INCUBATION SERVICES AGREEMENT
This INCUBATION SERVICES AGREEMENT ("Agreement") is made and entered into on
June 16, 2000 (the "Effective Date") by and between Sullivan Park LLC, a
California limited liability company and wholly owned subsidiary of
VirtualSellers.com, Inc., an Illinois corporation (the "Company"), and
LitOptions.com, Inc., a Delaware corporation (the "Client").
WHEREAS, the Company provides business and technology incubation services,
including business development, strategic and corporate finance advice and the
design, development, hosting and maintenance of websites for use on the World
Wide Web portion of the Internet; and
WHEREAS, the Client wishes to engage the Company to provide its services to
the Client in accordance with the terms and conditions set forth in this
Agreement; and
WHEREAS, in exchange for receiving the Company's services, the Client
wishes to offer the Company an equity interest in the Client as more
particularly described in this Agreement (as hereinafter defined, the
"Securities") as well as monetary compensation; and
WHEREAS, the offering of the Securities has not and will not be registered
with the Securities and Exchange Commission (the "SEC") under Section 5 of the
Securities Act of 1933, as amended (the "Securities Act"), in reliance upon, as
the case may be, one or more exemptions afforded by the Securities Act and/or
the Rules and Regulations promulgated by the SEC thereunder which may be
selected by the Client in its sole discretion (collectively and severally, the
"Federal Exemptions"); and
WHEREAS, the offering of the Securities has not and will not be registered
or qualified, as the case may be, with any state or territorial securities
regulatory agency in reliance upon exemptions from registration or qualification
(collectively and severally, the "State Exemptions") afforded by the securities
laws of the state or territory the Client resides in; and
WHEREAS, in connection with the offer and sale of the Securities, the
Client desires to document certain facts pertinent to the Client's records,
including that the offer and sale of the Securities to Contractor complies with
the requirements of the Federal Exemptions and the State Exemptions which Client
elects to rely upon (collectively and severally, the "Applicable Securities
Exemptions").
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby mutually acknowledged, the parties to this
Agreement (hereinafter collectively, "parties" and individually, a "party")
agree as follows:
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1. Certain Definitions. The following capitalized terms, as used
herein, have the following meanings.
"Beta Client Website" has the meaning assigned to it in Schedule A hereto;
"Business Development Services" has the meaning ascribed to it in Section
5(a) hereto;
"Business Plan" means the Client's business plan pursuant to the business
plan deliverable as indicated in Section 6(a) hereto;
"Business Plan Revision" means the revised version of the Business Plan
accepted by the Client as indicated in Section 6(a) hereto;
"Client Content" means all works that are the subject matter of
intellectual property rights owned, controlled, or licensed by the Client and
that the Client approves for use or inclusion in the Client Website,
Database (as defined in Section 3(b) hereto) or other Deliverable (as defined in
Section 6(a)(i) hereto), including but not limited to any and all concepts,
ideas, graphics, photographs, sound recordings, audiovisual works, software,
musical compositions, literary material, trademarks, service marks, trade names,
logos, and other proprietary designations, but does not include any Third Party
Materials (hereinafter defined);
"Client Website" means the Internet website and all underlying elements
thereof, including Software and Content, designed and developed by Company for
the Client pursuant to the Website Specifications;
"Content" includes all text, images, video audio and other elements that
are available to be viewed by browsers of the Client Website, including Client
Content;
"Database" has the meaning ascribed to it in Section 3(b) hereto;
"Database Services" has the meaning ascribed to it in Section 3(b) hereto;
"Development" means all of the Client Website development services under
this Agreement, including Website Development Services, Database Services and
Business Development Services;
"Escrow Agreement" means the agreement for the escrow of the Securities for
dispersal under the terms of Section 7(e) and attached in its entirety as
Schedule D hereto;
"Final Business Plan" means the professional, finalized version of the
Business Plan accepted by the Client as indicated in Section 6(a) hereto;
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"Final Client Website" means the final Client Website pursuant to the
Specifications in Schedule A hereto;
"Final Specification" means the Functional Specification, Technical
Specification, and all other relevant documentation that describes the full
scope of the Services to be rendered hereunder;
"Functional Specification" means a formal, functional blueprint that
describes the software system required to build and implement the Client
Website, as well as the user interface for the Client Website;
"Funding" means receipt of capital investment from one or more sources in
satisfaction of capital requirements as specified in the Final Business Plan;
"Host Services" means the hosting of the Client Website on the Host Site;
"Host Site" means the on-line server location, software and communications
equipment required to provide the technical infrastructure for hosting the
Client Website;
"Intellectual Property Rights" means all patents, patent applications and
registrations, trade-marks, trade-mark applications and registrations,
copyrights, copyright applications and registrations, domain names and domain
name registrations, uniform resource locators, Trade Secrets, trade names and
industrial designs, domestic or foreign, whether arising by statute or common
law;
"Key Fields" means the subject boxes that are located on the Database's
data entry screen that require manual or automatic entering of data before being
submitted into the Database's archive;
"Maintenance Services" has the meaning ascribed to it in Section 4(a)
hereto;
"Pre-existing Materials" means technical information related to computer
software technology in any form which is identified in the Final Specification
that the Company has developed prior to the Effective Date;
"Residuals" means technical information related to computer software
technology in non-tangible form, which may be retained in the unaided memory of
persons who have had access to one or more Deliverables, the Client Website or
the Specifications, including ideas, concepts, know-how or techniques contained
therein, which do not specifically relate to business requirements and
confidential information of Client and/or Client Website, but have other,
general applications;
"Services" means the Business Development Services, Database Services, Host
Services and Website Development Services;
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"Software" means all computer software programs that are necessary to
operate or that are incorporated into the Client Website, including all source
code, object code, compilers, libraries, tools and user interfaces;
"Specifications" means those specifications for the Client Website more
particularly set forth in Schedule A hereto;
"Stock Assignment" means the agreement for the assignment of the Securities
into escrow under the terms of Section 7(e), pursuant to the Escrow Agreement,
and attached in its entirety as Schedule E hereto;
"Technical Specification" means the formal technical description of the
software and hardware system, including network infrastructure and Database
Services that are required to develop and implement the Client Website, which
includes a precise definition of the lay-out of the system structure, and the
relational dynamics between the relevant hardware, software and Internet
connectivity required for the Client Website;
"Trade Secrets" means information that is used or may be used in business
or for any commercial advantage, derives independent economic value, actual or
potential, from not being generally known to the public or to other persons who
can obtain economic value from its disclosure or use, is the subject of
reasonable efforts to prevent it from becoming generally known, and the
disclosure of which would result in harm or improper benefit; and
"Website Development Services" has the meaning ascribed to it in Section
3(a) hereto.
2. Term and Termination
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a. This Agreement commences on the Effective Date and shall
continue in full force and effect for a period of one year thereafter (the
"Initial Term"), unless sooner terminated in accordance with the provisions
hereof.
b. This Agreement may be terminated as follows: (i) at any time
upon agreement between the parties in writing; (ii) by the Client without cause
upon giving not less than 90 days written notice to the Company, together with
payment of any outstanding Fees (hereinafter defined) and an amount equal to all
Fees that shall, in the ordinary course of the Agreement, become due and payable
by the Client during the period after delivery of such notice and the effective
date of termination specified therein; (iii) by either party at any time without
prior notice to the other party if the other party is in breach or default of
any of its covenants, obligations or agreements hereunder, which breach or
default continues for a period of ten (10) days following written notification
from the nondefaulting party of such breach or default and such breach or
default has not been fully and effectively remedied within such ten (10) day
period; or (iv) by the Company at any time without prior notice to the Client if
the Client becomes bankrupt or if a receiver or
<PAGE>
receiver-manager is appointed over the Client or its assets or if the Client
makes any proposal to its creditors or is otherwise insolvent or ceases carrying
on business.
c. Upon the effective date of termination or expiration of this
Agreement for any reason, without prejudice to any other rights which the
parties may have, and subject to the provisions of this Section: (i) the
Company shall immediately discontinue the delivery of all Deliverables
(hereinafter defined) and Business Development Services under this Agreement;
(ii) the Company shall retain the Fees (hereinafter defined) and all other
payments made to it up to the effective date of termination as payment in full
in respect of the Business Development Services in which such payments were
made; (iii) the Company shall retain the Securities free and clear of any claim
by the Client or any of its directors, officers or other shareholders; and (iv)
if and only if the Company is not the defaulting party, the Client shall pay to
the Company the full amount of any outstanding Fees and expenses as well as such
other expenses reasonably incurred by the Company arising from the termination,
including charges that the Company incurs in terminating subcontracts. Upon
payment in full of all monies owing to it under this Agreement, the Company
shall deliver to the Client free and clear of any and all encumbrances an
electronic copy of all Deliverables completed or under development as at the
effective date of termination.
d. If the Company is providing Maintenance Services and Host
Services at the effective date of termination, then it shall use reasonable
efforts to identify and assist the Client in acquiring a license or other right
to use software that will enable the Client to continue the operation of the
Client Website apart from the Host Site (such efforts are herein called
"Transition Assistance"), except that the Company does not represent or warrant
or covenant that the Client Website will continue to function uninterrupted
during the transition from the Host Site or that such other software will
provide the same level of functionality as the Client Website was able to
achieve while on the Host Site. As part of its Transition Assistance, the
Company will use reasonable, good faith efforts to negotiate a non-exclusive,
limited license for the Client to continue the use of any Pre-existing Materials
(or a portion thereof) integrated into or forming part of the Client Website on
the effective date of termination, solely in connection with the Client Website
and for no other purpose. If the Company is providing Maintenance Services and
Host Services at the effective date of termination, then for a period of ninety
(90) days following the termination of this Agreement, it shall use reasonable
efforts to provide Maintenance Services and Host Services to enable the Client
to maintain the capability of the Client Website to effect electronic commerce
transactions, provided that the Company does not represent or warrant or
covenant that the Client Website will continue to have such functionality or
ability during such ninety (90) day period. If the Company provides such
Services to the Client during such ninety (90) day period, then the Client will
pay for such Services at the Company's then-current commercial rates for
providing same.
3. Website Development Services and Database Services
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<PAGE>
a. The Client engages the Company as an independent contractor to
design, develop, host and maintain the Client Website, as more particularly
described in Schedule A, attached hereto and incorporated herein by reference
(the "Website Development Services"). The Client Website shall be designed in
such a way to ensure that it is portable to another host if the Client decides
at any time to use a hosting service other than the Company. The Client Website
shall conform to the functional specifications provided by the Company and
approved by the Client as described in Schedule A.
b. The Company shall develop a database application, which will be
used in connection with the Client Website for purposes of collecting and
storing content contributed to the Client Website, as more particularly
described in Schedule A (the "Database" or "Database Services," as appropriate).
c. The Company's performance of the Website Development and
Database Services shall be subject to the Client's approval, as set forth in
Section 6(a).
4. Maintenance Services and Hosting Services
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a. During the Term of this Agreement, the Company shall provide
maintenance services for the Client Website, as described in Schedule A (the
"Maintenance Services"). At a minimum, Maintenance Services shall include (i)
hosting of one mirrored image of the Client Website on a backup server, supplied
with backup power supply, for use in the even of a server crash, power outage,
maintenance, service or other improvements; (ii) updating the Client Website
promptly after delivery of new Content by the Client and promptly deleting any
content as the Client directs; (iii) providing monthly usage reports as
described more fully below; (iv) monitoring search engines to determine the
level of activity on the Client Website; and (v) using reasonable efforts to
promptly correct any errors, defects, bugs, viruses, design flaws or other
malfunctions in the Client Website. The Client acknowledges and agrees that,
despite the use of reasonable efforts by the Company, it may not be possible to
correct any or all errors, defects, bugs, viruses, design flaws or other
malfunctions in the Client Website.
b. During the Term of this Agreement, the Company shall provide to
the Client on a monthly basis usage reports that include, at a minimum: (i)
total number of hits to the Client Website's homepage; (ii) total number of hits
on all Client Website pages; (iii) total number of impressions and
click-throughs for various services; (iv) aggregate statistical and demographic
consumer activity information, including, by way of example, but not limitation,
data on genres of interest to aggregated subscribed groups; and (v) to the
extent subright-holder searches are conducted on the Client Website, total
number of subright-holder searches abandoned and completed.
c. Additionally, the Company will effectuate the registration of
the domain name(s) for the Client Website as set forth in Schedule B (the
"Domain Name Registration(s)") unless the domain name(s) have already been
registered by the Client, in which case the Client will work with the Company to
appropriately transfer the domain name(s) to the Host Site. The Client shall
<PAGE>
pay the third party fees due to the domain name registries for Domain Name
Registration(s) to be effectuated under this Section 4(c) and maintained
throughout the Term.
5. Business Development Services
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a. The Company hereby agrees to provide the Client with consulting
services including business development, strategic and corporate finance advice,
as more particularly described in Schedule C, attached hereto and incorporated
herein by reference (the "Business Development Services"). In accordance with
Schedule C and to the degree that such Schedule C does not include deadlines for
deliveries on certain Business Development Services, Business Development
Services will be undertaken by the Company on an ad hoc basis pursuant to the
instructions of the Client from time to time provided to and agreed upon in
writing the Company.
b. It is understood and agreed that the Company's Business
Development Services may include advice and recommendations, but all decisions
made in connection with the implementation of such advice and recommendations
shall be the responsibility of, and made by the Client.
6. Performance of Services
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a. Website Development and Other Services
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(i) The Company shall deliver: (1) the Functional
Specification by July 7, 2000; (2) the Business Plan Revision by July 14, 2000;
(3) the Technical Specification by July 21, 2000; (4) the Final Specification by
July 28, 2000; (5) the Final Business Plan by July 28, 2000; (6) the Beta Client
Website by August 11, 2000; and (7) the Final Client Website by August 25, 2000
(and together with the Functional Specification, the Business Plan Revision, the
Technical Specification, the Final Specification, the Final Business Plan, and
the Beta Client Website, the "Deliverables"). The Client shall have the right
to review and approve each Deliverable in accordance with this Section 6(a).
Such review and approval shall be for the sole purpose of determining whether a
Deliverable complies with the respective requirements for such Deliverable
contained in the Business Plan, and in any applicable specifications and
functions as expected. Approval shall be granted in the Client's sole
discretion, which shall not be unreasonably withheld.
(ii) The Company shall provide the Client's designated
representative written notice of completion upon delivery to the Client of a
Deliverable. The Client shall complete its review of a Deliverable in not more
than five (5) business days after delivery thereof to the Client (the "Review
Period") and shall, within the Review Period, provide either: (i) approval of
the Deliverable or (ii) a written statement identifying in reasonable detail,
with reference to the requirements of applicable specifications, deficiencies in
such Deliverable (collectively, the "Deficiencies"). Notwithstanding the
foregoing, approval of a Deliverable shall be deemed given if the Client has not
<PAGE>
provided its approval or notice of Deficiencies in writing for such Deliverable
within the Review Period (or any applicable subsequent Review Period in the case
of a Deficiency). The parties agree that timely performance with respect to the
Review Period is critical to enable them to meet their respective schedules and
commitments in this Agreement.
(iii) The Company shall have ten (10) business days after
receipt of the Company's statement of Deficiencies to correct such Deficiency;
provided, however, that to the extent that a Deficiency is not capable of being
corrected within ten (10) business days, the Company shall prepare and deliver a
remedial plan for approval by the Client, which approval shall not be
unreasonably withheld (the "Remedial Plan"). The Client shall have ten (10)
business days after delivery of the modified and corrected Deliverable to
complete a review of the modifications and corrections made in response to the
statement of Deficiencies and to notify the Company in writing of acceptance or
rejection of the Deliverable in the manner set forth above. In the event that a
Deficiency is not corrected within a reasonable period of time, in addition to
seeking any other remedies available to the Client, the Client may terminate
this Agreement, and the Company shall promptly refund to the Client an amount
equal to that portion of any fee paid to the Company with respect to the
development of the Deliverable giving rise to the Deficiency.
(iv) Notwithstanding the foregoing provisions of this Section
6(a), the Company shall not be responsible for any Deficiency in a Deliverable
to the extent such Deficiency is contributed to by the Client or by third
parties (excluding the Company's independent contractors or others acting on
behalf of the Company).
(v) The Company shall be entitled to rely upon any approval
(or deemed approval) by the Client for purposes of all subsequent stages of the
Company's performance under the Agreement.
(vi) "Final Acceptance" shall occur on the date that the
Client provides the Company written notice of such acceptance, which shall be
provided within five (5) business days of the date on which the Company submits
to the Client's designated representative written notice that the Deliverables,
as a whole, fully comply with the applicable specifications. Final Acceptance
shall be deemed given if the Client has not provided its approval or notice of
Deficiencies in writing for such Deliverable within the Review Period (or any
applicable subsequent Review Period in the case of a Deficiency).
b. Business Development Services. In addition to the
representations and warranties provided in Section 14, the Company represents
and warrants that all Business Development Services provided hereunder shall be
performed in a professional and workmanlike manner. All Business Development
Services to be rendered hereunder shall be deemed accepted by the Client unless
the Client provides written notice of rejection to the Company within thirty
(30) days of performance. If, during the term hereof, the Client believes that
there is a breach of the foregoing warranty, the Client will notify the Company,
<PAGE>
in writing, setting forth the nature of such claimed breach. The Company shall
promptly investigate such claim of breach and advise the Client of the Company's
planned corrective action, if any. If the Company determines in good faith that
there has been a breach, then it shall promptly cure such breach by providing
additional Business Development Services or taking such other action as may be
reasonably required to correct such breach of warranty at no additional charge
to the Client. If the Company is unable to correct any such breach of the
foregoing warranty within thirty (30) days after notice of such breach, the
Client shall be entitled, at its option, to a refund or credit of professional
fees paid to the Company with respect to the Business Development Services
giving rise to such breach. The foregoing remedy shall be the only remedy of
the Client in the event of a breach of the representations and warranties
contained in this Section.
c. The Company Personnel. The Company shall designate the
personnel to perform the Business Development Services subject to the Client's
approval, which approval shall not be unreasonably withheld. The Client may
reasonably request removal of any employee or subcontractor of the Company and
in such event, the Client shall provide notice thereof to the Company specifying
in reasonable detail the basis of the request and in the even that the Client
wishes the Company to provide a replacement employee, the Company will use
commercially diligent efforts to provide a replacement as soon as reasonably
practicable. The Client shall not unreasonably or unlawfully invoke its rights
hereunder.
d. Subcontracting. The Website Development Services, Database
Services and Maintenance Services to be rendered hereunder shall be performed by
the Company, but such Services may be subcontracted to and performed by third
parties on behalf of the Company without prior written consent of the Client;
provided, however, that nothing herein shall relieve the Company of its
obligations hereunder.
7. Issuance of Securities to Contractor as Partial Compensation
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a. Subject to the Company executing and delivering this Agreement,
and as compensation for performance of the Services hereunder, the Client shall
authorize and issue 162,105 shares of common stock of the Client, $0.0001 par
value (the "Securities") to the Company.
b. The Company recognizes that the Securities will not be
registered under the Securities Act or registered or qualified under the
securities laws of any state or other jurisdiction, the transfer of the
Securities will be restricted under such laws, and the Securities cannot be sold
except pursuant to an effective registration statement under such laws or in
reliance upon Applicable Securities Exemptions. Each certificate representing
the Securities shall bear the following legend in addition to any other legend
that may be required from time to time under applicable law or pursuant to any
other contractual obligation:
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR QUALIFIED UNDER
APPLICABLE STATE SECURITIES LAWS AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES
ONLY AND NOT WITH A VIEW TO OR FOR SALE OR TRANSFER IN CONNECTION WITH ANY
DISTRIBUTION THEREOF. NO SALE OR TRANSFER OF THE SECURITIES MAY BE MADE EXCEPT
(A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT; OR (B)
PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION AND QUALIFICATION
REQUIREMENTS UNDER APPLICABLE STATE SECURITIES LAWS WITH RESPECT TO WHICH
LITOPTIONS.COM, INC. MAY, UPON REQUEST, REQUIRE AN OPINION OF COUNSEL FOR THE
HOLDER IN FORM AND SUBSTANCE SATISFACTORY TO LITOPTIONS.COM, INC. THAT SUCH
TRANSFER IS EXEMPT FROM THE REQUIREMENTS OF THE ACT AND APPLICABLE STATE
SECURITIES LAWS.
c. The Company agrees that for so long as the Company holds any
Securities issued to it pursuant to this Agreement and is otherwise permitted
under the terms and conditions of this Agreement, if the Company receives
a bona fide offer from a third party to purchase any of the Securities held
by the Company, then the Company will promptly give the Client written
notice of the terms and conditions of such offer, including information
regarding the amount of shares proposed to be transferred, the proposed
transfer price, the proposed transferee and any other material terms of the
offer (the "First Notice"). The Client shall notify the Company in writing
within forty-five (45) days of receipt of the First Notice whether or not it
will agree to purchase all or a portion of the Common Stock at the same price
and upon the same terms and conditions as contained in the First Notice. If the
Client does not exercise the option to purchase all or a portion of the Common
Stock offered by the Company at the price set forth in the First Notice then the
Company shall be entitled for a period of sixty (60) days beginning on the
earlier of (x) the third day after the last day for giving notice of exercise
by the Client or (y) the date that the Company shall have received written
notice from the Client that the Client does not intend to exercise the option
granted pursuant to the First Notice, to enter into a definitive agreement
with such third party to transfer the remaining Securities held by the Company
on the same terms and conditions contained in the First Notice. If the Client
does not exercise its option to purchase all of the Common Stock on the terms
and at the price set forth in the First Notice, and the Company shall not have
transferred all of its Common Stock for any reason before the expiration of the
sixty (60) day period described above following the First Notice, then the
Client may not transfer any Securities unless all of the provisions of this
Section 7(c) are again complied with.
d. The Company agrees to comply in all respects with the
provisions of this Section 7. Prior to any proposed sale, assignment, transfer
or pledge of any Securities, unless there is in effect a registration statement
under the Securities Act covering the proposed transfer, the holder thereof
shall give written notice to the Client of such holder's intention to effect
such transfer, sale, assignment or pledge and no holder shall be permitted to
transfer, sell, assign or pledge any Securities unless the proposed transferee
provides written confirmation to the Client stating such transferee agrees to be
<PAGE>
bound by this Section 7. Each such notice shall describe the manner and
circumstances of the proposed transfer, sale, assignment or pledge in sufficient
detail, and shall be accompanied, at such holder's expense and at the reasonable
discretion of the Client, an unqualified written opinion of legal counsel whose
legal opinion shall be reasonably satisfactory to the Client, and addressed to
the Client, to the effect that the proposed transfer of the Securities may be
effected without registration under the Securities Act or registration or
qualification under state securities laws in reliance upon Applicable Securities
Exemptions. Each certificate evidencing the Securities transferred as above
provided shall bear the appropriate restrictive legend set forth in Section 7(b)
above, except that such certificate shall not bear such restrictive legend if in
the opinion of counsel for the Client such legend is not required in order to
establish compliance with any provision of the Securities Act.
e. The Company is being issued the Securities under this Section 7
which shall vest according to the following vesting schedule:
(i) 54,035 shares of the Securities upon the Effective Date of this
Agreement.
(ii) 54,035 shares of the Securities upon the Client's acceptance and
approval of the completed Functional Specification and the Final Business Plan,
such acceptance and approval to be given in accordance with Section 6(a) of this
Agreement.
(iii) 54,035 shares of the Securities upon the Client's Final
Acceptance, such Final Acceptance to be given in accordance with Section 6(a) of
this Agreement.
The Company shall deliver a share certificate representing the Securities
described in paragraph (i) above within five (5) days after the date of this
Agreement. The Securities described in paragraphs (ii) and (iii) above shall be
placed in escrow pursuant to the terms of the Escrow Agreement attached hereto
as Schedule D and the Stock Assignment attached hereto as Schedule E, which
Escrow Agreement shall provide that the Securities shall be released from escrow
as they vest, subject to the terms and conditions of the Escrow Agreement and
Stock Assignment. Notwithstanding the foregoing, if this Agreement is
terminated for any reason prior to the vesting of the Securities described in
paragraphs (ii) and (iii) above other than a termination by the Client
pursuant to Section 2(b)(iii), then such Securities shall vest, and shall be
released from escrow, on the effective date of termination. If this Agreement
is terminated by the Client pursuant to Section 2(b)(iii) prior to the vesting
of any of the Securities described in paragraphs (ii) and (iii) above, then
such unvested Securities will not vest and the Client will have the right to
exercise its rights under the Escrow Agreement.
8. Additional Compensation.
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a. As further compensation for the Services to be rendered by the
Company hereunder, the Client shall pay to the Company, in five (5) installments
during the Term, a fee of $150,000.00 as follows (the "Fees):
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(i) $25,000.00 upon the Effective Date of this Agreement.
(ii) $25,000.00 upon the Client's acceptance and approval of the
completed Functional Specification and the Final Business Plan, such acceptance
and approval to be given in accordance with Section 6(a) of this Agreement.
(iii) $25,000.00 upon the earlier of September 15, 2000 or Final
Acceptance given by the Client to the Company, such Final Acceptance to be
effected in accordance with Section 6(a) of this Agreement.
(iv) $50,000.00 on December 15, 2000.
(v) The final $25,000.00 on the March 16, 2001.
b. Late Payment; Interest. Without limiting its rights and
remedies, the Company shall have the right to suspend or terminate all or any of
the Services if payment is not received on Fees past due in accordance with
Section 8(a) hereof which are not the subject of a good faith dispute provided
that the Company provides the Client at least ten (10) business days notice of
the Company's intent to exercise its rights under this Section 8(b) (the "Late
Fees"). Any Late Fees will bear interest at the rate of 1.5% per month (19.56%
per annum) from the due date for payment until the date of payment in full. The
Client will be responsible for all interest, assessments and penalties imposed
on the Company as a result of the Client failing to pay any Fees due in
accordance with Section (a) hereof and not subject of a good faith dispute.
c. No Set-off. The Client will have no right to set-off or deduct
any amount from any Fees.
d. Taxes. The Client will pay or reimburse the Company for all
sales, use, transfer, privilege, excise and all other taxes and all duties,
whether international, national, state or local, however designated, which are
levied or imposed by reason of the performance of the Services under this
Agreement, excluding, however, income taxes on profits which may be levied
against Company.
e. No Expenses. The Client is under no obligation to reimburse or
pay the Company for any expenses incurred in performing the Services under this
Agreement unless the Company first obtains prior written approval for
reimbursement or payment of said expenses from the Client.
9. Rights and Licenses in Intellectual Property.
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a. Third Party Materials. The Company agrees that it shall not
include in any Deliverable any computer programs or other content or material
owned by third parties ("Third Party Materials") without documentation
satisfactory to the Client evidencing the Company's rights with respect to such
Third Party Materials. All licenses to Third Party Materials obtained by the
Company shall be without restriction, in writing and at no cost to the Client.
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b. Ownership and Transfer of Intellectual Property.
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(i) Except for any Pre-existing Materials and/or Third Party
Materials incorporated into any Deliverable, all right, title and interest in
and to any Intellectual Property produced, developed, designed, delivered,
created or contributed by the Company to the Client in connection with the
provision of any Services under the terms of this Agreement shall be the
exclusive property of the Client so long as the Client has made all required
payments under this Agreement in accordance with Section 8.
(ii) "Intellectual Property" includes, without limitation, all HTML
and/or Java programming/formatting code and files, any server or other source
code developed by the Company in connection with the performance of its Services
hereunder, graphics files, animation files, data files, technology, scripting
and programming, all documentation (in printed and electronic format), ideas,
innovations (whether patentable or not), concepts, computer software,
interfaces, designs, text, plans and other copyrightable material that are
created or developed by the Company and delivered to the Client in accordance
with the terms and conditions of this Agreement or any derivative work thereof.
(iii) Transfer of Title. Company retains all right, title
and interest in and to all Deliverables to be provided to the Client under this
Agreement until Company has received full payment of all amounts owing to it
with respect thereto. Upon receipt of full payment for each Deliverable, but
subject to Section 9(b)(iv), Company will, and hereby does, transfer to the
Client all of its right, title and interest in and to that Deliverable,
including: all of its rights of copyright arising in respect of that
Deliverable throughout the world; the right to sue for past infringement
thereof; and all other rights therein of every kind now or hereafter known or
recognized, including the right to use for any purpose the ideas, concepts,
know-how, techniques and computer software technology used in the development of
that Deliverable, but excluding any right, title or interest in any Confidential
Information and any Pre-existing Materials.
(iv) Residuals. Notwithstanding any other provision of this
Agreement, Company shall be free to use for any purpose the Residuals resulting
from access to or work with the Deliverables, the Client Website and the Website
Specifications. The Company will have no obligation to limit or restrict the
assignment of any of its personnel or to pay royalties for any work resulting
from the use of such Residuals. The Client acknowledges and agrees that the
Company is in the business of designing and hosting websites and that, as such,
nothing in this Agreement will limit or prevent Company from entering into
similar agreements as this Agreement or from designing, developing or
maintaining products or from providing any services that are similar to or that
are competitive with the Website Specifications, the Client Website or any
Services or Deliverables. This Section 9(b) does not: (a) grant any license
under any copyrights or patents of the Client; or (b) effect the nondisclosure
requirements of either party under Section 10 of this Agreement.
<PAGE>
(v) The Company agrees that except for any Third Party Materials,
the Deliverables shall be works made for hire. If any part of the Deliverables
cannot be considered a work made for hire, then and in such event, the Company
hereby assigns, except as noted at the beginning of this sentence and except for
the Company's rights under Section 9(b)(iv) above, all right, title and interest
in and to the Deliverables to the Client and further agrees to execute such
documents as the Client may reasonably request to evidence the Company's
ownership of all works pursuant hereto. If the Company subcontracts any work
from independent contractors, the Company will obtain a similar written
assignment to the Client of all rights in any copyrights and other proprietary
rights in all work those parties contribute to the Services created and
performed pursuant to this Agreement.
c. License to the Client Content. Client hereby grants to the
Company a limited, non-exclusive, non-transferable royalty-free license to use
the Client Content for the Term of this Agreement solely for the purpose of
designing and developing the Client Website, Database and any other Deliverables
pursuant to this Agreement. The Company will comply with the terms and
conditions of any clearances and licenses of the Client Content of which the
Company is informed by the Client. The Company may make copies of the Client
Content only as necessary to perform its obligations under this Agreement, and
the Client retains all rights not expressly conveyed to the Company hereunder.
d. License to the Pre-existing Materials. Company hereby grants to the
Client a limited, non-exclusive, non-transferable, royalty-free license to use
the Pre-existing Materials for the Term of this Agreement to the extent that
such Pre-existing Materials are incorporated into the Client Website, Database
and any other Deliverables, as well as the Host Site pursuant to this Agreement.
Company reserves for itself all rights in and to the Pre-existing Materials not
expressly granted to the Client in the immediately foregoing sentence. In no
event will the Client use any trademarks or other marks of Company without the
written consent of Company. Except for any transfer pursuant to Section 2(d)
hereof, the transfer or attempted transfer of the Client Website to any host
server other than the Host Site will automatically terminate the foregoing
license.
e. Servicemark Notice. The Company will cause the following
servicemark notice (or any other notice as the Client directs) to be displayed
on the home page of the Client Website: "Servicemark sm 2000. LitOptions.com,
Inc. All Rights Reserved."
10. Confidentiality.
---------------
a. During the Term, one party may receive or have access to
confidential information of the other party, including the operations, plans,
software, technical processes and formulas, source codes, product designs,
sales, costs and financial information, advertising revenues, relationships,
projections, marketing data, advertising relationships and usage rates
(collectively, the "Confidential Information"). Such Confidential Information
<PAGE>
includes Trade Secrets of the parties and any verbal, written, electronic or
other communications, but does not include information which at the time of
disclosure is in the public domain.
b. Each party will hold all Confidential Information of the other
received by it or to which it has access in confidence and will not use any such
Confidential Information for any purpose, disclose any such Confidential
Information to any third party, reproduce any such Confidential Information or
retain any such Confidential Information or copies thereof in any form or
medium, all without the express prior written consent of the other party, unless
and until such Confidential Information (i) has become public knowledge through
legal means without fault by the disclosing party, or (ii) is already public
knowledge prior to the Effective Date of this Agreement.
c. Each party acknowledges and agrees that the other party's
Confidential Information constitutes valuable proprietary property of and that
the other party will suffer irreparable harm if unauthorised third parties
access or use the Confidential Information or if either party or its employees
access or use the Confidential Information of the other party in violation of
this Agreement.
d. Each party agrees that if any of the Confidential Information
is disclosed or used in breach of this Agreement, then the nondisclosing party
will have, in addition to any other remedies available, the right to injunctive
relief (including interlocutory injunctive relief) enjoining such action and the
disclosing party agrees that remedies other than injunctive relief are
inadequate to protect the nondisclosing party's rights.
11. The Client Responsibilities.
-----------------------------
a. In connection with the performance of Services by the Company,
the Client will: (i) designate one representative of the Client as a project
manager for each project comprising the Services, who will be the Company's
primary point of contact for all questions and issues relating to such project;
(ii) provide such information and data of the Client as is reasonably necessary
to enable the Company to perform its obligations hereunder; and (iii) perform
such other duties and tasks as may be specifically identified in any Schedule as
the obligations of the Client.
b. The Client acknowledges and agrees that the Company will have
no liability for any failure to perform its obligations under this Agreement in
a timely manner to the extent such failure was caused by the Client not
performing its obligations under this Agreement.
12. The Company's Responsibilities. In connection with providing the
Services, the Company will: (a) designate one representative of the Company as a
project manager for each project comprising the Services, who will be the
Client's primary point of contact for all questions and issues relating to such
<PAGE>
project; and (b) once every two (2) weeks during the course of this Agreement,
provide the Client with a written report briefly describing the status of the
Services.
13. The Client's Representations and Warranties.
-----------------------------------------------
a. Intellectual Property. The Client represents and warrants
that: (i) the Client owns all Client Content or otherwise has the right to
place the Client Content on the Client Website; the Client has obtained
authorization for hypertext links from the Client Website to other third party
websites, as necessary; (iii) the use, reproduction, distribution, support
and/or maintenance of the Client Content as contemplated herein by the Client
does not and will not constitute infringement of the Intellectual Property
Rights or any other proprietary rights of any other party; (iv) the Client
Content provided by the Client does not and will not contain any libelous or
defamatory statements and will not constitute a breach of any rights of privacy
or publication of any other party and will not contravene the laws or
regulations of any jurisdiction; and (v) the electronic version of the Client
Content provided by the Client will be free of any computer viruses, worms or
other such electronic devices that may cause the failure of computer hardware
and software, at the time of delivery to Company.
b. Authority. The Client further represents and warrants that it
has full power and authority to enter into this Agreement and to fulfill its
obligations hereunder.
c. Securities. The Client represents and warrants to the Company
that (i) the Client is relying on Section 4(2) of the Securities Act in
connection with the issuance of the Securities to the Company hereunder, and
(ii) upon issuance to the Company, the Securities will be fully paid and
non-assessable and will be free and clear of any lien, claim, charge,
encumbrance or security interest arising by or through the Client, except for
the escrow and stock assignment provisions with respect thereto contained in
this Agreement.
14 The Company's Representations and Warranties.
------------------------------------------------
a. Technology. The Company represents and warrants that in
performing the Services it will utilize technology consistent with the
prevailing standards exercised by nationally recognized website development,
website hosting and website consulting firms. The Company further represents
and warrants that: (i) the Website Development Services and Database Services
shall conform substantially with the relevant and referenced terms and schedules
of this Agreement; (ii) the Company will be the sole creator of the Client
Website and Database, except for those graphics, data and other components
supplied to the Company by the Client or Third Party Materials supplied in
accordance with Section 9(a) above or supplied by any subcontractor engaged in
accordance with Section 6(d) hereof; (iii) the Company's contributions to the
Client Website or the Database and the Company's activities in developing and
maintaining the Client Website and Database shall not infringe or violate any
third party's Intellectual Property Rights; and (iv) the Company shall use
<PAGE>
reasonable commercial efforts to ensure that the Client Website shall be
accessible on a continuous, unlimited basis.
b. Compliance with Laws. The Company represents and warrants that
it will comply with all applicable laws, ordinances, rules and regulations
(federal, state, local or agency) of the United States of America affecting the
Services contemplated by this Agreement, including but not limited to, special
regulations regarding the Internet and World Wide Web as may be promulgated from
time to time. The Company further represents and warrants that it will utilize
the highest professional standards in the industry, including the highest level
of encryption used in the Company's field to prevent piracy or other
misappropriation of the Deliverables and Content.
c. The Securities.
---------------
(i) The Securities will be acquired for investment for the
Company's own account, and not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof.
(ii) The Company can bear the economic risk of its investment
and has such knowledge and experience in financial or business matters that it
is capable of evaluating the merits and risks of the investment in the
Securities. The Company also represents it has not been organized solely for
the purpose of acquiring the Securities. The Company has had an opportunity to
discuss the Client's business, management and financial affairs with the
Client's management and an opportunity to review the Client's facilities. The
Company understands that such discussions, as well as the written information
issued by the Client, were intended to describe the aspects of the Client's
business and prospects which it believes to be material but not necessarily a
thorough or exhaustive description.
(iii) The Company understands that the Securities are
characterized as "restricted securities" under federal securities laws inasmuch
as they are being acquired from the Client in a transaction not involving a
public offering and have not been registered under the Securities Act or
registered or qualified under applicable state securities laws and that under
such laws and applicable regulations such securities may not be resold without
registration under the Securities Act, except in certain limited circumstances.
In this regard, the Company represents that it is familiar with and understands
the resale limitations imposed by the Securities Act.
(iv) The Company and its advisors have had a reasonable
opportunity to ask questions of and to receive answers from the Client in
connection with the acquisition of the Securities hereunder, and to obtain
additional information, to the extent possessed or obtainable without
unreasonable effort or expense, that the Company deems necessary and the books
and records of the Client were available upon reasonable notice for inspection,
subject to certain confidentiality restrictions, by the Company during
reasonable business hours at its regular place of business and all documents,
records and books in connection with the acquisition of the Securities hereunder
<PAGE>
have been made available for inspection by the Client and its advisors. The
Company is not acquiring the Securities as a result of any advertisement or
public solicitation on behalf of the Client.
(v) No finder, broker, agent, financial advisor or other
intermediary acted on behalf of the Company in connection with the offering of
the Securities or the negotiation or consummation of this Agreement or any of
the transactions contemplated hereby and the Company agrees to indemnify and to
hold the Client harmless of and from any liability for commission or
compensation in the nature of a finder's fee to any broker or other person or
firm and the costs and expenses of defending against such liability or asserted
liability, for which the Company or any of its employees or representatives, are
responsible.
(vi) All agreements, representations and warranties contained
herein or made in writing by the Company in connection with the Securities shall
survive the execution and delivery of this Agreement.
(vii) The Company represents that it is experienced in
evaluating and investing in private placement transactions of securities of
companies in a similar stage of development and acknowledges that it is able to
fend for itself in the transactions contemplated by this Agreement and has the
ability to bear the economic risks of its investment pursuant to this Agreement.
The Company acknowledges and understands that the Client is a "start-up" with no
operations or revenues, and the Company's acquisition of the Securities
constitutes a highly speculative investment. The Company can bear the risk of
the loss of the Company's entire investment in the Client.
d. Authority. The Company further represents and warrants that it
has full power and authority to enter into this Agreement and to fulfill its
obligations hereunder.
e. Disclaimer; Limitation of Warranties. Except for the limited
warranties set forth in Section 6(b) and this Section 14(e), the Company makes,
and the Client receives, no other representations, warranties or conditions
hereunder. Company hereby expressly disclaims all other warranties and
conditions, express or implied, including warranties of merchantability and
fitness for a particular purposes. Without limiting the generality of the
foregoing, Company makes no representation, warranty or condition that: (i)
upon Final Acceptance of a Deliverable pursuant to Section 6(a), that such
Deliverable will meet the requirements of the Client; (ii) the Deliverables will
be interoperable with other hardware or software used by the Client; (iii)
access to the Client Website will be uninterrupted, timely, secure or
error-free, and (iv) any material downloaded or otherwise obtained through the
use of the Client Website will not cause damage to any user's computer system.
The Company will not be deemed to have breached any representation, warranty or
condition set forth in this Section 14 to the extent that: (i) the Client or
its agents modify the Client Website themselves in any manner without the
Company's assistance; (ii) the Client fails to follow the instructions of the
Company with respect to the use and operation of the Client Website or the
<PAGE>
Client uses the Client Website in a manner not contemplated by the parties, as
determined by the Final Business Plan; (iii) the Client Website incorporates
unauthorized Third Party Materials, through framing or otherwise, at no fault of
the Company; or (iv) if the Client is not receiving Maintenance Services for any
reason (including the termination or expiration of this Agreement), the Client
fails to incorporate any fix, patch, upgrade, update or other enhancement to the
Client Website or any Deliverable if the breach of this warranty could have been
avoided by the incorporation thereof.
15. Limitation of Liability. EACH PARTY'S LIABILITY FOR ANY REASON
WHATSOEVER ARISING UNDER OR RELATING TO THIS AGREEMENT, REGARDLESS OF THE FORM
OF THE CAUSE OF ACTION, WHETHER IN CONTRACT, STATUTE OR TORT (INCLUDING, WITHOUT
LIMITATION, NEGLIGENCE), OR OTHERWISE, SHALL IN NO EVENT (WITH THE EXCEPTION OF
AN ACTION FOR INDEMNIFICATION BROUGHT PURSUANT TO SECTION 16 HEREUNDER) EXCEED
IN THE AGGREGATE AN AMOUNT EQUIVALENT TO (I) IN THE CASE OF THE COMPANY, THE
AMOUNTS ACTUALLY RECEIVED BY THE COMPANY UNDER SECTION 8 HEREOF, OR (II) IN THE
CASE OF THE CLIENT, THE AMOUNTS PAID AND PAYABLE TO THE COMPANY BY THE CLIENT
UNDER SECTION 8 HEREOF. NEITHER PARTY WILL BE LIABLE FOR ANY CLAIM OR DEMAND
AGAINST THE OTHER, ITS OFFICERS, DIRECTORS, PARTNERS, PRINCIPALS, EMPLOYEES,
AGENTS OR REPRESENTATIVES BY ANY THIRD PARTY (EXCEPT AS EXPRESSLY SET FORTH IN
SECTIONS 13 AND 14 ) NOR FOR ANY AMOUNTS REPRESENTING LOSS OF PROFIT, LOSS OF
BUSINESS OR SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES
EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN NO EVENT
WILL THE VALUE OF THE SECURITIES, WHETHER PRESENT, PAST OR FUTURE, BE TAKEN INTO
ACCOUNT WHEN CALCULATING THE LIABILITY AMOUNT OF EITHER PARTY HEREUNDER. THE
LIMITATIONS SET FORTH IN THIS SECTION 15 APPLY TO ALL CAUSES OF ACTION IN
AGGREGATE.
16. Indemnification.
---------------
a. Indemnification by the Company. The Company agrees to
indemnify, defend and hold harmless the Client, its affiliates and subsidiaries
and their respective agents, officers and employees of and from any and all
liability, expenses (including reasonable defense costs and reasonable legal
fees) and claims for damages arising out of or related to (i) any loss or damage
arising as a result of a breach by the Company of its representation and
warranty under Section 14(a)(iii), and (ii) any loss, cost, damage or injury,
including death, of any person or damage to property of any kind resulting from
any negligence or willful misconduct of the Company or its employees, agents,
independent contractors or subcontractors while the Company is engaged in the
performance of this Agreement and the Services to be provided hereunder,
provided, however, that if there is also fault on the part of the Client or its
affiliates or subsidiaries or their respective agents, officers or employees in
<PAGE>
connection with the matter in which indemnification is sought, then such
indemnification shall be on a comparative fault basis.
b. Indemnification by the Client. The Client agrees to indemnify,
defend and hold harmless the Company and any subcontractor and their respective
agents, partners, principals, members, officers and employees from and against
any and all liability, expenses including reasonable defense costs and
reasonable legal fees and claims for damages arising out of or relating to (i)
any loss or damage arising as a result of a breach by the Client of its
representations and warranties under Section 13(a), and (ii) any loss, cost,
damage or injury, including death, of any person or damage to property of any
kind resulting from any negligence or willful misconduct of the Client while the
Company is engaged in the performance of this Agreement and the Services to be
provided hereunder, provided, however, that if there is also fault on the part
of the Company or its affiliates or subsidiaries or their respective agents,
officers or employees in connection with the matter in which indemnification is
sought, then such indemnification shall be on a comparative fault basis.
c. Third Party Claims. As a condition to the foregoing indemnity
obligations, the indemnified party shall provide the indemnifying party with
prompt notice of any claim for which indemnification shall be sought hereunder
and shall cooperate in all reasonable respects with the indemnifying party in
connection with any such claim. The indemnifying party shall be entitled to
control the handling of any such claim and to defend or settle any such claim,
in its sole discretion, with counsel of its own choosing.
d. Exclusive Provision. The indemnities set forth in this Section 16
are the sole and exclusive remedies of the parties with respect to the
indemnified matters and are solely for the benefit of the parties hereto and are
not intended to create or grant any rights, contractual or otherwise, to any
other person or entity.
e. Limitation Period. No action, regardless of form, with respect to
this Agreement may be brought by either party more than one (1) year after the
cause of action has accrued.
17. Relationship of the Parties.
------------------------------
a. The relationship of the parties is that of independent
contractors. Nothing in this Agreement will be construed as placing the parties
in a relationship as employer and employee, principal and agent, partners or
joint venturers. Neither party will have the authority to enter into legally
binding obligations on behalf of the other party without the other party's prior
express written consent. Neither party shall act or represent itself, directly
or by implication, as an agent of the other or in any manner assume or create
any obligation on behalf of, or in the name of the other. All employees of the
Company shall, where required by law, be covered under the Company's Worker's
Compensation and Employer's Liability Insurance which shall be maintained by the
Company in the statutory limits which are presently in effect or which may be in
<PAGE>
effect in the State of California or in any jurisdiction where such insurance is
required to be obtained by the Company.
b. THE COMPANY ACKNOWLEDGES AND AGREES THAT NEITHER THE COMPANY
NOR ANY OF ITS EMPLOYEES ARE ENTITLED TO WORKER'S COMPENSATION OR UNEMPLOYMENT
INSURANCE BENEFITS FROM THE CLIENT AND MAY RECEIVE SUCH COVERAGE ONLY IF
PROVIDED BY THE COMPANY OR SOME ENTITY OTHER THAN THE CLIENT. FURTHER, THE
COMPANY IS OBLIGATED TO PAY FEDERAL AND STATE INCOME TAX ON ANY MONEYS PAID TO
THE COMPANY PURSUANT TO THIS AGREEMENT.
18. No Fringe Benefits. As an independent contractor, the Company
shall not be entitled to receive any fringe benefits provided to employees of
the Client including, without limitation, sick leave, overtime pay, paid
vacations or participation in any qualified retirement or similar programs of
the Client.
19. Force Majeure. Except for the payment of money by the Client, if
the performance of any part of this Agreement by either party is prevented,
hindered, delayed or otherwise made impracticable by reason of any flood, riot,
fire, judicial or governmental action, labour disputes, act of God,
communication lines failures or any other causes beyond the reasonable control
of either party, then that party will be excused from such to the extent that it
is prevented, hindered or delayed by such causes.
20. Notices. Any notice permitted or required under the Agreement must
be in writing. Any such notice will be deemed delivered: (a) on the day of
delivery in person; (b) one day after deposit with an overnight courier, fully
prepaid; (c) on the date sent by facsimile transmission; or (d) on the date sent
by e-mail, if confirmed by first-class mail, properly posted, or by facsimile
transmission; to the address or fax number to the parties at the following
addresses:
To LitOptions.com, Inc.:
LitOptions.com, Inc.
1627 North Sierra Bonita
Hollywood, California 90046
Fax No.: __________
Attention: Kenneth Scott
To VitrualSellers.com, Inc.:
Sullivan Park LLC
1001 East First Street, Suite 13
Los Angeles, California 90012
<PAGE>
Fax No. __________
Attention: Edward Sharpless
21. Dispute Resolution.
-------------------
a. Arbitration. The parties hereto agree that any dispute or
controversy arising out of or relating to this Agreement, which cannot be
resolved by negotiation, shall be submitted to and decided by arbitration in
accordance with the rule of the American Arbitration Association (the
"Association"). If the parties are unable to agree upon a single arbitrator,
the arbitrator shall be a single independent arbitrator selected by the
Association. Each party reserves the right to disqualify any individual
arbitrator who shall be employed by or affiliated with a competing organization
of the objecting party. Arbitration shall take place in Los Angeles,
California, or any other location mutually agreeable to the parties. Judgment
upon reward rendered by the arbitrator may be entered in any Court in Los
Angeles, California having jurisdiction over the dispute. It is agreed between
the parties hereto that the award may be reviewable by the courts of this
jurisdiction if the arbitrator, in the opinion of any party hereto, has failed
to observe rules and laws of the State of California. All fees and expenses of
the arbitrator shall be borne by the losing party. Both parties may seek
injunctive relief under this Agreement notwithstanding this provision.
b. Injunctive Relief. Notwithstanding the foregoing, each party
agrees that if the other party or anyone acting on the other party's behalf
threatens or attempts to or does violate Sections 9 or 10 of this Agreement,
then in any suit or proceeding that may be commenced by the non-violating party
in a court of competent jurisdiction, its successors or assigns, for or with
respect to such threatened, attempted or actual violation, an order may be
obtained enjoining the violating party and/or any other person, persons or
entities acting in concert with the violating party from violating any such
restriction. Such a restraining order may be obtained pending determination of
the litigation as well as upon final determination thereof, and request for such
restraining order shall be without prejudice to any other right or remedy
available to the non-violating party by reason of such threatened, attempted or
actual violation of any such contractual restriction. The violation of Sections
9 or 10 of this Agreement would cause irreparable injury to the non-violating
party and monetary damages in and of itself would not afford adequate relief.
22. Governing Law and Attornment. This Agreement will in all respects
be governed exclusively by and construed in accordance with the laws of the
State of California and will be treated in all respects as a California
contract. This Section will not be construed to affect the rights of a party to
enforce a judgment or award outside California, including the right to record
and enforce a judgment or award in any other jurisdiction. The parties hereby
irrevocably attorn to the jurisdiction of the courts of the State of California,
which will have sole, exclusive and original jurisdiction over any dispute with
respect to this Agreement.
<PAGE>
23. Binding Nature of Agreement; Assignment. This Agreement will enure
to the benefit of and be binding upon the parties hereto and their respective
successors, heirs, executors, administrators and permitted assigns. Except as
set forth in Section 6(d) above, this Agreement shall not be assigned by either
party without the prior written consent of the other party, which consent shall
not be unreasonably withheld; provided, however, that the Client may assign
this Agreement to any purchaser of the Client or any entity into which the
Client transfers the assets and properties constituting its on-line literary
subrights marketplace, so long as the Client provides the Company (i) written
notice of such assignment at least five business days prior to the effective
date of such assignment; and (ii) documentary evidence of the intended
assignee's assumption of the Client's obligations under this Agreement which
documentation shall include a covenant by the Client in favour of the Company
that the Client will guarantee the payment of all Fees owing under this
Agreement on and after the effective date of this assignment. No assignment of
this Agreement shall release the Client from its obligations under Sections 10,
13 and 16.
24. Waiver. The failure of any party to insist upon strict performance
of any of the terms or conditions herein, irrespective of the length of time for
which such failure shall continue, shall not be a waiver of that party's right
to demand strict compliance in the future. The parties may at any time and from
time to time waive in whole or in part the benefit to it of any provision in
this Agreement or any default by the other party, but any waiver on any occasion
will be deemed not to be a waiver of that provision thereafter or of any
subsequent default or a waiver of any other provision or default. No waiver or
consent shall be effective unless in writing and signed by the party against
whom such waiver or consent is asserted.
25. Headings and Division. The headings preceding the text of the
paragraphs hereof are inserted solely for convenience of reference and shall not
constitute a part of this Agreement, nor shall they affect its meaning,
construction or effect. The use herein of the singular number shall be deemed
to include the plural and vice versa, and the use hereof of the masculine shall
be deemed to mean the feminine or neuter and vice versa, whenever the sense of
this Agreement so requires.
26. Currency. Unless otherwise indicated, all dollar amounts referred
to in this Agreement are in United States funds.
27. Severability. If any term or provision of this Agreement, or the
application thereof shall for any reason and to any extent be invalid or
unenforceable, then the remaining provisions of this Agreement, or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby, but rather shall continue in full force and effect. The parties will
in good faith negotiate a mutually acceptable and enforceable substitute for the
unenforceable provision, which substitute will be as consistent as possible with
the original intent of the parties.
<PAGE>
28. Conflict. If there is any conflict with or inconsistency between
this Agreement and the provisions of any Schedule hereto, then the provisions of
this Agreement will prevail, unless it is expressly stated herein that a
particular term of a Schedule will have precedence over an expressly identified
term in this Agreement.
29. Amendment. Except as herein otherwise provided, no subsequent
alteration, amendment, change, or addition to this Agreement will be binding
upon the parties hereto unless reduced to writing and signed by the parties.
30. Survival. The provisions of Sections 1, 2(c), 2(d), 7(b),
9(b)(iv), 9(c), 9(d), 10, 13(a), 14(e), 15, 16, 20, 21, 24, 25, 27, 28, 30, 31,
33 and 34 shall survive the expiration or termination of this Agreement.
31. No Third Party Rights. Nothing contained in this Agreement shall
or is intended to create or shall be construed to create any right in or any
duty or obligation by either party to any third party. There are no third party
beneficiaries of this Agreement.
32. Independent Legal Advice. The Client acknowledges and agrees that
the Company has given it the opportunity to seek, and has recommended that the
Client obtain, independent legal advice with respect to the subject matter of
this Agreement and, further, the Client hereby represents and warrants to the
Company that it has sought independent legal advice or waives such advice.
33. Advertising. Each party shall have the right only to reference the
name of the other in any advertising, sales promotion or publicity matter
without the need to obtain the prior written consent of the other party.
Notwithstanding the foregoing, the Company may place proprietary notices of the
Company on the Client Website, including Company attribution and a hypertext
link to its website located at the Uniform Resource Locator
"www.sullivanpark.com," (the "Link") and to change or update such notices from
time to time upon notice to the Client. The look and feel of the proprietary
notices and the size and placement of the Link shall be mutually agreed to by
the parties in good faith.
34. Merger; Entire Agreement. The provisions of this Agreement
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all prior negotiations, proposals and agreements,
whether oral or written, with respect to the subject matter hereof and there is
no representation, warranty, term or condition, express or implied, relating to
the subject matter hereof, except as specifically set forth herein.
35. Counterparts. This Agreement may be executed in one or more
counterparts, each of which, when so executed, will be deemed to be an original
copy hereof, and all such counterparts together shall constitute but one single
agreement; provided, however, this Agreement will be of no force or effect until
executed by both parties. Each party may deliver a counterpart signature page
by facsimile transmission.
<PAGE>
36. Authority. The Company and the Client each confirm that it has
read this Agreement, understands it and agrees to be bound by its terms and
conditions.
37. THE TRANSFER OF THE SECURITIES THAT ARE THE SUBJECT OF THIS
AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE
STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT
OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS
UNLAWFUL, UNLESS THE TRANSFER OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY
SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS
OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE
QUALIFICATION BEING OBTAINED, UNLESS THE TRANSFER IS SO EXEMPT.
IN WITNESS WHEREOF, intending to be legally bound hereby, the parties have
caused this Agreement to be executed and delivered by their duly authorized
representatives as of the day and year first above written.
LITOPTIONS.COM, INC.
/s/ signed
David Lipper
President
June __, 2000
SULLIVAN PARK, LLC
/s/ signed
Edward Sharpless
President
June __, 2000
VIRTUAL SELLERS.COM, INC.
/s/ signed
Dennis Sinclair
Chief Executive Officer
June __, 2000
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE A
WEBSITE DEVELOPMENT, DATABASE,
MAINTENANCE, AND HOSTING SERVICES
DELIVERABLE DUE DATE
---------------
<S> <C>
Functional Specification. . . . . July 7, 2000
--------------------------------- ---------------
Business Plan Revision. . . . . . July 13, 2000
--------------------------------- ---------------
Technical Specification . . . . . July 21, 2000
--------------------------------- ---------------
Final Specification . . . . . . . July 28, 2000
--------------------------------- ---------------
Final Business Plan . . . . . . . July 28, 2000
---------------
Beta Client Website (Soft Launch) August 11, 2000
--------------------------------- ---------------
Final Client Website. . . . . . . August 25, 2000
--------------------------------- ---------------
</TABLE>
Contents of Deliverables. The Deliverables will include all Software, Content
(excluding Client Content), developer and user documentation and other materials
necessary to: (1) enable the Client to operate the Client Website in
accordance with the Specification; (2) ensure that the Client Website is
transferred to the Host Site and is functional on the Host Site in a live
environment; and (3) secure delivery of initial version and revisions to
content.
Delivery of Soft Launch. Upon completion of the first comprehensive version of
the Client Website based on the Specifications (the "Beta Client Website"),
prior to launching on the Internet Soft Launch of the Client Website, Company
will provide the Client with access thereto for the purposes of review and
approval of the Content in accordance with Section 6 hereof.
Revisions to Content If, upon its review, the Client determines that it would
like revisions to the Content, then the Client will work directly with Company
in accordance with Section 6 hereof to specify the proposed revisions in
reasonable detail so as to enable Company to complete same. If the scope of
revisions to the Content requested by the Client is outside the Specification in
Attachment 1, then Company may require additional fees for the provision of such
additional services at a rate reasonably determined by Company.
A. WEBSITE DEVELOPMENT SERVICES
------------------------------
Website Specification. The Website Specification ("Specification"), as approved
by both Company and the Client, will be attached as Attachment 1 to this
Schedule on the date specified in Section 6(a). The Specification will include,
but not be limited to, the following documents as commonly referenced in the
Internet services industry: (1) Functional Specification; (2) Technical
Specification; (3) project summary; (4) project timeline; and (5) the total
development fees for the Specifications (the "Budget").
<PAGE>
Development. Company will develop the Client Website in accordance with the
Specification. Notwithstanding the foregoing, the Specification will identify
the portion of Development to be accomplished under the terms of this Agreement.
Client Content. The Client will be responsible for providing to Company all
Client Content for the Client Website which cannot otherwise be obtained by
Company in its ordinary course of business development. The Client will deliver
the Client Content to Company in the electronic file format specified by and
accessible to Company, or as otherwise specified in the Specification.
Additional Content. The Company will work with Client to obtain, develop or
create Content necessary for the successful execution of the Specification.
Change Order. If, after the commencement of the Website Development Services
and following the Client's approval and acceptance of the Final Specification in
accordance with Section 6(a) hereof, and whether or not part of its review of
the Soft Launch, the Client wishes to make a material change to the
Specification, or any change to the Client Website or the Content that results
in a material change to or deviation from the Specification, each as determined
by Company, acting reasonably, then the Client will submit to Company a written
change order (the "Change Order") containing a description of the proposed
revisions in detail, and a request for a price quote for the revisions. Such
Change Order will be reviewed by the Company, and within five (5) days of
receipt of the Change Order, the Company will communicate any additional fees,
if any, required to effectuate the Change Order, at which time the Client will
have an additional five (5) days to communicate to the Company whether to
proceed with the Change Order or not, such additional services if approved then
falling under the acceptance and approval provisions of Section 6(a) of this
Agreement.
B. DATABASE SERVICES
------------------
Data Generation. The Company will manually search for original data that is not
available or known to either Company or Client.
Data Aggregation. The Company will source, contact and execute data sharing
agreements with third party vendors that may include, by way of example but not
limitation: book publishers, magazine publishers, relevant industry trade
organizations, law firms, talent agencies, talent management concerns, and
various writer-related guilds.
Data Entry. The Company will automatically or manually enter data collected
from "aggregation" and "generation" processes into Client's proprietary database
key fields.
Data Cleansing and Sorting. The Company will continually ensure the quality and
accuracy of aggregated and generated data sets. Additionally, the Company
understands that the Client may request with good reason the need to sort this
data into various configurations, and the such requested sorting will be done by
<PAGE>
Company to the extent such request is reasonable.
Data Sales. The Company recognizes that the data being compiled for Client's
database carries a sales value. Such data therefore may need to be "sorted" by
Company and be prepared for third-party sales.
Data Maintenance. The Company will "cleanse" data included in the Client
Website Database on a periodic maintenance schedule in order to assure integrity
of Client's service and product offering
C. MAINTENANCE AND HOSTING SERVICES
-----------------------------------
Scope. The Company will provide Maintenance Services as may be required to
maintain and update the Client Website and individual components thereof,
including the ongoing responsibility for uploading content to, and managing the
content on the Client Website and including the specific maintenance services
described Attachment 1 to this Schedule.
Exclusion. The Maintenance Services will not include the correction of any
operability, functionality or compatibility errors or malfunctions related to
the use of software on the Client Website, other than as Specification in
Attachment 1 to this Schedule (such software referred to as "Other Software").
Commencement of Maintenance Services. Company will commence the provision of
the Maintenance Services upon the Client's Final Acceptance in accordance with
Section 6 of the Agreement and will continue to provide the Maintenance Services
from their commencement herewith throughout the Term of the Agreement.
Hosting Services. The Company will commence the provision of Hosting Services
upon the Client's Final Acceptance in accordance with Section 6 of the Agreement
and will continue to provide the Hosting Services from their commencement
herewith throughout the Term of the Agreement. Up to 4000 MB of data may be
transferred per month onto the Host Site. Each additional 1 MB of transfer will
be billed separately at five (5) cents per MB.
<PAGE>
SCHEDULE B
LIST OF DOMAIN NAMES
FOR DOMAIN NAME REGISTRATION(S) OR TRANSFER TO HOST SITE
A. The Client Website: www.litoptions.com
B. Other domain names:
<PAGE>
SCHEDULE C
BUSINESS DEVELOPMENT SERVICES
In general, Company will oversee and advise the Client with respect to all
business affairs, including but not limited to the following:
1. Due diligence analysis of specific industry, market, competition, future
growth opportunities; and
2. Business plan development, review, and completion, including the
following elements;
Description of company
Industry analysis
Marketing analysis
Operation plan
Creation of pro forma financial statements
Patent documentation
Identification of potential early and late stage exit strategies
Preparation of business process and technology patent documentation, if
applicable
Initiation, discussion, negotiation and establishment of business or
strategic partnerships or other beneficial relationships
Introduction to potential funding institutions and individuals including,
but not limited to venture capitalists, angel investors, investment banks,
institutional and private investors
<PAGE>
SCHEDULE D
ESCROW AGREEMENT
JOINT ESCROW INSTRUCTIONS
Kenneth Scott, Treasurer
LitOptions.com, Inc.
1627 North Sierra Bonita
Hollywood, CA 90046
Dear Sir:
Reference is made to that certain Incubation Services Agreement dated as of
June 16, 2000 (the "Agreement"), between LitOptions.com, a Delaware corporation
(the "Client") and the undersigned holder of Securities of the Client thereunder
(the "Company"). Unless otherwise defined herein or the context otherwise
requires, the capitalized terms herein shall have the meanings ascribed to them
in the Agreement.
You are hereby appointed as escrow agent ("Escrow Agent") for the Client and the
Company. As Escrow Agent you are hereby authorized and directed to hold (i) the
certificate or certificates evidencing the number of Securities from time to
time owned by the Company and (ii) one or more undated Stock Assignments in
substantially the form attached hereto as Exhibit E, duly signed by the Company
in accordance with the following instructions:
1. In the event of your receipt of written notice from the Client and the
Company you are hereby irrevocably authorized and directed to execute, effective
as of that date one or more of the Stock Assignments Separate From Certificate
duly signed by the Company and deposited concurrently herewith, and thereafter
to deliver such Stock Assignments and the related Securities certificates as so
directed.
2. The Company irrevocably authorizes the Client to deposit with you any
certificates evidencing the Securities to be held by you hereunder and any
additions and substitutions to such shares as a result of cash or stock
dividends, stock splits and recapitalizations. The Company does hereby
irrevocably constitute and appoint you as its attorney-in-fact and agent for the
term of this escrow to execute with respect to such securities all documents
necessary or appropriate to make such securities negotiable and complete any
transaction herein contemplated, including but not limited to any required
filings with the Department of Corporations of the State of California.
3. (a) Pursuant to the distribution terms set forth in Section 7(e) of the
Agreement, the Company may deliver to the Escrow Agent a written notice (a
"Claim") requesting distribution to the Company of an amount of Securities
pursuant to Section 7(e) of the Agreement in payment for the completion of
certain Services and the delivery of certain Deliverables under the Agreement.
The Company shall provide to the Escrow Agent, upon filing such Claim with the
Escrow Agent, a delivery receipt or other appropriate proof of prior or
contemporaneous delivery to the Client of a copy of such Claim (a "Claim
<PAGE>
Delivery Notice"). If the Escrow Agent has not received a written objection
from the Client to such Claim within five (5) business days following the date
of the Escrow Agent's receipt of such Claim Delivery Notice, then within four
(4) business days after the expiration of such 5-day period, the Escrow Agent
shall transfer the appropriate amount of Securities pursuant to Section 7(e) of
the Agreement to the Company.
(b) If the Client delivers to the Escrow Agent a timely written
objection to any Claim, the Escrow Agent shall not distribute the Securities at
issue as set forth in the Claim until the Escrow Agent shall have received
either (i) written instructions signed on behalf of Company and the Client or
(ii) a final order of an arbitrator or court having jurisdiction of the matter.
Upon receipt of any such written instructions or order, the Escrow Agent shall
distribute such Securities in accordance therewith.
(c) All releases of the appropriate amount of Securities placed in
Escrow pursuant to Section 7(e) of the Agreement shall be made to the Company at
the address set forth in Section 20 of the Agreement.
4. This escrow shall terminate upon the latest to occur of (1) upon
disposition of all Securities held by you pursuant to terms and conditions of
the Agreement, (2) written agreement to such effect by the Client and the
Company, or (3) termination of the Agreement pursuant to Section 2 thereof.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities or other property belonging to the Company
under the terms of the Agreement, you shall deliver all of same to the Company
and shall be discharged from all further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked only
by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties.
You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact of the Company while acting in
good faith and in the exercise of your own good judgment, and any act done or
omitted by you pursuant to the advice of your own attorneys shall be conclusive
evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person, firm or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court.
In case you obey or comply with any such order, judgment or decree of any court,
you shall not be liable to any of the parties hereto or to any other person,
firm or corporation by reason of such compliance, notwithstanding any such
order, judgment or decree being subsequently reversed, modified, annulled, set
aside, vacated or found to have been entered without jurisdiction.
<PAGE>
9. You shall not be liable in any respect on account of the identity,
authority or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under any
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts as
you may deem necessary to advise you properly in connection with your
obligations hereunder, may rely upon the advice of such counsel and may pay such
counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be Treasurer of the Company or if you shall resign by written
notice to each party. In the event of any such termination, the Client shall
appoint any officer of the Client as successor Escrow Agent.
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities or
other property or instrument held by you hereunder, you are authorized and
directed to retain in your possession without liability to anyone all or any
part of such securities or other property or instrument until such dispute shall
have been settled either by mutual written agreement of the parties concerned or
pursuant to Section 21 of the Agreement.
15. Any notice required or permitted hereunder shall be given in writing and
shall be treated as effective upon receipt. Escrow Agent's address for notices
shall be as set forth beneath his signature below.
16. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of these Joint Escrow Instructions; you do not become a
party to the Agreement.
17. All reasonable costs, fees, and disbursements incurred by you in
connection with the performance of your duties hereunder shall be borne by the
Client.
18. This instrument shall be governed by and construed in accordance with
the laws of the State of California.
<PAGE>
19. This instrument shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
Very truly yours,
LITOPTIONS.COM, INC.
By__________________________________
David Lipper
President
THE COMPANY
____________________________________
Dennis Sinclair
Chief Executive Officer
ESCROW AGENT:
By_________________________
Kenneth Scott
Treasurer
Address: LitOptions.com, Inc.
1627 North Sierra Bonita
Hollywood, CA 90046
<PAGE>
SCHEDULE E
STOCK ASSIGNMENT
SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, the undersigned hereby transfers and assigns to the
Treasurer of LitOptions.com, Inc. (the "Client") 108,070 shares of the common
stock of the Client standing in the name of the undersigned on the records of
the Client represented by Certificate(s) No. 6 and 7 and hereby irrevocably
constitutes and appoints the Treasurer of the Client as attorney-in-fact to
transfer the said shares on the books of the Client, with full power of
substitution.
THE COMPANY
____________________________________
David Lipper
President
DATED: June ___, 2000
