel trim. Located in center of
ceiling tile, except per code requirements.
9. Paint
-----
a. Two coats of flat latex paint over primer.
b. Building Standard color as selected by the architect.
SCHEDULE 2 TO EXHIBIT B - Page 2
<PAGE>
10. Flooring and Base
-----------------
a. Designweave "Tempest Classic", 32 oz. over pad, "Carrington", over
pad, "Trieste", direct glue down or "Palladian", direct glue down.
b. 4" rubber straight base. Burke or equal.
c. Vinyl flooring 12" x 12" standard VCT Armstrong "Excelon", with 4"
topset base.
11. Window Covering
---------------
a. Perforated vinyl vertical blind. Draw and tilt function, with 3" 21%
perforated P.V.C. vanes.
12. Electrical Wall Outlet
----------------------
a. Self-grounding specification grade or equal, duplex receptacle, white.
13. Light Control System (for use in private offices and support rooms and
--------------------
conference rooms exclusive of open areas), Suites in excess of 5,000
useable square feet only.
a. Wall or ceiling mount. Novitas, "watt stopper" or equal, white.
b. Teflon wire, control relay and transformer.
14. Light Control Devices (for use in reception areas, general office and
---------------------
other areas not listed above)
a. All lighting circuits run to relays in existing lighting control panel.
b. Momentary contact switch to activate lighting control system relays.
c. Bi-level switching to meet Title 24 requirements.
d. Height 42" A.F.F. to center line of switch.
15. Telephone/Data Wall Outlet
--------------------------
a. 4-11/16" x 2-1/8" deep box in wall vertically mounted at 18" above
finish floor.
16. Tenant Lighting
---------------
a. Switching Capabilities: Motion sensors may be utilized for private
offices, storage rooms, conference rooms and kitchen/lounge areas with
momentary contact switching in open areas and conference rooms.
b. Fixture Type(s):
1. Number of tubes per fixture: 3
2. Fixture dimension: 2' x 4'
3. Lens Type: Parabolic (24 cell, 3" deep), fluorescent, 3-35 watt
lamp, 277 V, recessed fixture with air handling capability and
modular wiring receptacle.
c. Ratio: Approximately one fixture per 80 usable square feet.
d. Foot-candles: In accordance with tenant design criteria and Title 24.
17. Exit Signs (Illuminated)
------------------------
a. Sure-Lites model TC7C71G (edge lit) 277 volt.
18. Building Management System
--------------------------
a. Tenants can restore lighting in their area via override switch located
in their area. Common areas, lobbies, parking structure and exterior
lighting are controlled on time schedule with appropriate minimum
night light circuits left in operation.
b. After hours HVAC is controlled via card reader override in public
corridor. Reader activated floor HVAC for prescribed time period.
19. Fire/Life Safety Speakers
-------------------------
20. Fire Extinguisher Cabinets
--------------------------
a. Semi-recessed by Potter-Roemer, "Buena" series.
SCHEDULE 2 TO EXHIBIT B-Page 3
<PAGE>
21. Security
--------
a. Card-Key Control: All access after hours is through the use of
electrically coded cards. Different levels of authorization can be
easily programmed on the computer. Card controls access to main lobby
entry, and HVAC override. Exit door from stairs and public entrances
are monitored with door sensors.
22. Miscellaneous
-------------
a. Included in the Tenant Improvement allowance shall be working
drawings, permit and fees.
23. HVAC
----
Tenant development will include variable air volume (VAV) boxes with
discharge plenums and branch mains to existing main supply air duct.
Exterior zone VAV boxes will include a hot water reheat coil and
control valve with branch piping to existing hot water mains. Rigid
spiral ductwork, and flexible ductwork (7'-0" maximum length),
downstream of VAV boxes will be connected to ceiling diffusers to
provide conditioned supply air to the occupied areas. Work shall
include thermostat installation, and testing and balancing.
1. Typical Zoning Density: 1,000 square feet per zone.
2. Variable Air Volume Boxes:
Krueger or Titus single inlet pressure independent without heat
for interior zones, with 1 row hot water coil for exterior zones.
3. Diffuser and Return Air Grilles:
Krueger or Titus, flush with ceiling, modular, perforated type
with metal frame and adjustable blade core. Furnish with factory
finish to match ceiling tile and frame type to match ceiling
suspension system.
SCHEDULE 2 TO EXHIBIT B-Page 4
<PAGE>
SCHEDULE 3 TO EXHIBIT B
-----------------------
TIME DEADLINES
--------------
Dates Actions to be Performed
----- -----------------------
A. June 9, 1999 Final Space Plan to be completed
by Tenant and delivered to Landlord.
B. June 30, 1999 Final Working Drawings to be
approved by Tenant.
C. Five (5) business days after Tenant to approve Cost Proposal
the receipt of the Cost and deliver Cost Proposal to
Proposal by Tenant Landlord.
SCHEDULE 3 TO EXHIBIT B -Page 1
<PAGE>
EXHIBIT C
---------
NOTICE OF LEASE TERM DATES
--------------------------
To: __________________________
__________________________
__________________________
__________________________
Re: Office Lease dated ________________________, 19__, between [INSERT
LANDLORD NAME AND LEGAL ENTITY] ("Landlord"), and
_______________________ _____________, a _____________________
("Tenant") concerning Suite _______ on floor(s) _______ of the Office
Building located at [INSERT BUILDING ADDRESS].
Gentlemen:
In accordance with the Office Lease (the "Lease"), we wish to advise you
and/or confirm as follows:
1. That the Premises are Ready for Occupancy, and that the Lease Term
shall commence as of ________________ for a term of _______________ ending on
_______________.
2. That in accordance with the Lease, Rent commenced to accrue on
_______________________.
3. If the Lease Commencement Date is other than the first day of the
month, the first billing will contain a pro rata adjustment. Each billing
thereafter, with the exception of the final billing, shall be for the full
amount of the monthly installment as provided for in the Lease.
4. Rent is due and payable in advance on the first day of each and every
month during the Lease Term. Your rent checks should be made payable to
____________________________________ at _______________________________________.
5. The exact number of rentable square feet within the Premises is _______
square feet.
6. Tenant's Share as adjusted based upon the exact number of rentable
square feet within the Premises is _______%.
"Landlord":
[LANDLORD NAME AND LEGAL ENTITY]
By:_________________________________
Its:______________________________
Agreed to and Accepted as
of _____________, 19__.
"Tenant":
[TENANT NAME AND LEGAL ENTITY],
By:___________________________
Its:_________________________
EXHIBIT C-Page 1
<PAGE>
EXHIBIT D
---------
RULES AND REGULATIONS
---------------------
Tenant shall faithfully observe and comply with the following Rules and
Regulations. Landlord shall not be responsible to Tenant for the nonperformance
of any of said Rules and Regulations by or otherwise with respect to the acts or
omissions of any other tenants or occupants of the Building.
1. Tenant shall not alter any lock or install any new or additional locks
or bolts on any doors or windows of the Premises without obtaining Landlord's
prior written consent. Tenant shall bear the cost of any lock changes or
repairs required by Tenant. Two keys will be furnished by Landlord for the
Premises, and any additional keys required by Tenant must be obtained from
Landlord at a reasonable cost to be established by Landlord.
2. All doors opening to public corridors shall be kept closed at all times
except for normal ingress and egress to the Premises, unless electrical hold
backs have been installed.
3. Landlord reserves the right to close and keep locked all entrance and
exit doors of the Building during such hours as are customary for comparable
buildings in the vicinity of the Building. Tenant, its employees and agents
must be sure that the doors to the Building are securely closed and locked when
leaving the Premises if it is after the normal hours of business for the
Building. Any tenant, its employees, agents or any other persons entering or
leaving the Building at any time when it is so locked, or any time when it is
considered to be after normal business hours for the Building, may be required
to sign the Building register when so doing. Access to the Building may be
refused unless the person seeking access has proper identification or has a
previously arranged pass for access to the Building. The Landlord and his
agents shall in no case be liable for damages for any error with regard to the
admission to or exclusion from the Building of any person. In case of invasion,
mob, riot, public excitement, or other commotion, Landlord reserves the right to
prevent access to the Building during the continuance of same by any means it
deems appropriate for the safety and protection of life and property.
4. Landlord shall have the right to prescribe the weight, size and
position of all safes and other heavy property brought into the Building. Safes
and other heavy objects shall, if considered necessary by Landlord, stand on
supports of such thickness as is necessary to properly distribute the weight.
Landlord will not be responsible for loss of or damage to any such safe or
property in any case. All damage done to any part of the Building, its
contents, occupants or visitors by moving or maintaining any such safe or other
property shall be the sole responsibility of Tenant and any expense of said
damage or injury shall be borne by Tenant.
5. No furniture, freight, packages, supplies, equipment or merchandise
will be brought into or removed from the Building or carried up or down in the
elevators, except upon prior notice to Landlord, and in such manner, in such
specific elevator, and between such hours as shall be designated by Landlord.
Tenant shall provide Landlord with not less than 24 hours prior notice of the
need to utilize an elevator for any such purpose, so as to provide Landlord with
a reasonable period to schedule such use and to install such padding or take
such other actions or prescribe such procedures as are appropriate to protect
against damage to the elevators or other parts of the Building. In no event
shall Tenant's use of the elevators for any such purpose be permitted during the
hours of 7:00 a.m. - 9:00 a.m., 11:30 a.m. - 1:30 p.m. and 4:30 p.m. - 6:30 p.m.
6. Landlord shall have the right to control and operate the public
portions of the Building, the public facilities, the heating and air
conditioning, and any other facilities furnished for the common use of tenants,
in such manner as is customary for comparable buildings in the vicinity of the
Building.
7. The requirements of Tenant will be attended to only upon application at
the office location designated by Landlord. Employees of Landlord shall not
perform any work or do anything outside their regular duties unless under
special instructions from Landlord.
8. Tenant shall not disturb, solicit, or canvass any occupant of the
Building and shall cooperate with Landlord or Landlord's agents to prevent same.
9. The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purpose other than that for which they were constructed, and no
foreign substance of any kind whatsoever shall be thrown therein. The expense
of any breakage, stoppage or damage resulting from the violation of this rule
shall be borne by the tenant who, or whose employees or agents, shall have
caused it.
10. Tenant shall not overload the floor of the Premises, nor mark, drive
nails or screws, or drill into the partitions, woodwork or plaster or in any way
deface the Premises or any part thereof without Landlord's consent first had and
obtained.
11. Except for vending machines intended for the sole use of Tenant's
employees and invitees, no vending machine or machines of any description other
than fractional horsepower office machines shall be installed, maintained or
operated upon the Premises without the written consent of Landlord.
12. Tenant shall not use or keep in or on the Premises or the Building any
kerosene, gasoline or other inflammable or combustible fluid or material.
13. Tenant shall not use any method of heating or air conditioning other
than that which may be supplied by Landlord, without the prior written consent
of Landlord.
14. Tenant shall not use, keep or permit to be used or kept, any foul or
noxious gas or substance in or on the Premises, or permit or allow the Premises
to be occupied or used in a manner offensive or objectionable to Landlord or
other occupants of the Building by reason of noise, odors, or vibrations, or
interfere in any way with other Tenants or those having business therein.
15. Tenant shall not bring into or keep within the Building or the
Premises any animals, birds, bicycles or other vehicles.
16. No cooking shall be done or permitted by any tenant on the Premises,
nor shall the Premises be used for the storage of merchandise, for lodging or
for any improper, objectionable or immoral purposes. Notwithstanding the
foregoing, Underwriters' laboratory-approved equipment and microwave ovens may
be used in the Premises for heating food and brewing coffee, tea, hot
EXHIBIT D-Page 1
<PAGE>
chocolate and similar beverages, provided that such use is in accordance with
all applicable federal, state and city laws, codes, ordinances, rules and
regulations, and does not cause odors which are objectionable to Landlord and
other Tenants.
17. Landlord will approve where and how telephone and telegraph wires are
to be introduced to the Premises. No boring or cutting for wires shall be
allowed without the consent of Landlord. The location of telephone, call boxes
and other office equipment affixed to the Premises shall be subject to the
approval of Landlord.
18. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgment of Landlord, is intoxicated or under the influence
of liquor or drugs, or who shall in any manner do any act in violation of any of
these Rules and Regulations.
19. Tenant, its employees and agents shall not loiter in the entrances or
corridors, nor in any way obstruct the sidewalks, lobby, halls, stairways or
elevators, and shall use the same only as a means of ingress and egress for the
Premises.
20. Tenant shall not waste electricity, water or air conditioning and
agrees to cooperate fully with Landlord to ensure the most effective operation
of the Building's heating and air conditioning system, and shall refrain from
attempting to adjust any controls. This includes the closing of exterior
blinds, disallowing the sun rays to shine directly into areas adjacent to
exterior windows.
21. Tenant shall store all its trash and garbage within the interior of
the Premises. No material shall be placed in the trash boxes or receptacles if
such material is of such nature that it may not be disposed of in the ordinary
and customary manner of removing and disposing of trash and garbage in the city
in which the Building is located without violation of any law or ordinance
governing such disposal. All trash, garbage and refuse disposal shall be made
only through entry-ways and elevators provided for such purposes at such times
as Landlord shall designate.
22. Tenant shall cooperate with Landlord's trash recycling programs and
the orderly sorting of trash materials to facilitate such programs.
23. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
24. Tenant shall assume any and all responsibility for protecting the
Premises from theft, robbery and pilferage, which includes keeping doors locked
and other means of entry to the Premises closed, when the Premises are not
occupied.
25. Landlord may waive any one or more of these Rules and Regulations for
the benefit of any particular tenant or tenants, but no such waiver by Landlord
shall be construed as a waiver of such Rules and Regulations in favor of any
other tenant or tenants, nor prevent Landlord from thereafter enforcing any such
Rules or Regulations against any or all tenants of the Building.
26. No awnings or other projection shall be attached to the outside walls
of the Building without the prior written consent of Landlord. No curtains,
blinds, shades or screens shall be attached to or hung in, or used in connection
with, any window or door of the Premises without the prior written consent of
Landlord. All electrical ceiling fixtures hung in offices or spaces along the
perimeter of the Building must be fluorescent and/or of a quality, type, design
and bulb color approved by Landlord.
27. The sashes, sash doors, skylights, windows, and doors that reflect or
admit light and air into the halls, passageways or other public places in the
Building shall not be covered or obstructed by Tenant, nor shall any bottles,
parcels or other articles be placed on the windowsills.
28. The washing and/or detailing of or, the installation of windshields,
radios, telephones in or general work on, automobiles shall not be allowed on
the Project, except by concessionaires of Landlord.
29. Food vendors appropriately licensed by the appropriate authorities
shall be allowed in the Building upon twenty-four (24) hour advance receipt of a
written request from the Tenant. The food vendor shall service only the tenants
that have a written request on file in the Project management office. Under no
circumstance shall the food vendor display their products in a public or common
area including corridors and elevator lobbies. Any failure to comply with this
rule shall result in immediate permanent withdrawal of the vendor from the
Building.
30. Tenant must comply with requests by the Landlord concerning the
informing of their employees of items of importance to the Landlord.
31. Tenant shall comply with any non-smoking ordinance adopted by any
applicable governmental authority. There is no smoking permitted in any of the
buildings comprising the Project. In addition, Landlord reserves the right to
designate, in Landlord's sole discretion, the only outside areas in the Project
where smoking shall be permitted.
32. Landlord reserves the right at any time to change or rescind any one
or more of these Rules and Regulations, or to make such other and further
reasonable Rules and Regulations as in Landlord's judgment may from time to time
be necessary for the management, safety, care and cleanliness of the Premises
and Building, and for the preservation of good order therein, as well as for the
convenience of other occupants and tenants therein. Landlord shall not be
responsible to Tenant or to any other person for the nonobservance of the Rules
and Regulations by another tenant or other person. Tenant shall be deemed to
have read these Rules and Regulations and to have agreed to abide by them as a
condition of its occupancy of the Premises.
EXHIBIT D - Page 2
<PAGE>
EXHIBIT E
---------
FORM OF TENANT'S ESTOPPEL CERTIFICATE
-------------------------------------
The undersigned as Tenant under that certain Office Lease (the "Lease")
made and entered into as of _________________, 19__ and between [INSERT LANDLORD
NAME AND LEGAL ENTITY] as Landlord, and the undersigned as Tenant, for Premises
on the ___________ floor(s) of the Office Building located at
[INSERT BUILDING ADDRESS] certifies as follows:
1. Attached hereto as Exhibit A is a true and correct copy of the Lease
and all amendments and modifications thereto. The documents contained in
Exhibit A represent the entire agreement between the parties as to the Premises.
2. The undersigned has commenced occupancy of the Premises described in
the Lease, currently occupies the Premises, and the Lease Term commenced on
_________.
3. The Lease is in full force and effect and has not been modified,
supplemented or amended in any way except as provided in Exhibit A.
4. Tenant has not transferred, assigned, or sublet any portion of the
Premises nor entered into any license or concession agreements with respect
thereto except as follows:
5. Tenant shall not modify the documents contained in Exhibit A or prepay
any amounts owing under the Lease to Landlord in excess of thirty (30) days
without the prior written consent of Landlord's mortgagee.
6. Base Rent became payable on _______________.
7. The Lease Term expires on _________________.
8. All conditions of the Lease to be performed by Landlord necessary to
the enforceability of the Lease have been satisfied and Landlord is not in
default thereunder.
9. No rental has been paid in advance and no security has been deposited
with Landlord except as provided in the Lease.
10. As of the date hereof, there are no existing defenses or offsets that
the undersigned has, which preclude enforcement of the Lease by Landlord.
11. All monthly installments of Base Rent, all Additional Rent and all
monthly installments of estimated Additional Rent have been paid when due
through _________________. The current monthly installment of Base Rent is
$__________.
12. The undersigned acknowledges that this Estoppel certificate may be
delivered to Landlord's prospective mortgagee, or a prospective purchaser, and
acknowledges that it recognizes that if same is done, said mortgagee,
prospective mortgagee, or prospective purchaser will be relying upon the
statements contained herein in making the loan or acquiring the property of
which the Premises are a part, and in accepting an assignment of the Lease as
collateral security, and that receipt by it of this certificate is a condition
of making of the loan or acquisition of such property.
13. If Tenant is a corporation or partnership, each individual executing
this Estoppel Certificate on behalf of Tenant hereby represents and warrants
that Tenant is a duly formed and existing entity qualified to do business in the
state in which the Building is located and that Tenant has full right and
authority to execute and deliver this Estoppel Certificate and that each person
signing on behalf of Tenant is authorized to do so.
Executed at __________________ on the _____ day of ______________, 19___.
"Tenant":
___________________________________________
a _________________________________________
By:________________________________________
Its:______________________________________
By:________________________________________
Its:______________________________________
EXHIBIT E - Page 1
<PAGE>
EXHIBIT F
---------
SUMMIT
------
RECORDING REQUESTED BY
AND WHEN RECORDED RETURN TO:
ALLEN, MATKINS, LECK, GAMBLE
& MALLORY LLP
1999 Avenue of the Stars
18th Floor
Los Angeles, California 90067
Attention: Anton N. Natsis, Esq.
- --------------------------------------------------------------------------------
RECOGNITION OF COVENANTS,
-------------------------
CONDITIONS, AND RESTRICTIONS
----------------------------
This Recognition of Covenants, Conditions, and Restrictions (this
"Agreement") is entered into as of the __ day of ________, 199__, by and between
AEW / PARKER, LLC, a California limited liability company ("Landlord"), and
________________ ("Tenant"), with reference to the following facts:
A. Landlord and Tenant entered into that certain Office Lease Agreement
dated _____, 199__ (the "Lease"). Pursuant to the Lease, Landlord leased to
Tenant and Tenant leased from Landlord space (the "Premises") located in an
office building on certain real property described in Exhibit "A" attached
-----------
hereto and incorporated herein by this reference (the "Property").
B. The Premises are located in an office building located on real property
which is part of an area owned by Landlord containing approximately ___(__)
acres of real property located in the City of Aliso Viejo, California (the
"Project"), as more particularly described in Exhibit "B" attached hereto and
-----------
incorporated herein by this reference.
C. Landlord, as declarant, has previously recorded, or proposes to record
concurrently with the recordation of this Agreement, a Declaration of Covenants,
Conditions, and Restrictions (the "Declaration"), dated ________________, 19__,
in connection with the Project.
D. Tenant is agreeing to recognize and be bound by the terms of the
Declaration, and the parties hereto desire to set forth their agreements
concerning the same.
NOW, THEREFORE, in consideration of (a) the foregoing recitals and the
mutual agreements hereinafter set forth, and (b) for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows.
1. Tenant's Recognition of Declaration. Notwithstanding that the Lease
-----------------------------------
has been executed prior to the recordation of the Declaration, Tenant agrees to
recognize and by bound by all of the terms and conditions of the Declaration.
2. Miscellaneous.
-------------
2.1 This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, estates, personal
representatives, successors, and assigns.
2.2 This Agreement is made in, and shall be governed, enforced and
construed under the laws of, the State of California.
2.3 This Agreement constitutes the entire understanding and
agreements of the parties with respect to the subject matter hereof, and shall
supersede and replace all prior understandings and agreements, whether verbal or
in writing. The parties confirm and acknowledge that there are no other
promises, covenants, understandings, agreements, representations, or warranties
with respect to the subject matter of this Agreement except as expressly set
forth herein.
2.4 This Agreement is not to be modified, terminated, or amended in
any respect, except pursuant to any instrument in writing duly executed by both
of the parties hereto.
2.5 In the event that either party hereto shall bring any legal
action or other proceeding with respect to the breach, interpretation, or
enforcement of this Agreement, or with respect to any dispute relating to any
transaction covered by this Agreement, the losing party in such action or
proceeding shall reimburse the prevailing party therein for all reasonable costs
of litigation, including reasonable attorneys' fees, in such amount as may be
determined by the court or other tribunal having jurisdiction, including matters
on appeal.
2.6 All captions and heading herein are for convenience and ease of
reference only, and shall not be used or referred to in any way in connection
with the interpretation or enforcement of this Agreement.
2.7 If any provision of this Agreement, as applied to any party or to
any circumstance, shall be adjudged by a court of competent jurisdictions to be
void or unenforceable for any reason, the same shall not affect any other
provision of this Agreement, the application of such provision under
circumstances different form those adjudged by the court, or the validity or
enforceability of this Agreement as a whole.
2.8 Time is of the essence of this Agreement.
2.9 The Parties agree to execute any further documents, and take any
further actions, as may be reasonable and appropriate in order to carry out the
purpose and intent of this Agreement.
EXHIBIT F - Page 1
<PAGE>
2.10 As used herein, the masculine, feminine or neuter gender, and
the singular and plural numbers, shall each be deemed to include the others
whenever and whatever the context so indicates.
EXHIBIT F - Page 2
<PAGE>
SIGNATURE PAGE OF RECOGNITION OF
--------------------------------
COVENANTS, CONDITIONS AND RESTRICTIONS
--------------------------------------
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
"Landlord":
AEW/PARKER, LLC,
a California limited liability company
By: Eastrich Aliso, LLC,
a Delaware limited liability company,
Member - Manager
By:__________________________________
James Flynn
Authorized Signatory
"Tenant":
__________________________________________
a ________________________________________
By:_______________________________________
Its:_____________________________________
By:_______________________________________
Its:_____________________________________
EXHIBIT F - Page 3
<PAGE>
EXHIBIT G
---------
FORM OF LETTER OF CREDIT
------------------------
(Letterhead of a money center bank
acceptable to the Landlord)
June 3, 1999
AEW/Parker, LLC
c/o Parker Properties
95 Enterprise, Suite 300
Aliso Viejo, California 92656
Ladies and Gentlemen:
We hereby establish our Irrevocable Letter of Credit and authorize you to
draw on us at sight for the account of eCommercial.com, a Nevada corporation the
aggregate amount of Two Hundred Thirty Thousand Four Hundred and No/100 Dollars
($230,400.00) (the "L-C Amount"). If Tenant has not been in default under that
certain Lease dated June 3, 1999 (the "Lease"), between AEW\Parker LLC, a
California limited liability company, and eCommercial.com, a Nevada corporation,
the L-C Amount shall be reduced during the initial "Lease Term," as that term is
defined in the Lease, as follows: commencing on the first day of the second
(2nd) "Lease Year," as that term is defined in the Lease, the L-C Amount shall
be reduced to One Hundred Fifteen Thousand and No/100 Dollars ($115,000.00); and
commencing on the first day of the third (3rd) Lease Year, the L-C Amount shall
be reduced to Zero Dollars ($0.00).
Funds under this Letter of Credit are available to the beneficiary hereof
as follows:
Any or all of the sums hereunder may be drawn down at any time and from
time to time from and after the date hereof by AEW\Parker, LLC ("Beneficiary")
when accompanied by this Letter of Credit and a written statement signed by a
representative of Beneficiary, certifying that such moneys are due and owing to
Beneficiary, and a sight draft executed and endorsed by a representative of
Beneficiary.
This Letter of Credit is transferable in its entirety. Should a transfer
be desired, such transfer will be subject to the return to us of this advice,
together with written instructions.
The amount of each draft must be endorsed on the reverse hereof by the
negotiating bank. We hereby agree that this Letter of Credit shall be duly
honored upon presentation and delivery of the certification specified above.
This Letter of Credit shall expire on ______________.
Notwithstanding the above expiration date of this Letter of Credit, the
term of this Letter of Credit shall be automatically renewed for successive,
additional one (1) year periods unless, at least thirty (30) days prior to any
such date of expiration, the undersigned shall give written notice to
Beneficiary, by certified mail, return receipt requested and at the address set
forth above or at such other address as may be given to the undersigned by
Beneficiary, that this Letter of Credit will not be renewed.
This Letter of Credit is governed by the Uniform Customs and Practice for
Documentary Credits (1983 Revision), International Chamber of Commerce
Publication 400.
Very truly yours,
(Name of Issuing Bank)
By:__________________________________
EXHIBIT G - Page 1
<PAGE>
EXHIBIT 10.12
STRATEGIC RELATIONSHIP AGREEMENT
This Strategic Relationship Agreement ("Agreement") is made as of _______ __,
1999 by and between ONEX Ventures LLC, a limited liability corporation ("ONEX
Ventures"), a division of ONEX Group, Inc., and eCommercial.com, Inc., a Nevada
corporation ("eCommercial.com" or the "Company").
RECITALS
Whereas, ONEX Ventures is a venture capital investment division of ONEX Group,
Inc., a diversified manufacturing and investment company; and,
Whereas, eCommercial.com develops, markets and manages Internet-based electronic
advertising, commercials and marketing communications content; and,
Whereas, ONEX Ventures and eCommercial.com intend hereby to establish a
strategic relationship in order to supply eCommercial.com with introductions and
access to potential strategic partners, customers and investment banking firms
from ONEX Ventures, and to provide eCommercial.com products and services to
portfolio companies of ONEX Ventures;
Now, therefore, in consideration of the mutual promises herein, the parties do
hereby agree as follows:
1. Board of Directors Representation. For such time as Onex Ventures
---------------------------------
directly through a related or affiliate entity owns an aggregate amount of not
less than One Hundred Thousand (100,000) shares of the common and/or preferred
stock of eCommercial.com, Onex Ventures shall have the exclusive right to elect
two members of the Board of Directors of the Company. The Board of the Company
shall not consist of more than seven (7) members at any time during the
effective period of this voting right held by Onex Ventures.
2. Warrant for Advisory Services. In consideration for providing
-----------------------------
advisory services to the Company, Onex Ventures or its designee shall receive a
warrant for Two Hundred Fifty Thousand (250,000) common shares of
eCommercial.com, exercisable at any time at Seven Dollars ($7.00) per share for
a period of five years from September 1, 1999. These warrants shall have the
same registration rights as those granted to purchasers of the Series B
Preferred Stock of the Company.
3. eCommercial.com Products. eCommercial.com hereby agrees to meet and
------------------------
make presentations to ONEX Ventures portfolio companies, as appropriate, in
order to introduce and make available to these portfolio companies
eCommercial.com's Internet-based electronic advertising products and services.
4. Access to ONEX Ventures contacts. ONEX Ventures hereby agrees to
--------------------------------
provide eCommercial.com with introductions to ONEX Ventures various portfolio
companies, as well as to other potential strategic partners and investment
bankers
<PAGE>
DRAFT
5. Trademarks and Publicity. Each party hereto is the owner of certain
------------------------
trademarks and such ownership shall not be altered by the terms of this
Agreement unless specifically set forth. Neither party shall use a trademark
owned by the other party without the prior written consent of such other party.
6. Confidentiality. The parties hereto have executed a separate
---------------
Proprietary Information Agreement attached hereto as Exhibit A and incorporated
herein as if fully set forth, which sets forth the terms and conditions of the
disclosure and use of proprietary information by each party. The obligations of
each party under such Proprietary Information Agreement shall survive the
termination of this Agreement, and such obligations shall continue for the term
set forth therein.
7. Agreement to Indemnify. Except for the negligence or willful
----------------------
misconduct of the other party, its agents, servants or employees, each party
(the"Indemnitor") shall fully protect, indemnify and save harmless and defend
the other, and their respective directors, offices, agents and employees from
and against any and all claims, actions, damages, liability, injury, liens,
taxes, penalties, interest or causes of action of every nature in connection
with the loss of life and/or personal or bodily injury or property damage
arising out of or incidental to or in connection with the performance of its
services under this Agreement occasioned wholly or in part by any negligent act
or omission by the Indemnitor.
8. Term and Termination. This Agreement shall be in full force and
--------------------
effect beginning on the date hereof, and shall remain in effect until three (3)
years after the date hereof, or until terminated.
Either party may terminate this Agreement for cause upon thirty (30) days
written notice to the other party. In the event notice of termination is
provided by either party to the other party for a breach of this Agreement, the
party receiving notice shall have thirty (30) days to cure such breach of this
Agreement. Either party may terminate this Agreement for any reason upon ninety
(90) days written notice .
9. Headings. All headings in this Agreement are inserted only for
--------
convenience and ease of reference and are not to be considered in the
construction or interpretation of any provision of this Agreement.
10. Notices. All notices under this Agreement shall be in writing and
-------
shall be effective upon personal delivery to a party, or three business days
after deposit in the United States mail, registered or certified, postage
prepaid and addressed to the respective parties as follows (or such other
address as the parties may from time to time designate in writing):
ONEX Ventures L.L.C. eCommercial.com, Inc.
Attention: John Troiano Attention: Eric McAfee, EVP
95 Enterprise, Suite 360
Aliso Viejo, CA 92656
Fax: (949) 916-8713
<PAGE>
DRAFT
Copy: Copy: Kevin Coyle, Esq.
Gray, Cary, Ware &
Freidenrich, LLP
Fax: (916) 930-3201
11. Binding. This Agreement shall inure to and bind the successors,
-------
assigns, agents, and representatives of the parties.
12. Dispute Resolution. In the event of any dispute or disagreement
------------------
between the parties arising under or relating to this Agreement, the parties
agree to make diligent and reasonable attempts to resolve, through negotiation,
all such disputes or disagreements. Such negotiation shall occur through
ascending levels of management of each Party, and the parties shall specifically
discuss the use of arbitration prior to resorting to a court of competent
jurisdiction for adjudication. Prior to initiating any legal proceedings, the
complaining Party shall provide ten (10) days written notice to the other Party.
Neither party shall be entitled to recover costs or attorney fees.
Notwithstanding a disagreement or dispute, the parties agree to proceed
diligently with performance of this Agreement.
13. Limitation of Liability. Neither parties hereto shall under any
-----------------------
circumstances be liable to the other for any special, indirect, incidental or
consequential damages, including, without limitation, loss of profits or
revenues arising out of this Agreement, even if the other party is informed in
advance of the possibility or likelihood of such damages.
14. Force Majeure. Neither party shall be held responsible for any delay
-------------
or failure in performance of this Agreement to the extent such failure is caused
by fire, flood, explosion, war, strike, embargo, civil or military authority,
act of God, act of omission of carriers or similar causes beyond its control
("Force Majeure Condition").
If any Force Majeure Condition occurs, the party delayed or unable to
perform shall give immediate notice to the other party. Both parties shall use
their best efforts to minimize the consequences of Force Majeure Conditions. If,
however, a Force Majeure Condition continues uninterruptedly over a period of
more than three (3) months and prevents performance by a party, and if no other
understanding is reached, the other party may (but shall not be obligated to)
forthwith terminate this Agreement pursuant to the provisions of Article 8.
15. Assignment. Except in connection with a merger or sale of all or
----------
substantially all the assets of a party, neither this Agreement, nor any right
or obligation thereunder, shall be assigned to third parties by either party to
this Agreement without the prior written consent of the other party. Such
consent shall not unreasonably be withheld or delayed.
16. Relationship. Each Party is an independent contractor, and this
------------
Agreement shall not be construed as creating a partnership, joint venture,
agency or employment relationship between the parties or as creating any other
form of legal association that would impose liability on one Party for the act
or failure to act of the other Party. Neither of the parties (including its
affiliates, agents, representatives, employees or others acting on its behalf)
is a representative of the other for any purpose, and no such Party has any
power or authority to represent, act for, bind, or otherwise create or assume
any obligation on behalf of the other Party for any purpose whatsoever.
<PAGE>
DRAFT
17. Choice of Laws. This Agreement shall be governed by the laws of the
--------------
State of California, and any question arising hereunder shall be construed or
determined according to such law.
18. Authorization. Each of the signers below represent they are duly
-------------
authorized and fully empowered to enter into this Agreement, and have received
any and all required board of directors resolutions, shareholder resolutions,
regulatory approvals and other approvals.
19. Entire Agreement. This Agreement contains all of the agreements of
----------------
the parties hereto with respect to the matters contained herein. No prior
agreement or understanding pertaining to any such matter shall be effective for
any purpose. No provision of this Agreement may be amended or modified in any
manner whatsoever except by an agreement in writing by each of the parties
hereto.
In witness whereof, the parties have signed this Agreement as of the date first
set forth above.
ECOMMERCIAL.COM, INC. ONEX VENTURES, L.L.C.
___________________________________ __________________________________
By: Eric McAfee By:
Title: Executive Vice President Title:
and Director
Date: ____________________________ Date: ___________________________
<PAGE>
EXHIBIT 10.13
STRATEGIC RELATIONSHIP AGREEMENT
This Strategic Relationship Agreement ("Agreement") is made as of _______ __,
1999 by and between Lockheed Martin Corporation, a Maryland corporation ("LMC"),
acting through its Integrated Business Solutions division, and eCommercial.com,
Inc., a Nevada corporation ("eCommercial.com").
RECITALS
Whereas, LMC is a leading system integrator providing electronic commerce
products and services and other applications; and,
Whereas, eCommercial.com develops, markets and manages Internet-based electronic
advertising, commercials and marketing communications content; and,
Whereas, LMC and eCommercial.com intend hereby to establish a strategic
relationship in order to supply eCommercial.com with products and services from
LMC, and to provide eCommercial.com products and services to customers of LMC;
Now, therefore, in consideration of the mutual promises herein, the parties do
hereby agree as follows:
1. LMC Preferred vendor relationship with eCommercial.com. LMC shall be a
-------------------------------------------------------
preferred vendor ("Preferred Vendor") to eCommercial.com for electronic commerce
products and services.
On the terms and conditions set forth herein, eCommercial.com hereby agrees to
utilize LMC as a Preferred Vendor in the establishment and management of
electronic commerce projects for eCommercial.com. Unless and until negotiation
of an exclusive agreement, eCommercial.com may use other vendors or strategic
partners as appropriate to supply products or services substantially similar to
products or services available from LMC; however, LMC shall be a Preferred
Vendor to eCommercial.com for electronic commerce solution development and
delivery, electronic commerce-related systems integration, and project
management. For each specific project, eCommercial.com and LMC will negotiate a
Delivery Order to include but not be limited to items such as the Statement of
Work, specifications, project plan, pricing schedule and payment terms which
will be governed by this Agreement. Each Delivery Order will be based upon
general terms and conditions contained in a mutually agreed to Agreement for
Services (see Exhibit B attached hereto).
As a Preferred Vendor for the products and services set forth above, if the
aforementioned products or services required in the development of
eCommercial.com projects are not readily available to eCommercial.com from LMC,
LMC will procure, develop or otherwise secure such technology, products or
services as mutually agreed upon on a case by case basis.
2. Sources of eCommercial.com Revenue. eCommercial.com intends to charge fees
----------------------------------
to customers for access and use of the eCommercial.com network, website, and
related services.
Page 1 of 1
<PAGE>
These charges may include amounts for monthly charges, advertising charges, and
charges per transaction. Charges shall be billed directly by eCommercial.com to
customers and advertisers.
3. Ownership. Ownership of titles or licenses shall be mutually agreed to for
---------
each individual project. License or title ownership shall be defined on a
project by project basis.
LMC shall retain ownership of any proprietary technologies or software
independently developed by LMC, and eCommercial.com shall only receive a license
to use such proprietary technologies in a specific eCommercial.com project on
terms to be negotiated on a case by case basis. In the event custom software or
content is developed by LMC for eCommercial.com, a separate license or product
development agreement shall be entered into by the parties to provide
eCommercial.com a license to utilize such product in its business.
In the event of any termination or maturity of this Agreement pursuant to
Paragraph 8 herein, a technology licensing agreement on commercially reasonable
terms shall be negotiated by and between the parties to provide for the
continued use of products and technologies by eCommercial.com which were
provided or developed by LMC under this Agreement.
4. Trademarks and Publicity. Each party hereto is the owner of certain
------------------------
trademarks and such ownership shall not be altered by the terms of this
Agreement unless specifically set forth. Neither party shall use a trademark
owned by the other party without the prior written consent of such other party.
Each party shall (1) submit to the other all advertising, written sales
promotions, press releases and other publicity matters relating to this
Agreement in which the other Party's name or mark is mentioned or language from
which the connection of said name or mark may be inferred or implied and (2) not
publish or use such advertising, sales promotions, press releases or publicity
matters without the other party's written consent.
5. Joint Pursuit of other Projects. It is the intention of LMC and
-------------------------------
eCommercial.com to jointly review other electronic infrastructure projects in
which eCommercial.com and LMC have an interest or involvement. When appropriate
and mutually agreed to by both parties, joint marketing efforts shall be made in
order to provide the combined capabilities of each party to customers.
eCommercial.com and LMC acknowledge that a prospective customer may have a
preference for the service provider for a specific project, and each party shall
endeavor to provide products and services within the requirements and
preferences of each customer.
6. Confidentiality. The parties hereto have executed a separate Proprietary
---------------
Information Agreement attached hereto as Exhibit A and incorporated herein as if
fully set forth, which sets forth the terms and conditions of the disclosure and
use of proprietary information by each party. The obligations of each party
under such Proprietary Information Agreement shall survive the termination of
this Agreement, and such obligations shall continue for the term set forth
therein.
7. Agreement to Indemnify. Except for the negligence or willful misconduct of
----------------------
the other party, its agents, servants or employees, each party (the
"Indemnitor") shall fully protect, indemnify and save harmless and defend the
other, and their respective directors, offices, agents
Page 2 of 2
<PAGE>
and employees from and against any and all claims, actions, damages, liability,
injury, liens, taxes, penalties, interest or causes of action of every nature in
connection with the loss of life and/or personal or bodily injury or property
damage arising out of or incidental to or in connection with the performance of
its services under this Agreement occasioned wholly or in part by any negligent
act or omission by the Indemnitor.
8. Term and Termination.
--------------------
a. This Agreement shall be in full force and effect beginning on the date
hereof, and shall remain in effect until three (3) years after the date hereof,
or until terminated.
b. Either party may terminate this Agreement for cause upon thirty (30) days
written notice to the other party. In the event notice of termination is
provided by either party to the other party for a breach of this Agreement, the
party receiving notice shall have thirty (30) days to cure such breach of this
Agreement.
c. Either party may terminate this Agreement for any reason upon ninety (90)
days written notice.
9. Marketing Information. To the extent it has the authority, LMC and
---------------------
eCommercial.com may collect certain consumer and customer information, including
personal information, transaction information and buyer preferences. The
ownership of such information shall be negotiated by the parties hereto on a
project basis.
10. Compliance with Laws and Regulations. Each party agrees to comply with all
------------------------------------
Federal, State and local laws, ordinances and/or rules and regulations
applicable to it in connection with the performance of its services and
obligations under this contract.
11. Personnel. As needed, each party shall supply an adequate number of
---------
employees who have been trained and are competent to perform any services
contracted hereunder. The personnel provided shall be supervised and directed
by a supervisor, who shall be trained and duly qualified to act in such
capacity.
12. Government Licenses and Permits. If any government permit or license shall
-------------------------------
be required for the proper and lawful conduct of the business as specified by
this Agreement and if the failure to secure such license or permit would, in any
way, affect any efforts, as detailed in this contract, the respective party
shall duly procure and thereafter maintain such license or permit. All parties
shall at all times comply with the terms and conditions of each such license or
permit.
13. Headings. All headings in this Agreement are inserted only for convenience
--------
and ease of reference and are not to be considered in the construction or
interpretation of any provision of this Agreement.
14. Notices. All notices under this Agreement shall be in writing and shall be
-------
effective upon personal delivery to a party, or three business days after
deposit in the United States mail, registered or certified, postage prepaid and
addressed to the respective parties as follows (or such other address as the
parties may from time to time designate in writing):
Page 3 of 3
<PAGE>
Lockheed Martin Corporation eCommercial.com, Inc.
Attention: Barbie Lenius, MP 867 Attention: Eric McAfee
12506 Lake Underhill Rd. 95 Enterprise, Suite 360
Orlando, FL 32825 Aliso Viejo, CA 92656
Fax: (407) 306-4515 Fax: (408) 343-0984
Copy: John Simmons Copy: Kevin Coyle, Esq.
General Counsel Graham & James, LLP
Fax: (407) 306-1053 Fax: (916) 441-6700
15. Binding. This Agreement shall inure to and bind the successors, assigns,
-------
agents, and representatives of the parties.
16. Dispute Resolution. In the event of any dispute or disagreement between
------------------
the parties arising under or relating to this Agreement, the parties agree to
make diligent and reasonable attempts to resolve, through negotiation, all such
disputes or disagreements. Such negotiation shall occur through ascending levels
of management of each Party, and the parties shall specifically discuss the use
of arbitration prior to resorting to a court of competent jurisdiction for
adjudication. Prior to initiating any legal proceedings, the complaining Party
shall provide ten (10) days written notice to the other Party. Neither party
shall be entitled to recover costs or attorney fees. Notwithstanding a
disagreement or dispute, the parties agree to proceed diligently with
performance of this Agreement.
17. Limitation of Liability. Neither parties hereto shall under any
-----------------------
circumstances be liable to the other for any special, indirect, incidental or
consequential damages, including, without limitation, loss of profits or
revenues arising out of this Agreement, even if the other party is informed in
advance of the possibility or likelihood of such damages.
18. Force Majeure. Neither party shall be held responsible for any delay or
-------------
failure in performance of this Agreement to the extent such failure is caused by
fire, flood, explosion, war, strike, embargo, civil or military authority, act
of God, act of omission of carriers or similar causes beyond its control ("Force
Majeure Condition").
If any Force Majeure Condition occurs, the party delayed or unable to perform
shall give immediate notice to the other party. Both parties shall use their
best efforts to minimize the consequences of Force Majeure Conditions. If,
however, a Force Majeure Condition continues uninterruptedly over a period of
more than three (3) months and prevents performance by a party, and if no other
understanding is reached, the other party may (but shall not be obligated to)
forthwith terminate this Agreement pursuant to the provisions of Article 8.
19. Assignment. Except in connection with a merger or sale of all or
----------
substantially all the assets of a party, neither this Agreement, nor any right
or obligation thereunder, shall be assigned to third parties by either party to
this Agreement without the prior written consent of the other party. Such
consent shall not unreasonably be withheld or delayed.
20. Relationship. Each Party is an independent contractor, and this Agreement
------------
shall not be construed as creating a partnership, joint venture, agency or
employment relationship between the parties or as creating any other form of
legal association that would impose liability on one
Page 4 of 4
<PAGE>
Party for the act or failure to act of the other Party. Neither of the parties
(including its affiliates, agents, representatives, employees or others acting
on its behalf) is a representative of the other for any purpose, and no such
Party has any power or authority to represent, act for, bind, or otherwise
create or assume any obligation on behalf of the other Party for any purpose
whatsoever.
21. Choice of Laws. This Agreement shall be governed by the laws of the State
--------------
of California, and any question arising hereunder shall be construed or
determined according to such law.
22. Authorization. Each of the signers below represent they are duly
-------------
authorized and fully empowered to enter into this Agreement, and have received
any and all required board of directors resolutions, shareholder resolutions,
regulatory approvals and other approvals.
23. Entire Agreement. This Agreement contains all of the agreements of the
----------------
parties hereto with respect to the matters contained herein. No prior agreement
or understanding pertaining to any such matter shall be effective for any
purpose. No provision of this Agreement may be amended or modified in any
manner whatsoever except by an agreement in writing by each of the parties
hereto.
24. Issuance of Shares of eCommercial.com to LMC. In full consideration for
---------------------------------------------
entering into this Agreement and for services previously provided by LMC,
eCommercial.com hereby agrees to issue Thirty Thousand (30,000) shares of common
stock to LMC. The eCommercial.com shares shall be issued to LMC within 7
calendar days from the date of this Agreement.
25. eCommercial.com Board of Directors. LMC may, but is not required to,
----------------------------------
participate as an unpaid, non-voting observer to eCommercial.com's Board of
Directors.
Page 5 of 5
<PAGE>
In witness whereof, the parties have signed this Agreement as of the date first
set forth above.
ECOMMERCIAL.COM, INC. LOCKHEED MARTIN CORPORATION
___________________________________ _____________________________________
By: Eric McAfee By: Gary P. Mann
Title: Executive Vice President Title: President,
and Director Integrated Business Solutions
Date: __________________________ Date: _____________________________
Page 6 of 6
<PAGE>
EXHIBIT 23.1
We have issued our report dated October 25, 1999, accompanying the financial
statements of eCommercial.com, Inc. and subsidiary contained in the Registration
Statement and Prospectus. We consent to the use of the aforementioned reports in
the Registration Statement and Prospectus, and to the use of our name as it
appears under the caption "Experts".
Grant Thornton LLP
Reno, Nevada
November 29, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF SEPTEMBER 30, 1999 AND THE STATEMENT OF OPERATIONS FROM INCEPTION
(MARCH 31, 1999) TO SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> MAR-26-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,744,741
<SECURITIES> 0
<RECEIVABLES> 25,500
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,894,143
<PP&E> 994,799
<DEPRECIATION> 58,463
<TOTAL-ASSETS> 6,886,141
<CURRENT-LIABILITIES> 2,543,090
<BONDS> 0
0
1,086
<COMMON> 9,537
<OTHER-SE> 4,332,428
<TOTAL-LIABILITY-AND-EQUITY> 6,886,141
<SALES> 6,250
<TOTAL-REVENUES> 6,250
<CGS> 0
<TOTAL-COSTS> 2,313,470
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,282,946)
<INCOME-TAX> 1,600
<INCOME-CONTINUING> (2,284,546)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,284,546)
<EPS-BASIC> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
