<PAGE>
As filed with the Securities and Exchange Commission on May 24, 2000
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
--------------------
PERSONIFY, INC.
(Exact name of Registrant as specified in its charter)
--------------------
<TABLE>
<S> <C> <C>
Delaware* 7372 77-0425041
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
425 Battery Street, Suite 450B
San Francisco, CA 94111
(415) 782-2050
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
--------------------
Love Goel
Chief Executive Officer
Personify, Inc.
425 Battery Street, Suite 450B
San Francisco, CA 94111
(415) 782-2050
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------
Copies to:
<TABLE>
<S> <C>
Jeffrey D. Saper, Esq. Peter T. Healy, Esq.
Selim Day, Esq. O'MELVENY & MYERS, LLP
WILSON SONSINI GOODRICH & ROSATI Embarcadero Center West
Professional Corporation 275 Battery Street, Suite 2600
650 Page Mill Road San Francisco, CA 94111-3305
Palo Alto, CA 94304 (415) 984-8700
(650) 493-9300
</TABLE>
--------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
--------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================
Proposed Maximum
Aggregate Amount of
Title of Each Class of Securities Offering Registration
to be Registered Price(1) Fee
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stock $0.001 par value.................. $50,000,000 $13,200
- --------------------------------------------------------------------------------
================================================================================
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o).
--------------------
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 Registrant's state of incorporation will be changed to Delaware prior to
the closing of the public offering contemplated by this Registration
Statement.
<PAGE>
EXPLANATORY NOTE
This registration statement contains two forms of prospectus front cover
page: (a) one to be used in connection with an offering in the United States
and Canada and (b) one to be used in connection with a concurrent offering
outside of the United States and Canada. The U.S. prospectus and the
international prospectus are otherwise identical in all respects.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 24, 2000
[LOGO]
Shares
Common Stock
Personify, Inc. is offering shares of its common stock. Prior to this
offering, there has been no public market for our common stock. We anticipate
that the initial public offering price of our common stock will be between $
and $ per share. We have applied to list our common stock on the Nasdaq
National Market under the symbol "PSFY."
--------------
Investing in the common stock involves risks.
See "Risk Factors" beginning on page 5.
--------------
<TABLE>
<CAPTION>
Per
Share Total
------ ------
<S> <C> <C>
Public Offering Price............................................ $ $
Underwriting Discounts and Commissions........................... $ $
Proceeds to Personify, Inc. ..................................... $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
We have granted the underwriters a 30-day option to purchase up to an
additional shares of common stock to cover over-allotments.
--------------
Robertson Stephens
J.P. Morgan & Co.
Dain Rauscher Wessels
Wit SoundView
The date of this prospectus is , 2000
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of the common stock. In this prospectus, references
to "Personify," "we," "us" and "our" refer to Personify, Inc.
Until , 2000 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 5
Use of Proceeds.......................................................... 12
Dividend Policy.......................................................... 12
Special Note Regarding Forward-Looking Statements........................ 12
Capitalization........................................................... 13
Dilution................................................................. 14
Selected Consolidated Financial Data..................................... 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 17
Business................................................................. 24
Management............................................................... 35
Related Party Transactions............................................... 44
Principal Stockholders................................................... 50
Description of Capital Stock............................................. 53
Shares Eligible for Future Sale.......................................... 55
United States Tax Consequences to Non-U.S. Holders....................... 56
Underwriting............................................................. 59
Legal Matters............................................................ 63
Experts.................................................................. 63
Where You Can Find More Information...................................... 63
Index to Financial Statements............................................ F-1
</TABLE>
---------------------
Personify(R) is a trademark of Personify, Inc., which may be registered
in certain jurisdictions. Essentials(TM), Accelerators(TM) and Accelerator
Framework(TM), Beacons(TM), Connectors(TM), Proactive(TM), Design for
Measurability and DFMSM, Web ETL(TM), Behavioral OLAP(TM), Proactive Profile
Exchange(TM) and CentralSM are claimed as trademarks and service marks of
Personify. Other service marks, trademarks and trade names referred to in this
prospectus are the property of their respective owners.
i
<PAGE>
SUMMARY
Because this is only a summary, it does not contain all the information
that may be important to you. You should read the entire prospectus, especially
"Risk Factors" and the consolidated financial statements and notes, before
deciding to invest in our common stock.
Personify, Inc.
We provide e-business software that enables companies to measure, analyze
and optimize customer-focused profitability metrics. We believe the insight
that companies gain from using our software will enable them to accelerate
growth and profitability at every stage of their e-business evolution.
Many early e-businesses emphasized rapid acquisition of prospective
customers while deferring profitability. E-businesses that spent heavily on
attracting visitors to their websites are facing the resulting problem of
converting those prospects into paying customers and retaining enough customers
to sustain a profitable business. To achieve and grow profitable customer
relationships, many e-businesses are seeking to exploit an advantage unique to
the internet: e-businesses collect significantly more behavioral data about
prospects' and customers' interests and tendencies than do traditional
businesses. However, the volume and complexity of this data make it difficult
to process with traditional software approaches. As a result, e-businesses are
seeking software to help them refine raw internet data into profiles of
prospects and customers which can be analyzed for business insight and used to
target personalized offerings.
Our solution allows e-businesses to measure, analyze and optimize metrics
such as the percentage of prospects that become customers, the return on
investment for advertising spending and the rate at which shoppers fail to
purchase items they initially place in their online shopping carts. Benefits of
our solution include:
. E-centric behavioral profiling. Our products are designed and built for
the internet, which we call being e-centric, enabling them to create
behavioral profiles from large volumes of complex e-business data.
. Predictive modeling. Our proprietary multidimensional modeling
algorithms can discover previously hidden segments within an e-
business' audience, such as which prospects and customers will likely
contribute a disproportionate share of revenue.
. Value at every stage. We believe our solution enables a company to
accelerate growth and profitability at each stage of its e-business
evolution. At the entry stage, our products provide an e-business with
the means to better measure, analyze and optimize customer acquisition.
At the emerging stage, our products provide an e-business with tools to
improve sales by determining the effectiveness of its website content,
promotions and design. At the established stage, our products provide
an e-business with means to better merchandise its products and
services. At the experienced stage, our products help an e-business
maximize the lifetime value of its customer relationships.
. Measurable results. We enable our customers to measure the benefits of
our solution, generally including increased prospect-to-customer
conversion rates, reduced abandonment of online shopping carts and
increased repeat sales.
We sell our products through a direct sales force based in San Francisco,
with satellite offices throughout the United States. In addition, our products
are marketed and referred to customers through our relationships with services
and technology companies. We have strategic alliances with Deloitte Consulting,
Ernst & Young and marchFIRST, among others. Each of these three companies has
agreed to commit resources to promote, sell and deploy our products. Our
customers consist of large, traditional businesses such as Volvo and REI and
prominent internet-based companies such as Living.com and Petopia.com.
1
<PAGE>
Our objective is to become the leading provider of software that enables
companies to rapidly accelerate growth and profitability of their e-business.
Key elements of our strategy to achieve this goal include:
. extending technology and product leadership;
. leveraging our installed customer base to gain new customers;
. expanding strategic relationships;
. extending our products' compatibility with other providers'
complementary products; and
. facilitating rapid development and deployment of our solutions.
We were incorporated in California in March 1996 as Affinicast Corp. We
changed our name to Personify Incorporated in January 1998, and we expect to
reincorporate in Delaware in June 2000 as Personify, Inc. Our principal
executive offices are located at 425 Battery Street, Suite 450B, San Francisco,
California 94111, and our telephone number at that address is (415) 782-2050.
Our website is located at www.personify.com. Information contained on our
website is not a part of this prospectus.
2
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock to be offered by Personify..... shares
Common stock outstanding after the
offering................................... shares
Use of proceeds............................. We plan to use the proceeds of
the offering for general
corporate purposes, including
sales and marketing and product
development, and for other
working capital purposes.
</TABLE>
The share amounts in this table are based on shares outstanding as of
March 31, 2000. This table excludes:
. 7,199,673 shares of common stock reserved for issuance under our 2000
equity incentive plan, of which options to purchase 4,285,692 shares
were outstanding as of March 31, 2000 at a per share weighted average
exercise price of $3.20;
. 1,000,000 shares available for issuance under our 2000 employee stock
purchase plan;
. 199,524 shares of convertible preferred stock issuable upon the
exercise of outstanding warrants as of March 31, 2000 at a weighted
average exercise price of $0.614 per share; and
. 246,913 shares of common stock issuable upon the exercise of
outstanding warrants as of March 31, 2000 at a weighted average
exercise price of $8.16 per share.
Except as otherwise indicated, information in this prospectus is based on
the following assumptions:
. our reincorporation in Delaware;
. the automatic conversion of shares of our preferred stock into shares
of our common stock prior to the closing of this offering;
. no exercise of the underwriters' over-allotment option; and
. the filing of our amended and restated certificate of incorporation
upon completion of this offering.
3
<PAGE>
Summary Consolidated Financial Information
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
------------------------- -----------------
1997 1998 1999 1999 2000
------- ------- ------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Consolidated Statements of
Operations Data:
Net revenues:
License revenues............... $ 10 $ 24 $ 639 $ 65 $ 645
Service revenues............... 5 166 704 37 568
------- ------- ------- ------- --------
Total net revenues.............. 15 190 1,343 102 1,213
Cost of revenues................ 2 107 1,961 139 1,370
------- ------- ------- ------- --------
Gross profit (loss)........... 13 83 (618) (37) (157)
------- ------- ------- ------- --------
Operating expenses:
Research and development....... 506 1,081 2,549 471 947
Sales and marketing............ 270 1,277 4,336 667 2,857
General and administrative..... 134 468 1,024 192 1,652
Stock-based compensation....... -- -- 690 3 8,030
Amortization of intangible
assets....................... -- -- 350 -- 350
------- ------- ------- ------- --------
Total operating expenses........ 910 2,826 8,949 1,333 13,836
------- ------- ------- ------- --------
Operating loss................ (897) (2,743) (9,567) (1,370) (13,993)
Interest and other income
(expense), net................ (65) 96 240 19 147
------- ------- ------- ------- --------
Net loss........................ (962) (2,647) (9,327) (1,351) (13,846)
Dividend accretion on preferred
stock......................... (88) (125) (125) (31) (31)
------- ------- ------- ------- --------
Net loss attributable to common
stockholders.................. $(1,050) $(2,772) $(9,452) $(1,382) $(13,877)
======= ======= ======= ======= ========
Net loss per share attributable
to common stockholders, basic
and diluted................... $ (0.72) $ (2.14) $ (5.47) $( 1.10) $ (3.91)
======= ======= ======= ======= ========
Weighted average shares used in
computing net loss per share
attributable to common
stockholders, basic and
diluted....................... 1,457 1,298 1,728 1,260 3,549
======= ======= ======= ======= ========
</TABLE>
See Note 2 of the notes to our consolidated financial statements for an
explanation of how we determined the number of shares used in computing per
share data.
<TABLE>
<CAPTION>
March 31, 2000
-----------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- ------- -----------
(unaudited)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents....................... $ 9,919 $ 9,919 $
Total assets.................................... 21,157 21,157
Long-term debt and capital lease obligations,
less current portion.......................... 45 45
Mandatorily redeemable preferred stock and
warrants...................................... 28,011 --
Total stockholders' equity (deficit)............ (13,791) 14,220
</TABLE>
The preceding balance sheet data is shown on a pro forma basis to give
effect to the conversion of our preferred stock into common stock prior to the
closing of this offering and on a pro forma, as adjusted basis to reflect the
proceeds of our sale of shares of common stock in this offering at an
assumed initial public offering price of $ per share, after deducting the
underwriting discounts and commissions and estimated offering expenses.
4
<PAGE>
RISK FACTORS
An investment in our common stock is very risky. You should consider the
risks described below before making an investment decision. Our business could
be materially and adversely affected by any of the following risks. The trading
price of our common stock could decline due to any of the following risks, and
you might lose all or part of your investment.
Risks Related to Our Business
Any predictions about our future revenues and expenses may not be as accurate
as they would be if we had a longer business history.
We were incorporated in March 1996, first recorded revenue in October
1996 and first recorded significant revenue in the latter half of 1998. Our
limited operating history makes financial forecasting and evaluating our
business difficult. Since we have limited financial data, any predictions about
our future revenues and expenses may not be as accurate as they would be if we
had a longer business history.
We have a history of losses, we expect continuing losses and we may never
achieve profitability.
We incurred net losses of $13.8 million in the three months ended March
31, 2000 and $9.3 million in the year ended December 31, 1999. We had an
accumulated deficit of $27.1 million as of March 31, 2000. We expect to
continue to incur net losses for the foreseeable future and may never become
profitable. We cannot assure you that our revenues will continue to grow or
that we will achieve or maintain profitability in the future. As our business
evolves, we expect to introduce new products and services and significantly
increase the size of our workforce. Accordingly, our product development, sales
and marketing and general and administrative expenses will increase
significantly. Consequently, we will need to significantly increase our
revenues to achieve and maintain profitability.
Our quarterly revenues and operating results may fluctuate, which may cause the
market price of our common stock to decline.
Our quarterly revenues and operating results have fluctuated in the past
and we expect that they will continue to do so in future periods because of a
number of factors, including:
. the demand for our products and services;
. the timing of sales of our products and services;
. the timing of customer orders and product implementations;
. unexpected delays in introducing new products and services;
. increased expenses, whether related to sales and marketing, product
development or administration;
. changes in the rapidly evolving market for e-business products;
. the mix of product license and service revenue; and
. costs related to possible acquisitions of technology or businesses.
In 1999, we recognized revenue on a subscription basis which resulted in
our recognizing revenue ratably over a twelve month period. In the first
quarter of 2000, we changed our standard license agreement to offer a perpetual
license. This new contract policy may cause our quarterly revenue to fluctuate
on a quarter-to-quarter basis.
5
<PAGE>
The strain that our expected growth may place upon our systems and management
resources may harm our ability to successfully offer our products and services
and implement our business plan.
Since our inception, we have significantly increased the size of our
operations. This growth has placed, and we expect that any future growth we
experience will continue to place, a significant strain on our management team,
systems and resources. For example, five of our senior executives, including
our chief executive officer, joined our company since January 1, 1999 and
during 1999 our general workforce increased by more than 200%. We plan to
further increase our total workforce, but we may be unable to hire, train,
retain, motivate and manage these new personnel. If we cannot manage our
expected growth, we may be unable to successfully offer our products and
services or implement our business plan. To manage anticipated growth of our
operations, we must:
. improve existing and implement new operational, financial and
management information controls, reporting systems and procedures;
. expand, train and manage our employee base; and
. maintain close coordination among our technical, finance, marketing
and sales staffs.
We also expect that our customer base will continue to grow. This
expansion will place significant pressures on our customer services and network
infrastructures, and we may be unable to accommodate greater sales volume
without service and installation interruptions or degradations in customer
service. Any of these problems could result in bad publicity, reduced revenues
or damage to our reputation.
In addition, we are in the process of moving our primary office
facilities to a new location. This move may disrupt our operations and could
harm our business.
Profile-based analysis and targeting may not achieve widespread acceptance by
e-businesses and the market for our products may not grow.
Our products and services are designed to enable e-businesses to analyze
and target their intended audiences more effectively. Because our industry is
new and evolving, we cannot be sure that the use of our products will result in
more effective targeting of offers and other marketing initiatives. If e-
businesses do not perceive the use of profiles, analytics and targeting as
cost-effective, our revenues may not increase and our results of operations
will suffer.
Because there is intense competition for qualified personnel in our industry,
we may not be able to recruit or retain the personnel we need to implement our
expansion plans.
Our future success depends on our ability to attract and retain highly
skilled personnel. Our executive offices are located in the San Francisco Bay
Area, where we face extreme competition for professionals from other internet
companies as well as from more traditional occupations. If we fail to identify,
attract, retain and motivate these highly skilled personnel, we may be unable
to expand our business.
In addition, we depend on the skills, experience and efforts of our
senior management. Our chief executive officer is an Indian citizen and at the
present time requires a visa to remain employed by us. Currently, our chief
executive officer's visa to work for us in the United States expires on March
7, 2001. In the event our chief executive officer's visa is revoked or is not
renewed, then our business may be harmed. Historically, our business also has
depended heavily on our chief technology officer, who is also one of our
founders. If we were to lose any key employee, we may be unable to execute our
growth strategy.
6
<PAGE>
Competition in our industry is intense and, if we are unable to compete
effectively, the demand for, or the prices of, our products may decline or we
may be unable to obtain or retain our customers.
The market for our products is highly competitive and likely to intensify
further. Increased competition could result in price reductions and reduced
gross margins, which could seriously harm our product revenues and competitive
position. Our principal competitors today include:
. Packaged analytical application vendors, such as E.piphany and
Broadbase, which offer suites of analytical applications, components
of which overlap with our products' functionality;
. Website analysis vendors, such as Accrue, NetGenesis, and WebTrends,
which provide software focused on analyzing website traffic; and
. The in-house information technology departments of our existing and
prospective customers.
The functions supported by these competitors' products overlap with our
products' functions in varying degrees. Even in those instances where little
overlap exists, the perception of overlap may reduce or delay our access to
prospective customers.
We expect that we will encounter many additional competitors, either in
our present market or in new markets we may choose to pursue in the future.
These competitors may include not only new companies, but also existing
companies in the enterprise software market, such as Microsoft, Oracle, Siebel
and SAP.
Some of our current or potential future competitors could have longer
operating histories, significantly greater financial, technical, marketing and
other resources, significantly greater name recognition and a larger installed
base of customers than we have. In addition, many of our competitors have well-
established relationships with current and potential customers of ours, have
extensive knowledge of our industry and are capable of offering a single-vendor
solution. As a result, our competitors may be able to respond more quickly to
new or emerging technologies and changes in customer requirements, devote
greater resources to the development, promotion and sale of their products, or
adopt more aggressive pricing policies to gain market share. In addition,
current and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products to address customer needs. We also expect that competition will
increase as a result of industry consolidation. For a further discussion of our
competition, see "Business--Competition."
If we do not expand our sales and deployment capacities, we may be unable to
meet our expected growth.
We need to expand our direct and indirect sales operations and the
personnel we use to deploy our products to sustain our rapid rate of growth. If
we are unsuccessful in these efforts, our revenues may suffer.
If we do not obtain and maintain strategic relationships with third parties, we
may be unable to increase market awareness of our products or generate
increased revenues.
A significant portion of our sales are influenced by the recommendations
of our products made by parties with which we have relationships, such as
consulting firms, system integrators and advertising agencies. We expect that
these third parties will provide an increasing amount of services to our
customers, enabling us to increase our profit margins by allowing us to focus
on providing our higher margin software products. If we are unable to obtain,
motivate and retain these third parties, we may be unable to increase our
revenues and profit margins.
7
<PAGE>
If we are unable to provide adequate customer support services, or if third-
party service providers do not meet our customers' needs, our reputation may
suffer and we may lose or be unable to attract customers.
Customers that use our products may engage our services or the services
of third-party service providers to implement and support our products. To the
extent that the services provided by us or these companies do not meet our
customers' expectations, our reputation and customer relationships may suffer.
Negative public perceptions or government regulations regarding internet
privacy could reduce demand for our products.
Negative public perception. E-business' potential abuse of profile data
has raised privacy concerns among some consumers, privacy-advocacy groups, and
government regulators in the United States and abroad. As a result, our
customers or potential customers could face regulatory constraints, or commit
to voluntary constraints, on the collection and use of profile data,
particularly when it contains personally identifiable information such as
people's names and contact information. These concerns may inhibit market
acceptance of our products or services.
An example of a privacy-related issue concerns a technology called
cookies, which are small files of information that e-businesses can store on
their visitors' computers, generally without the visitor's knowledge or
consent. Typically, our customers use cookies to store codes that help identify
visitors by unique but anonymous profiles. Nevertheless, because it is possible
for cookies to be used as pointers not just to anonymous profiles but also to
profiles with personally identifiable information, cookie technology itself
could face regulation or be disabled by a large percentage of an e-business'
visitors. Either outcome would impede the effectiveness of our software.
Government regulation. The regulatory environment surrounding the
internet continues to evolve in ways that are not predictable. To date,
government regulation has focused primarily on personally identifiable
information. For example, the European Union issued a directive about
personally identifiable internet data, Germany enacted legislation covering
data that could become personally identifiable through subsequent processing
and the U.S. Federal Trade Commission is currently investigating the privacy
implications of a major internet advertising network's plan to merge its online
database of behavioral profiles with an offline database that contains
personally identifiable information. Because our software is designed to give
our customers the option of collecting personally identifiable data on their
visitors, any new regulation restricting this practice may eliminate elements
of our software's functionality.
We cannot assure you that strategic investments or acquisitions we may make
will be beneficial to our business.
We recently acquired Anubis Solutions Incorporated, a data-warehousing
technology and services company, and we may make additional acquisitions or
investments in the future. These transactions are risky and their intended
benefits may never be realized. In addition, if we finance the acquisitions or
investments by issuing equity securities, our existing stockholders could be
diluted. Any amortization of goodwill or other intangible assets, or other
charges resulting from the costs of acquisitions, could adversely affect our
operating results.
These transactions could also involve numerous operational risks,
including:
. problems combining the purchased operations, products or technologies;
. unanticipated costs;
. diversion of management's attention away from our core business;
. adverse effects on existing business relationships; and
. potential loss of key employees, particularly those of the purchased
organizations.
8
<PAGE>
We may not be able to successfully integrate any businesses, products or
technologies that we might acquire in the future.
We expect operating expenses to increase significantly over the next year,
which may impede our ability to achieve profitability.
As we grow our business, we expect operating expenses to increase
significantly. As a result, we will need to generate increased quarterly
revenue to achieve and maintain profitability. In particular, we expect to
incur additional costs and expenses related to:
. the expansion of our sales force and distribution channels;
. the expansion and development of our product and services offerings;
. the development of strategic relationships;
. the expansion of management and infrastructure;
. brand development, marketing and other promotional activities; and
. our international expansion efforts.
If our quarterly revenues do not also increase, these increased expenses
will cause us to remain unprofitable.
We have limited experience with international operations, and we may not
succeed in international markets.
Our revenues could be adversely affected if we are unable to successfully
market and implement our products and services in foreign markets. To date, we
have had very limited experience customizing our software for markets outside
of the United States. We may experience difficulty in performing these tasks
and managing international operations because of distance, trade regulation,
language barriers and cultural differences.
If we are unable to keep pace with the rapid changes in technology that
characterize our market, our products could become obsolete and our product
sales could suffer.
The market for our products is marked by rapid technological change,
frequent new product introductions, internet-related technology enhancements,
uncertain product life cycles, changes in customer demands and evolving
industry standards. If we are unable to develop and market new products, new
product enhancements or new products compliant with existing or emerging
internet technology standards, we may be unable to sell our products and
increase our revenues. In addition, any delays in developing and releasing
enhanced or new products could cause our products to be incompatible with our
customers' systems and could result in our customers choosing alternate
vendors, which would negatively affect our product sales.
If we are unable to protect our intellectual property, third parties could use
our intellectual property without our consent.
Our success and our ability to compete are highly dependent on our
proprietary technologies, which we seek to protect through a combination of
patent, copyright, trade secret and trademark law. We may be unable to prevent
misappropriation of our technology, particularly in foreign countries where the
laws may not protect our proprietary rights as fully as in the United States.
9
<PAGE>
Others may bring infringement claims against us, which could harm our business.
Third parties may claim that our products infringe their intellectual
property rights. Defending any claim of intellectual property infringement,
regardless of merit, is expensive and time-consuming and may distract our
management's attention away from our business. As a result of any claim or
anticipated claim, we may agree or be forced to:
. pay substantial damages;
. cease selling or using products that incorporate the infringed
intellectual property;
. obtain a license for the infringed intellectual property, which might
not be available on commercially acceptable terms or at all; or
. modify our products to avoid infringing others' intellectual property
rights, which we might not be able to do at all or quickly enough to
prevent serious harm to our competitive position in the market.
Product errors and limitations of our software could lead to loss of customers.
Our products are very complex and may contain errors or result in
failures that we did not detect or anticipate when introducing our products to
the market. In addition, our software as designed may not scale to the
technical demands of our customers as their businesses evolve. The discovery of
any product errors or design limitations in our software could result in
adverse publicity, loss of or delay in market acceptance or claims by customers
against us, any of which could cause our expenses to increase and our revenues
to decline.
If we, or third parties on which we rely, are unable to protect the
confidential and customer sensitive data in our systems, our reputation may be
harmed and we may lose customers.
Our operations depend on protecting the confidential and customer-
sensitive data in our systems from damage or interruption from events such as
human error, break-ins, sabotage, computer viruses and intentional acts of
vandalism. Our systems are housed at our facilities and those of a third party.
If we or the third party are unable to adequately protect our systems or if
defects in our products leave customers vulnerable to break-ins, our business
would be harmed.
If acceptance of the internet as a medium for business does not continue to
grow, our market opportunity may be constrained.
Our future success depends on an increase in the use of the internet as a
medium for business purposes. The e-business market is new and rapidly
evolving. If transacting business over the internet does not prove to be
profitable, our revenues may suffer.
Risks Related to this Offering
Our stock price may be volatile, and you may not be able to resell your shares
at or above the initial public offering price.
There has been no public market for our common stock prior to this
offering. The initial public offering price for our common stock will be
determined through negotiations between the underwriters and us. The market
price of our common stock may fluctuate after the offering. If you purchase
shares of common stock, you may not be able to resell those shares at or above
the initial public offering price. The market price of our common stock may
fluctuate significantly in response to factors, some of which are beyond our
control, including:
. actual or anticipated fluctuations in our annual and quarterly
operating results;
. changes in market valuations of other e-business technology companies;
10
<PAGE>
. changes in financial estimates by securities analysts;
. variations in our operating results which may cause us to fail to meet
analysts' or investors' expectations;
. announcements by us or our competitors of significant technical
innovations, contracts, acquisitions, strategic partnerships, joint
ventures or capital commitments;
. additions or departures of key personnel;
. future sale of equity or debt securities; and
. general economic, industry and market conditions.
In addition, the stock market has experienced extreme volatility that
often has been unrelated to the performance of particular companies. These
market fluctuations may cause our stock price to fall regardless of our
performance. In the past, companies that have experienced volatility in the
market price of their stock have been the object of securities class action
litigation. If we were the object of securities class action litigation, it
could result in substantial costs and a diversion of management's attention and
resources.
You should read the "Underwriting" section for a more complete discussion
of the factors that will be considered in determining the initial public
offering price of our common stock.
We may be unable to meet our future capital requirements and stockholders may
experience additional dilution.
We believe that the net proceeds of this offering will be sufficient to
meet our capital requirements through the next 12 months. However, we may need,
or could elect to seek additional funding prior to that time, particularly if
we elect to acquire complementary businesses, products or technologies. In the
event we are required to raise additional funds, we may not be able to do so on
favorable terms, if at all. Further, if we issue new equity securities,
stockholders may experience dilution or the holders of new equity securities
may have rights, preferences or privileges senior to those of existing holders
of common stock. For additional information on our anticipated future capital
requirements, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
Substantial future sales of our common stock in the public market may depress
our stock price.
Our current stockholders hold a substantial number of shares, which they
will be able to sell in the public market in the near future. Sales of a
substantial number of shares of our common stock after this offering could
cause our stock price to fall. In addition, the sale of these shares could
impair our ability to raise capital through the sale of additional stock. You
should read "Shares Eligible for Future Sale" for a full discussion of shares
that may be sold in the public market in the future.
We have broad discretion in how we use the proceeds of this offering, and we
may not use these proceeds effectively.
Our management has broad discretion in the use of the net proceeds of
this offering and could spend the net proceeds in ways that do not yield a
favorable return or to which stockholders object. We may also use the proceeds
to acquire complementary businesses or technologies.
11
<PAGE>
USE OF PROCEEDS
Our proceeds from the sale of the shares of common stock we are
offering are estimated to be $ million ($ million if the underwriters'
over-allotment option is exercised in full) assuming an initial public offering
price of $ per share and after deducting the underwriting discounts and
commissions and estimated offering expenses.
We plan to use the proceeds of the offering for general corporate
purposes, including branding, advertising, increases in our sales and marketing
operations, and new technology and products. The balance, if any, will be added
to general working capital. We may also use some of the proceeds to acquire
other companies, technology or products that complement our business, although
we currently have no commitments or agreements for any acquisitions or
investments and are not involved in negotiations regarding any acquisitions or
investments. Pending these uses, the net proceeds of this offering will be
invested in short-term, interest-bearing securities.
The precise uses to which we will apply the net proceeds of this offering
will be selected by management, under the supervision of our board of
directors, in light of future circumstances and our business prospects. As a
result, we will retain broad discretion in the allocation of the net proceeds
of this offering.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently intend to retain all future earnings, if any, for use in the
operation and expansion of our business and do not anticipate declaring or
paying cash dividends for the foreseeable future.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve
substantial risks and uncertainties. In some cases you can identify these
statements by forward-looking words such as "anticipate," "believe," "could,"
"estimate," "expect," "intend," "may," "should," "will" and "would" or similar
words. You should read statements that contain these words carefully because
they discuss our future expectations, contain projections of our future results
of operations or our future financial position or state other "forward-looking"
information. We believe that it is important to communicate our future
expectations to our investors. However, there may be events in the future that
we are not able to accurately predict or control. The important factors listed
in the preceding "Risk Factors" section, as well as the cautionary language
elsewhere in this prospectus, provide examples of risks, uncertainties and
events that may cause our actual results to differ materially from the
expectations we describe in our forward-looking statements. Before you invest
in our common stock, you should be aware that the occurrence of the events
described in these risk factors and elsewhere in this prospectus could have an
adverse effect on our business, results of operations and financial position.
Accordingly, you should not rely on our forward-looking statements in making
your investment decision.
12
<PAGE>
CAPITALIZATION
The following table sets forth the following information:
. our actual capitalization as of March 31, 2000;
. our pro forma capitalization after giving effect to the conversion of
all outstanding shares of preferred stock into 14,147,082 shares of
common stock; and
. our pro forma, as adjusted capitalization to reflect the proceeds from
the sale of shares of common stock at an assumed initial public
offering price of $ per share in this offering, less
underwriting discounts and commissions and estimated offering
expenses.
<TABLE>
<CAPTION>
March 31, 2000
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands except share
data)
(unaudited)
<S> <C> <C> <C>
Long-term debt and capital lease obligations,
less current portion......................... $ 45 $ 45 $ 45
-------- -------- -------
Mandatorily redeemable preferred stock and
warrants, no par value:
Authorized: 14,563,281 shares (actual), no
shares (pro forma and pro forma, as
adjusted);
Issued and outstanding: 14,147,082 shares
(actual), no shares (pro forma and pro
forma, as adjusted) ........................ 28,011 -- --
-------- -------- -------
Stockholders' equity (deficit):
Common stock, $0.001 par value:
Authorized: 30,000,000 shares (actual, pro
forma and pro forma, as adjusted);
Issued and outstanding: 5,326,997 shares
(actual), 19,474,079 shares (pro forma)
and shares (pro forma, as
adjusted) ................................. 5 19
Additional paid-in capital.................... 53,876 82,873
Unearned stock-based compensation............. (31,636) (31,636)
Notes receivable from stockholders............ (8,914) (9,914)
Accumulated deficit........................... (27,122) (27,122)
-------- -------- -------
Total stockholders' (deficit) equity......... (13,791) 14,220
-------- -------- -------
Total capitalization...................... $ 14,265 $ 14,265 $
======== ======== =======
</TABLE>
This tables excludes:
. 7,199,673 shares of common stock reserved for issuance under our 2000
equity incentive plan, of which options to purchase 4,285,692 shares
were outstanding as of March 31, 2000 at a per share weighted average
exercise price of $3.20;
. 1,000,000 shares available for issuance under our 2000 employee stock
purchase plan as of March 31, 2000;
. 199,524 shares of convertible preferred stock issuable upon the
exercise of outstanding warrants as of March 31, 2000 at a weighted
average exercise price of $0.614 per share; and
. 246,913 shares of common stock issuable upon the exercise of
outstanding warrants as of March 31, 2000 at a weighted average
exercise price of $8.16 per share.
13
<PAGE>
DILUTION
The pro forma net tangible book value as of March 31, 2000 was
approximately $10.7 million or approximately $0.55 per share of common stock.
Pro forma net tangible book value represents the amount of our total tangible
assets less total liabilities, divided by 19,474,079 shares of common stock
outstanding after giving effect to the conversion of all our outstanding
preferred stock into common stock. Dilution in pro forma net tangible book
value per share represents the difference between the amount per share paid by
purchasers of shares of our common stock in this offering and the pro forma net
tangible book value per share of our common stock immediately following this
offering.
After giving effect to our sale of the shares of common stock
offered in this offering and after deducting the underwriting discounts and
commissions and estimated offering expenses payable by us, our pro forma, as
adjusted net tangible book value as of March 31, 2000 would have been
$ , or approximately $ per share. This represents an immediate
increase in net tangible book value of $ per share to existing
stockholders and an immediate dilution in net tangible book value of $
per share to new investors. The following table illustrates this dilution on a
per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............. $
Pro forma net tangible book value per share before
offering................................................. $0.55
Increase in pro forma book value per share attributable to
new investors............................................
-----
Pro forma, as adjusted net tangible book value per share
after the offering.........................................
----
Dilution in pro forma net tangible book value per share to
new investors.............................................. $
====
</TABLE>
The following table sets forth, on a pro forma basis as of March 31,
2000, the total consideration paid and the average price per share paid by
existing investors and by the new investors, before deducting the underwriting
discounts and commissions and estimated offering expenses payable by us at the
assumed public offering price of $ per share.
<TABLE>
<CAPTION>
Average
Shares Purchased Total Consideration Price
--------------------- ---------------------- Per
Number Percentage Amount Percentage Share
---------- ---------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C>
Existing shareholders... 19,474,079 % $ % $
New investors...........
---------- --- ----------- ---
Total................. 100% $ 100%
========== === =========== ===
</TABLE>
The exercise of outstanding options would increase the dilutive effect to
new investors.
The foregoing computations exclude:
. 7,199,673 shares of common stock reserved for issuance under our 2000
equity incentive plan, of which options to purchase 4,285,692 shares
were outstanding as of March 31, 2000 at a per share weighted average
exercise price of $3.20;
. 1,000,000 shares available for issuance under our 2000 employee stock
purchase plan as of March 31, 2000;
. 199,524 shares of convertible preferred stock issuable upon the
exercise of outstanding warrants as of March 31, 2000 at a weighted
average exercise price of $0.614 per share; and
. 246,913 shares of common stock issuable upon the exercise of
outstanding warrants as of March 31, 2000 at a weighted average
exercise price of $8.16 per share.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statements of operations data for the years
ended December 31, 1997, 1998 and 1999 and the selected consolidated balance
sheet data as of December 31, 1998 and 1999 have been derived from our audited
consolidated financial statements included elsewhere in this prospectus. The
selected consolidated statements of operations for the period from March 20,
1996 (date of inception) to December 31, 1996 and the selected consolidated
balance sheet data as of December 31, 1996 are derived from audited
consolidated financial statements that are not included in this prospectus. The
consolidated statements of operations data for the three month periods ended
March 31, 1999 and 2000 and the consolidated balance sheet data as of March 31,
2000 are derived from our unaudited consolidated financial statements that
include, in the opinion of our management, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the
information set forth therein. The historical results are not necessarily
indicative of results to be expected for any future period. The selected
consolidated financial data should be read in conjunction with the consolidated
financial statements and the notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
Period from
March 20, 1996
(Date of Three Months
Inception) to Year Ended December 31, Ended March 31,
December 31, ------------------------- -----------------
1996 1997 1998 1999 1999 2000
-------------- ------- ------- ------- ------- --------
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Net revenues:
License revenues....... $ -- $ 10 $ 24 $ 639 $ 65 $ 645
Service revenues....... 10 5 166 704 37 568
------ ------- ------- ------- ------- --------
Total net revenues...... 10 15 190 1,343 102 1,213
Cost of revenues........ 2 2 107 1,961 139 1,370
------ ------- ------- ------- ------- --------
Gross profit (loss)... 8 13 83 (618) (37) (157)
------ ------- ------- ------- ------- --------
Operating expenses:
Research and
development.......... 246 506 1,081 2,549 471 947
Sales and marketing.... 40 270 1,277 4,336 667 2,857
General and
administrative....... 63 134 468 1,024 192 1,652
Stock-based
compensation......... -- -- -- 690 3 8,030
Amortization of
intangible assets.... -- -- -- 350 -- 350
------ ------- ------- ------- ------- --------
Total operating
expenses.............. 349 910 2,826 8,949 1,333 13,836
------ ------- ------- ------- ------- --------
Operating loss........ (341) (897) (2,743) (9,567) (1,370) (13,993)
Interest and other
income (expense),
net................... 2 (65) 96 240 19 147
------ ------- ------- ------- ------- --------
Net loss................ (339) (962) (2,647) (9,327) (1,351) (13,846)
Dividend accretion on
preferred stock....... -- (88) (125) (125) (31) (31)
------ ------- ------- ------- ------- --------
Net loss attributable to
common stockholders... $ (339) $(1,050) $(2,772) $(9,452) $(1,382) $(13,877)
====== ======= ======= ======= ======= ========
Net loss per share
attributable to common
stockholders, basic
and diluted........... $(0.24) $ (0.72) $ (2.14) $ (5.47) $ (1.10) $ (3.91)
====== ======= ======= ======= ======= ========
Weighted average shares
used in computing net
loss per share
attributable to common
stockholders, basic
and diluted........... 1,438 1,457 1,298 1,728 1,260 3,549
====== ======= ======= ======= ======= ========
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
At December 31, At March 31,
----------------------------- ------------
1996 1997 1998 1999 2000
---- ------ ------ ------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents......... $ 55 $ 65 $3,313 $11,803 $ 9,919
Total assets...................... 77 115 3,782 20,398 21,157
Long-term debt and capital lease
obligations, net of current
portion......................... -- -- -- 54 45
Mandatorily redeemable preferred
stock and warrants.............. 336 1,375 7,473 25,540 28,011
Total stockholders' deficit....... (338) (1,389) (4,160) (8,461) (13,791)
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and
results of operations in conjunction with our consolidated financial statements
and related notes. This discussion contains forward-looking statements that
involve risks and uncertainties. Our actual results and the timing of certain
events may differ materially from those anticipated in these forward-looking
statements as a result of factors including those in "Risk Factors" starting on
page 5 and elsewhere in this prospectus.
Overview
We provide e-business software that enables companies to measure, analyze
and optimize customer-focused profitability metrics. We believe the insight
that companies gain from using our software will enable them to accelerate
growth and profitability at every stage of their e-business evolution.
We generate revenues principally from licensing our software products
directly to customers and providing related services including implementation,
consulting and customer support. Through March 31, 2000, all of our revenues
have been derived from sales within the United States through our direct sales
force. Our license agreements generally provide that customers pay an up-front
implementation fee and a monthly software license subscription fee for use of
the software and related maintenance and customer support for a period of
typically one year. The amount of the monthly license fee varies based on the
number of profiles a customer generates and maintains with our software. These
revenues are generally recognized ratably over the term of the contract because
these contracts provide for post-contract support that includes unspecified
product updates and customer support for which vendor specific objective
evidence does not exist.
We derive consulting revenues from two principal sources: data-
warehousing services and segmentation and profiling analysis services. We
recognize revenues from data-warehousing services once we have performed the
services. The revenues derived from segmentation and profiling analysis
services are recognized on completion of those services unless the contract
provides for future deliverables, which are typically in relation to software
licenses. In this instance, the revenue is deferred and recognized ratably over
the term of the contract commencing after implementation of the software
licenses.
We recognize revenue on the basis set forth above when an executed
agreement or purchase order has been received and the amounts to be paid by the
customer are fixed or determinable and deemed collectable.
During the first quarter of 2000, our standard license agreement was
changed to offer a perpetual license. We will commence recognizing revenues
from these licenses after our software has been fully implemented.
Typically, we have been the sole provider of consulting and deployment
services for our software products. We recently entered into contracts with
Deloitte Consulting, Ernst & Young and marchFIRST, which provide for their
consultants to supply our customers with consulting and deployment services. We
intend to encourage our customers to purchase services directly from these
consulting organizations. We believe this will increase the number of
consultants providing services related to our software products and will enable
us to reduce our direct consulting and deployment efforts. As a result, we
believe that we will be able to improve our overall gross margins by shifting
our revenue mix toward license revenue and away from service revenues, which
could substantially improve our gross margins. We also believe that our
arrangements with these consulting organizations will encourage them to
generate sales leads for licenses of our software within their own customer
base.
Our cost of license revenues primarily consists of license fees due to
third parties under technology license arrangements. Our cost of service
revenues includes salaries and related expenses for our consulting and
17
<PAGE>
deployment staff, costs of subcontracting to consulting organizations and an
allocation of facilities, communications and depreciation expense. Our
operating expenses are classified into three general categories: research and
development, sales and marketing and general and administrative. We classify
all charges to these operating expense categories based on the nature of the
expenditure. We allocate the costs for overhead and facilities to each of the
functional areas that use the overhead and facilities services based on their
headcount.
Effective September 30, 1999, we acquired Anubis Solutions Incorporated,
a data-warehousing technology and services company, in exchange for 1,438,428
shares of our common stock and the issuance of options and warrants to purchase
640,764 shares of our common stock. The total cost of the acquisition,
including transaction costs, was approximately $4.5 million. The acquisition
was accounted for using the purchase method of accounting. The results of
operations of Anubis have been included with our results of operations for
periods subsequent to the date of acquisition, and the acquired net assets were
recorded at their estimated fair values at the effective date of the
acquisition. We recorded goodwill and other intangible assets of $4.2 million
to be amortized over their estimated useful economic lives of approximately
three years.
Results of Operations for the Three Months Ended March 31, 2000 and 1999
Net Revenues
Total net revenues. Total net revenues increased to $1.2 million for the
three months ended March 31, 2000 from $102,000 for the same period in 1999.
For the three months ended March 31, 2000, two customers accounted for 45% of
total net revenues, and for the three months ended March 31, 1999, three
customers accounted for 60% of total net revenues.
License revenues. License revenues increased to $645,000 in the three
months ended March 31, 2000 from $65,000 for the same period in 1999.
Approximately $300,000 of the increase was due to an increase in the number of
licenses sold. In addition, during the three months ended March 31, 2000, a
$250,000 payment was recognized in connection with the termination of a license
agreement with an original equipment manufacturer under which no products have
been sold and under which we have no remaining obligations. Additional
termination payments will be recognized on a cash basis. Approximately $1.5
million was paid subsequent to March 31, 2000 and will be recognized in the
second quarter of 2000.
Service revenues. Service revenues increased to $568,000 for the three
months ended March 31, 2000 from $37,000 for the same period in 1999. The
increase in service revenues, which is primarily professional service fees, was
due to an increase in the number of customers and sales of product licenses.
Service revenues for the three months ended March 31, 2000 includes $286,000 in
professional fees from a data-warehousing consulting arrangement from our
acquisition of Anubis Solutions Incorporated. As a percentage of total net
revenues, service revenues increased to 47% in the three months ended March 31,
2000 from 36% for the same period in 1999. The increase in service revenues as
a percentage of total net revenues was due to the consulting arrangement
performed in the three months ended March 31, 2000. We believe that service
revenues will decrease as a percentage of total net revenues as we shift our
revenue mix toward license revenues.
Cost of Revenues
Cost of license revenues. Cost of license revenues consists of license
fees due to third parties under technology license arrangements and has not
been significant to date. Cost of license revenue increased to $26,000 in the
three months ended March 31, 2000 from $8,000 for the same period in 1999.
Cost of service revenues. Cost of services revenues includes salary
expense and other related costs for our professional service group as well as
third-party contractor expenses. Cost of service revenues increased to $1.3
million, or 237% of service revenues, for the three months ended March 31, 2000
from $131,000, or 354% of service revenues, for the same period in 1999. The
increase in cost of service revenues in absolute
18
<PAGE>
dollars resulted primarily from the addition of employees from our acquisition
of Anubis and subcontracting of consulting services to consulting organizations
to support customer demand for consulting services. Cost of service revenues as
a percentage of services revenues can be expected to vary from period to period
depending on the mix of services we provide, whether such services are provided
by us or third-party contractors and overall untilization rates.
Operating Expenses
Research and development. Research and development expenses consist
primarily of personnel costs to support product development. Research and
development expenses increased to $947,000 in the three months ended March 31,
2000 from $471,000 in the same period in 1999, representing 78% and 462% of
total net revenues. The increase in absolute dollars in these periods was due
to the increase in engineering personnel engaged in expanding our product
pipeline. We believe that continued investment in research and development is
critical to maintaining a competitive advantage, and as a result, we expect
research and development expenses to increase in absolute dollars in future
periods.
Sales and marketing. Sales and marketing expenses consist primarily of
salaries and other related costs for sales and marketing personnel, sales
commissions, public relations, tradeshows, travel, marketing materials and
advertising. Sales and marketing expense increased to $2.9 million in the three
months ended March 31, 2000 from $667,000 in the same period in 1999,
representing 236% and 654% of total net revenues. Sales and marketing expenses
increased in absolute dollars in these periods due to a significant increase in
sales and marketing personnel, higher commissions resulting from the absolute
dollar growth in our bookings, and increased marketing program expenditures. We
expect that the absolute dollar amount of sales and marketing expenses will
continue to increase due to the planned growth of our sales force, including
the establishment of sales offices in additional domestic and international
locations, and due to expected additional increases in advertising and
marketing programs and other promotional activities.
General and administrative. General and administrative expenses consist
primarily of salaries and other related costs of operations and finance
employees, legal and accounting services and certain facilities-related
expenses. General and administrative expenses increased to $1.7 million in the
three months ended March 31, 2000 from $192,000 in the same period in 1999,
representing 136% and 188% of total net revenues. The increase in absolute
dollars for these periods was due to increased personnel and facility expenses
necessary to support our expanding operations. General and administrative
expenses decreased as a percentage of total revenue primarily because
significant revenue growth outpaced increases in general and administrative
expenditures. We believe general and administrative expenditures will increase
in absolute dollars as we expect to increase staffing and infrastructure
expenses to support our continued growth. We expect general and administrative
expenses to increase substantially once we become a public company due to
additional reporting requirements and as we hire additional general and
administrative personnel.
Stock-based compensation. For the three months ended March 31, 2000 and
1999 we recorded stock-based compensation for the difference between either the
price of stock issued or the exercise price of stock option grants and the
deemed fair market value of our common stock at the time of grant. We recorded
an aggregate stock-based compensation charge of $33.1 million for the three
months ended March 31, 2000 and $57,000 for the same period in 1999. Stock-
based compensation is amortized over the vesting period of the underlying
options, which is generally four years, based on an accelerated vesting method.
We recorded stock-based compensation expense of $8.0 million for the three
months ended March 31, 2000 and $3,000 for the same period in 1999.
In February 2000, the Company sold 1,691,000 shares of restricted common
stock to Mr. Love Goel at a price of $5.25 per share in exchange for an
interest-free, full-recourse promissory note of $8.9 million collateralized by
the restricted stock. For the three months ended March 31, 2000 the Company
recorded stock-based compensation expense of approximately $2.1 million and at
March 31, 2000 had approximately
19
<PAGE>
$20.7 million unearned stock-based compensation associated with the issuance.
Subsequently, Mr. Goel was hired by the Company as an employee effective May
2000. Upon becoming an employee, the value of the stock was remeasured in
accordance with APB 25.
Amortization of intangibles. In connection with our acquisition of Anubis
Solutions, we will amortize, over a three year period, the purchase price
amounts allocated to the assembled workforce of $1.0 million, covenants not to
compete of $269,000, acquired technology of $2.0 million and goodwill of
$921,000.
Results of Operations for the Years Ended December 31, 1999, 1998 and 1997
Net Revenues
Total net revenues. Total net revenues increased to $1.3 million for 1999
from $190,000 in 1998. Total net revenues increased to $190,000 in 1998 from
$15,000 in 1997. For 1999, Retek accounted for 29% of our total net revenues,
for 1998, ZDTV and Sprint accounted for 17% and 13% of total net revenues, and
for 1997, Virtual Vineyards and Yahoo! accounted for 67% and 33% of total net
revenues.
License revenues. License revenues increased to $639,000, or 48% of total
net revenues, in 1999 from $24,000, or 13% of total net revenues, in 1998. This
increase in license revenues in absolute dollar amounts and as a percentage of
total net revenues was due to an increase in the number of licenses sold and
reflects of the growing market acceptance of our Essentials product in 1999.
License revenues increased to $24,000 in 1998 from $10,000 in 1997 because our
Essentials product line was released in June 1998.
Service revenues. Service revenues increased to $704,000 for 1999 from
$166,000 in 1998. Service revenues increased to $166,000 for 1998 from $5,000
in 1997. The increase in service revenues, which is primarily professional
services fees, in both periods was due to an increase in the number of
customers and sales of product licenses. Service revenues for 1999 includes
$390,000 in professional fees from a data-warehousing consulting arrangement
from the Anubis Solutions Incorporated acquisition. As a percentage of total
net revenues, service revenues decreased to 52% in 1999 from 87% in 1998. The
decrease in service revenues as a percentage of total net revenues in 1999 was
due to Essentials license sales outpacing the growth in service revenues, and
generally reflects a shift in our revenues mix toward license revenues. We
believe that service revenues will continue to increase in absolute dollar
amounts, but not as a percentage of total net revenues.
Cost of Revenues
Cost of license revenues. Cost of license revenues consists of license
fees due to third parties under technology license arrangements and has not
been significant to date. Product license cost increased to $23,000 in 1999
from $10,000 in 1998. Cost of license revenues in 1997 were insignificant.
Cost of service revenues. Service costs include salary expense and other
related costs for our professional service group as well as third-third party
contractor expenses. Cost of service revenues increased to $1.9 million, or
275% of service revenues in 1999 from $97,000, or 58% of service revenues in
1998. The increase in cost of service revenues in absolute dollars resulted
primarily from the addition of employees from the Anubis acquisition and
subcontracting of consulting services to support customer demand for our
consulting services. Cost of service revenues as a percentage of service
revenues can be expected to vary from period to period depending on the mix of
services we provide, whether such services are provided by us or third-party
contractors, and overall utilization rates.
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<PAGE>
Operating Expenses
Research and development. Research and development expenses consist
primarily of personnel costs to support product development. Research and
development expenses increased to $2.5 million in 1999 from $1.1 million in
1998, representing 190% and 569% of total net revenues, respectively. Research
and development expenses increased to $1.1 million in 1998 from $506,000 in
1997. The increase in absolute dollars in these periods was due to the increase
in engineering personnel engaged in expanding our product pipeline. We believe
that continued investment in research and development is critical to
maintaining a competitive advantage, and, as a result, we expect research and
development expenses to increase in absolute dollars in future periods.
Sales and marketing. Sales and marketing expenses consist primarily of
salaries and other related costs for sales and marketing personnel, sales
commissions, public relations, tradeshows, travel, marketing materials and
advertising. Sales and marketing expenses increased to $4.3 million in 1999
from $1.3 million in 1998, representing 323% and 672% of total net revenues,
respectively. Sales and marketing expenses increased to $1.3 million in 1998
from $270,000 in 1997. Sales and marketing expenses increased in absolute
dollars in these periods due to a significant increase in sales and marketing
personnel, higher commissions resulting from the absolute dollar growth in our
bookings and increased marketing program expenditures. We expect that the
absolute dollar amount of sales and marketing expenses will continue to
increase due to the planned growth of our sales force, including the
establishment of sales offices in additional domestic and international
locations, and due to expected additional increases in advertising and
marketing programs and other promotional activities.
General and administrative. General and administrative expenses consist
primarily of salaries and other related costs of operations and finance
employees, legal and accounting services and certain facilities-related
expenses. General and administrative expenses increased to $1.0 million in 1999
from $468,000 in 1998, representing 76% and 246% of total net revenues,
respectively. General and administrative expenses increased to $468,000 in 1998
from $134,000 in 1997. The increase in absolute dollars for these periods was
due to increased personnel and facility expenses necessary to support our
expanding operations. General and administrative expenses decreased as a
percentage of total net revenues primarily because significant revenue growth
outpaced increases in general and administrative expenditures. We believe
general and administrative expenditures will increase in absolute dollars as we
expect to increase staffing and infrastructure expenses to support our
continued growth. We expect general and administrative expenses to increase
substantially once we become a public company due to the additional reporting
requirements and as we hire additional general and administrative personnel.
Stock-based compensation. In 1999 we recorded stock-based compensation
for the difference between either the price of stock issued or the exercise
price of stock option grants and the deemed fair market value of our common
stock at the time of grant. We recorded an aggregate stock-based compensation
charge of $3.2 million in 1999. Stock-based compensation is amortized over the
vesting period of the underlying options, which is generally four years, based
on an accelerated vesting method. We recorded stock-based compensation expense
of $690,000 for the year ended December 31, 1999.
Amortization of intangible assets. In connection with our acquisition of
Anubis Solutions Incorporated, we will amortize, over a three-year period, the
purchase price amounts allocated to the assembled workforce of $1.0 million,
acquired technology of $2.0 million, covenants not to compete of $269,000 and
goodwill of $921,000.
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<PAGE>
Quarterly Operating Results
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31,
1999 1999 1999 1999 2000
--------- -------- --------- -------- ---------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C>
Net revenues:
License revenues............. $ 65 $ 81 $ 162 $ 331 $ 645
Service revenues............. 37 75 66 526 568
------- ------- ------- ------- --------
Total net revenues........ 102 156 228 857 1,213
------- ------- ------- ------- --------
Cost of revenues:
Cost of license revenues..... 8 4 5 6 26
Cost of services revenues.... 131 341 452 1,014 1,344
------- ------- ------- ------- --------
Total cost of revenues.... 139 345 457 1,020 1,370
------- ------- ------- ------- --------
Gross loss..................... (37) (189) (229) (163) (157)
------- ------- ------- ------- --------
Operating expenses:
Research and development..... 471 530 740 808 947
Sales and marketing.......... 667 888 1,232 1,549 2,857
General and administrative... 192 127 199 506 1,652
Stock-based compensation..... 3 136 207 344 8,030
Amortization of intangible
assets..................... -- -- -- 350 350
------- ------- ------- ------- --------
Total operating expenses.. 1,333 1,681 2,378 3,557 13,836
------- ------- ------- ------- --------
Operating loss................. (1,370) (1,870) (2,607) (3,720) (13,993)
Other income (expense), net.... 19 8 59 154 147
------- ------- ------- ------- --------
Net loss....................... $(1,351) $(1,862) $(2,548) $(3,566) $(13,846)
======= ======= ======= ======= ========
</TABLE>
Liquidity and Capital Resources
We have funded our operations since inception primarily through private
placements of our equity securities, raising net proceeds of approximately
$27.6 million through March 31, 2000. At March 31, 2000, our principal sources
of liquidity included approximately $9.9 million of cash and cash equivalents.
Net cash used in operating activities was $3.3 million for the three
months ended March 31, 2000 and $1.3 million for the same period in 1999. Net
cash used in operating activities was $865,000 in 1997, $2.5 million in 1998
and $6.8 million in 1999. These increases were primarily due to increased net
losses. Net cash used in investing activities was $1.1 million for the three
months ended March 31, 2000 and $166,000 for the same period in 1999. Net cash
used in investing activities was $16,000 in 1997, $197,000 in 1998 and $2.7
million in 1999. These increases were primarily due to capital expenditures for
computers and equipment. Net cash provided by financing activities was $2.6
million for the three months ended March 31, 2000 and zero for the same period
in 1999. Net cash provided by financing activities was $891,000 in 1997,
$6.0 million in 1998 and $17.9 million in 1999. These increases were primarily
related to the sale of preferred stock.
On March 31, 2000, we signed a credit facility consisting of a $3.0
million equipment lease line and a revolving line of credit that provides for
borrowings of up to the lesser of $1.0 million or 85% of eligible accounts
receivable, which generally includes all balances aged less than 60 days. Our
line of credit bears interest at the bank's prime lending rate plus 2.0%. As of
March 31, 2000, there were no balances outstanding under either portion of the
credit facility.
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<PAGE>
We expect to experience significant growth in our operating expenses for
the foreseeable future in order to execute our business plan. As a result, we
anticipate that operating expenses and planned capital expenditures will
constitute a material use of our cash resources. Our capital requirements
depend on numerous factors, including hosting, developing, marketing, selling
and supporting our products, the timing and extent of establishing
international operations, and other factors. We expect to devote substantial
resources to hiring additional research and development personnel to support
the development of new products and new versions of existing products. We
expect sales and marketing expenses to increase substantially as we hire
additional sales and marketing personnel, increase spending on advertising and
marketing programs and establish sales offices in additional domestic and
international locations.
We currently anticipate that the net proceeds from this offering,
together with our current cash and cash equivalents, and our credit facility,
will be sufficient to meet our anticipated cash needs for working capital and
capital expenditures for at least the next twelve months. However, we may need
to raise additional funds sooner to fund more rapid expansion, to develop new
or enhance existing services or products, to respond to competitive pressures
or to acquire complementary products, businesses or technologies.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards No. 133, or SFAS 133, Accounting
for Derivative Instruments and Hedging Activities. SFAS 133, as amended by SFAS
137, establishes new standards of accounting and reporting for derivative
instruments and hedging activities. SFAS 133 requires that all derivatives be
recognized at fair value in the statement of financial position, and that the
corresponding gains or losses be reported either in the statement of operations
or as a component of comprehensive income, depending on the type of hedging
relationship that exists. SFAS 133 will be effective for fiscal years beginning
after June 15, 2000. We do not currently hold derivative instruments or engage
in hedging activities.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101, Revenue Recognition, which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements
filed with the Securities and Exchange Commission. Staff Accounting Bulletin
101 outlines the basic criteria that must be met to recognize revenue and
provides guidance for disclosure related to revenue recognition policies. We
believe that our current revenue recognition policy is in compliance with Staff
Accounting Bulletin 101.
In March 2000, the FASB issued Interpretation No. 44, ("FIN44"),
Accounting for Certain Transactions Involving Stock Compensation--An
Interpretation of APB 25. This Interpretation clarifies the definition of
employee for purposes of applying an existing FASB opinion, the criteria for
determining whether a plan qualifies us as a non compensatory plan, the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and the accounting for an exchange of stock
compensation awards in a business combination. This Interpretation is effective
July 1, 2000, but certain conclusions in this Interpretation cover specific
events that occur after either December 15, 1998, or January 12, 2000. To the
extent that this Interpretation covers events occurring during the period after
December 15, 1998, or January 12, 2000, but before the effective date of July
1, 2000, the effects of applying this Interpretation are recognized on a
prospective basis from July 1, 2000. Personify has not yet determined the
impact, if any, of adopting this Interpretation.
Qualitative and Quantitative Disclosures about Market Risk
We provide our services to customers only in the United States. As a
result, it is unlikely that our financial results could be directly affected by
factors such as changes in foreign currency exchange rates or weak economic
conditions in foreign markets. All of our sales are currently denominated in
U.S. dollars.
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<PAGE>
Our exposure to market risk for changes in interest rates relates
primarily to the increase or decrease in the amount of interest income we can
earn on our investment portfolio and on the increase or decrease in the amount
of interest expense we must pay on our outstanding debt instruments. The risk
associated with fluctuating interest expense is limited, however, to the
exposure related to those debt instruments and credit facilities which are tied
to market rates. We do not plan to use derivative financial instruments in our
investment portfolio. We plan to ensure the safety and preservation of our
invested principal funds by limiting default risk, market risk and reinvestment
risk. We plan to mitigate default risk by investing in investment-grade
securities.
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<PAGE>
BUSINESS
The following description of our business should be read in conjunction
with the information included elsewhere in this prospectus. The description
contains certain forward-looking statements that involve risks and
uncertainties. When used in this prospectus, the words "anticipate," "believe,"
"could," "estimate," "expect," "intend," "may," "should," "will" and "would"
and similar expressions as they relate to us are included to identify forward-
looking statements. Our actual results could differ materially from the results
discussed in the forward-looking statements as a result of certain of the risk
factors set forth elsewhere in this prospectus.
Overview
We provide e-business software that enables companies to measure, analyze
and optimize customer-focused profitability metrics. We believe the insight
that companies gain from using our software will enable them to accelerate
growth and profitability at every stage of their e-business evolution. Our
customers consist of large, traditional businesses such as Volvo and REI and
prominent internet-based companies such as Living.com and Petopia.com.
Industry Background
The internet has emerged as a prominent and fast-growing commerce and
communications medium for businesses and consumers. International Data
Corporation, an independent research firm, projects that internet commerce
transactions will exceed $1 trillion in 2003. As part of the internet's
commercial rise, a large number of new internet companies, or e-businesses,
have emerged, causing many traditional companies to respond with their own e-
business initiatives.
Many early e-businesses emphasized rapid acquisition of prospective
customers while deferring profitability. However, the low barriers to entry for
new e-businesses, coupled with the low switching costs for consumers, led to
intense competition, particularly in converting prospects to customers and then
making those customers loyal. Forrester Research, an independent research firm,
estimates that the average e-commerce site converts less than 3% of its
visitors to paying customers. Of this 3%, even fewer are retained as
consistent, loyal patrons. Accordingly, e-businesses that spent heavily on
attracting visitors to their websites are facing the resulting problem of
converting those prospects into paying customers and retaining enough customers
to sustain a profitable business.
To achieve and grow profitable customer relationships, many e-businesses
are seeking to exploit an advantage unique to the internet: e-businesses
collect significantly more behavioral data about prospects' and customers'
interests and tendencies than do traditional businesses. E-businesses should be
able to leverage this data to more efficiently attract, convert and retain
customers. However, many e-businesses are realizing little value from their
internet behavioral data because of the data's enormous volume and complexity.
For example, in a matter of months a large e-business can generate a terabyte,
or 1,000,000,000,000 bytes, of raw data in a variety of forms, such as where
people clicked and what they bought. Integrating disparate forms of data at
such scale is a challenge particular to e-businesses. Traditional companies
with e-business initiatives face the additional challenge of incorporating data
collected in their offline divisions to build comprehensive profiles of
prospects and customers. Finally, e-businesses seek ways to maximize the value
of their data by extrapolating from what they know about customers to make
predictions about customer behavior and interest in new offerings.
A crucial step for an e-business seeking to leverage its internet
behavioral data is to refine the raw data into behavioral profiles, which can
be anonymous to protect privacy. A profile is a collection of information about
an individual web user's behavioral patterns. Profiles can be developed by
gathering information on users' browsing or purchasing behavior, information
users voluntarily supply to websites and information contained in offline
databases. A profile can record how a prospect arrived at an e-business'
website, which
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<PAGE>
products were viewed, which products were placed in the online shopping cart,
whether any items were discarded and which items were ultimately purchased. An
e-business can aggregate and analyze these profiles, which typically number in
the millions, to define key audience segments. By analyzing segment behavior,
an e-business can develop insights that allow it to more effectively target
prospects, lower the cost of customer acquisition and increase loyalty by
personalizing services and offers to customers' interests.
Most software products and services focused on helping e-businesses
understand their audience suffer from one or more of the following limitations:
Not built for the internet or privacy. Many companies offer CRM, or
customer relationship management, products that enable the creation and
analysis of customer profiles. However, these companies built their
technologies for traditional offline data, not for the more demanding
challenges of internet behavioral data. As a result, when e-businesses seek to
use traditional CRM products, they often can profile only the small percentage
of people who actually become paying customers, ignoring the far larger
percentage of prospects. In addition, traditional CRM products typically
compile profiles with personally identifiable information, which is useful for
telemarketing, for example, and do not offer their customers the option of
preserving web users' privacy. Because of high privacy sensitivities on the
internet, privacy-protection features are notable in their absence.
Built for the internet but not built for profiles. Although a small
number of companies offer website analysis products tailored to handle internet
behavioral data, their products do not organize the data as profiles about
prospects and customers but instead merely count web-page clicks. Many e-
businesses seek a more nuanced view in which they can discover and analyze
audience segments, relate those segments' behavior to the performance of
marketing programs, and target offers and incentives to particular segments'
interests.
Not tailored to specific e-business problems. Few software solutions are
built to address specific e-business problems, such as analyzing and optimizing
the percentage of prospects that become customers. As a result, e-businesses
sometimes resort to using general-purpose software tools to develop custom
applications that address the problems they face. However, the underlying
tools' lack of specialization makes their use relatively slow and uneconomical.
Furthermore e-businesses, like traditional businesses, face different problems
at different stages of their development, and even when e-businesses find
software designed to address specific e-business problems, the software is
seldom flexible enough to support the e-business through later stages of
evolution.
As a result, e-businesses are seeking software to help them refine raw
internet data into profiles of prospects and customers which can be analyzed
for business insight and used to target personalized offerings.
Solution
Our solution allows e-businesses to measure, analyze and optimize metrics
such as the percentage of prospects that become customers, the return on
investment for advertising spending and the rate at which shoppers fail to
purchase items they initially place in their online shopping carts. Benefits of
our solution include:
E-centric behavioral profiling. Our products are designed and built for
the internet, which we call being e-centric, enabling them to create behavioral
profiles from large volumes of complex e-business data. A single large
Personify customer can generate on the order of 10 gigabytes of behavioral data
per day, all of which our system must process and then integrate with other
sources of data to maintain that customer's profile database. Our software
enables our customers to analyze the profiles and use them to target their
communications through personalized email and web pages.
Predictive modeling. Our technologies includes predictive modeling
tailored specifically for internet behavioral data. E-businesses using our
proprietary, multidimensional modeling algorithms can discover
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<PAGE>
previously hidden segments within an e-business audience. Companies can then
use the segment information to better market and sell to prospects and
customers. For example, companies have used our products to determine which
prospects and customers will likely contribute a disproportionate share of
revenue and then to redirect marketing initiatives to appeal to these visitors.
Value at every stage. We believe our solution enables a company to
accelerate growth and profitability at each stage of its e-business evolution:
. Entry stage. Our products provide a market-entry stage e-business with
the means to better measure, analyze and optimize customer
acquisition. For example, an e-business can use our software to
determine how to allocate limited advertising dollars based on the
quality of customers and prospects each advertising venue delivers.
. Emerging stage. Our products provide an emerging e-business with tools
to improve sales by determining the effectiveness of its content,
promotions and website design. For example, an e-business can use our
software to understand which prospects most frequently convert to
customers as well as the circumstances under which online shopping
cart abandonment tends to occur.
. Established stage. Our products provide an established e-business with
means to merchandise its products and services. For example, an e-
business can use our software to identify opportunities to offer
complementary products to those a customer has already selected.
. Experienced stage. Our products help the experienced e-business
maximize the lifetime value of its customer relationships. For
example, an e-business can use our software to identify high-value or
at-risk customers and target them with appropriate incentives.
Measurable results. We enable our customers to measure the benefits of
our solution, generally including increased prospect-to-customer conversion
rates, reduced abandoned online shopping carts and increased repeat sales.
These results are quantifiable and facilitate evaluation of return on
investment.
Experience and best practices. We believe that our current software
products and service methodologies embody best practices developed from
developing and deploying our technology since the emergence of e-business.
Because e-business is still in its infancy, we believe that the practical
knowledge we have gained from implementing our solution for over 70 customers
is a significant competitive advantage in producing results for our customers,
sales, client services and product development.
Strategy
Our objective is to become the leading provider of e-business software
that enables companies to rapidly accelerate growth and profitability at every
stage of their e-business evolution. To achieve this goal we plan to:
Extend our technology and product leadership. We intend to enhance our
products' core functions and analytical features to support the rapid growth of
our customers' data. We also expect to focus our development efforts on
building function-specific software, which we call Accelerators, and offering
industry-specific products for companies and business-to-business exchanges in
various industries such as automotive and apparel.
Leverage our installed customer base. We intend to leverage our customer
base to gain new customers and to expand relationships with existing customers.
With over 70 prominent web-based and Global 2000 customers, we expect to more
easily and rapidly acquire additional e-business customers. In addition, since
all of our customers have significant e-business initiatives, we are able to
learn from them and incorporate this knowledge into our new products, many of
which we expect existing customers to purchase.
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Expand strategic relationships. We have established strategic
relationships with prominent technology and professional services companies,
such as Deloitte Consulting, Ernst & Young and marchFIRST. Each of these three
companies has agreed to commit resources to promote, sell and deploy our
products. We intend to leverage these companies' sales forces and services
teams to extend our reach while allowing us to focus on developing software. We
intend to expand these strategic relationships as well as to establish
additional relationships with strategic companies such as international
distributors and system integrators.
Promote customer choice by extending product compatibility. We intend to
extend our products' compatibility with other providers' complementary
software. Because of the rapidly evolving nature of e-business technology, we
believe that specialized, best-of-breed vendors will continue to thrive against
companies who attempt to aggregate disparate functions. Since most e-businesses
depend on different software technologies, often from multiple vendors, we
believe we will have a competitive advantage by providing open integration
capabilities between our system and other systems. We intend to continue to
develop application-programming interfaces for exchanging profiles among
different software systems.
Rapid development and deployment. We have structured our software and our
service methodologies for rapid development and deployment of products. For
example, our Accelerators run on a common base platform which significantly
reduces time spent on development and testing. In addition, because our
technologies all work over the internet, we can configure and run customers'
applications in-house allowing us to rapidly deploy our products. We intend to
continue emphasizing rapid deployment and ease of use as we design new
products. We believe that this strategy will enable our customers to realize
the benefits of our solution faster, allowing them to reach profitability
sooner.
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Products and Services
We offer software products and service packages either directly or
indirectly through third parties with which we have contractual relationships.
These products and service packages include:
Essentials is our core software application product which generates and
maintains a customer's database of behavioral profiles and related information.
In addition, Essentials provides a set of analytical and statistical tools,
which customers can access from any internet-connected device. To the extent
necessary, we also offer our customers Connectors, which read specialized data
formats and communicate with other systems. Our customers pay a license fee for
Essentials based on the number of profiles generated over time. We offer
Essentials bundled with one or more of our Accelerators.
We offer our customers software applications that operate on the
Essentials platform. The following are among our current software solutions:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Software Solution Measures and Analyzes Helps Optimize
- ----------------------------------------------------------------------------------------
<C> <S> <C>
Shopping-cart The rate at which customers of e- Prevention of lost
abandonment businesses select products for purchase customers and sales
but fail to complete a transaction
- ----------------------------------------------------------------------------------------
Advertising return The rate of return on advertising Customer acquisition
on investment spending cost
- ----------------------------------------------------------------------------------------
Repeat visit The frequency of customers' return to an Customer retention
performance e-business' website
- ----------------------------------------------------------------------------------------
Targeted email The response and conversion rates Reach and effectiveness
effectiveness associated with different types of email of email targeting
marketing campaigns
- ----------------------------------------------------------------------------------------
Behavioral Statistical discovery of behavioral Explanation and
segmentation groups within an e-business' audience prediction of
prospects' and
customers' preferences
and motivations
- ----------------------------------------------------------------------------------------
Cross-selling The degree to which specific products or Revenue per customer
analysis categories of products are common to visit
prospects' browsing and customers'
purchasing patterns
- ----------------------------------------------------------------------------------------
Content return on The association between an e-business' Investment in web
investment web content and revenue design and content
- ----------------------------------------------------------------------------------------
Lifetime value The actual or projected amount of Customer profitability
lifetime spending and costs associated
with specific customers or groups of
customers
- ----------------------------------------------------------------------------------------
Support analysis Measures the efficiency and customer Cost of customer
satisfaction of an e-business' customer satisfaction
support operations
- ----------------------------------------------------------------------------------------
Affiliate The rate of return on an e-business' Customer acquisition
effectiveness affiliate marketing relationships cost
- ----------------------------------------------------------------------------------------
Look-to-buy The rate at which an e-business' Promotional and
conversion prospects convert to customers merchandising choices
- ----------------------------------------------------------------------------------------
</TABLE>
We also offer a line of products, which we refer to as Proactive, that
allows our customers to export profiles generated by Essentials for use in
external systems, including personalization systems and targeted-email systems.
We began selling our first Proactive product, Proactive Profile Exchange, in
January 2000.
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Central. Central allows our customers to outsource the hosting and
administration of Personify's software, with Personify serving as the
application service provider. Customers sign yearly contracts for the Central
service, in addition to product licensing fees.
Design for Measurability. Design for Measurability, or DFM, is a
consulting methodology with accompanying services that evaluates the quality of
a customer's e-business data and the processes that create the data. A DFM
engagement produces specific recommendations intended to increase the value of
the customer's data. Customers typically purchase our DFM services in
connection with major revisions to their web infrastructures or prior to
deploying our products.
Deployment Services. Customers typically purchase Deployment Services to
implement our products and integrate them with existing systems. We usually
begin our deployment shortly after we enter into a contract for the sale of our
products. Deployments typically require between 30 days and 90 days to
complete. Because our products are web-based, we can perform much of the
deployment work from our office rather than at the customer's site. This
ability results in significant cost savings, better employee morale and reduced
intrusion into the customer's operations.
Growth Services. Growth Services assist our customers in maximizing the
benefits of our products. These services include consultation on analytical
processes, systematic measurement and testing, and targeting of offers.
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Customers
We began selling Essentials in June 1998 and, as of December 31, 1999, we
had over 70 customers. Our customers consist of a diverse group of companies
operating in many industries throughout the United States, ranging from
traditional Global 2000 companies to prominent web-based companies. For the
year ended December 31, 1999, Retek accounted for approximately 29% of our
revenues. For the year ended December 1998, ZDTV accounted for approximately
17% of our revenues and Sprint accounted for approximately 13% of our revenues.
For the year ended December 31, 1997, Virtual Vineyards accounted for 67% of
our revenues and Yahoo! accounted for 33% of our revenues. Since January 1,
1999, customers to which we sold at least $25,000 of products or services
include:
800.com Family Wonder OurHouse.com
barnesandnoble.com First Union Peet's Coffee & Tea
Beveragemall.com National Bank Perfect.com
BigVine Gear.com Petopia.com
Blue Shield of govWorks.com Proflowers.com
California hifi.com RealEstate.com
(Mylifepath.com) HomeWarehouse REI
cameraworld.com Homestore.com Retek
CDW Hoovers Online SayIt.com
ConsumerReview.com IntelligentLife shine!
Creative Labs (Saks and Taylor) ShoppingList.com
Diamond Multimedia J. Crew Specialized
Discovery Keen.com SportingAuction
drkoop.com Launch style365.com
drugstore.com Living.com Talk City
egghead.com/Onsale L.L. Bean TechRepublic
Egreetings LucasFilms BeautyScene.com
eHow.com Midwest Express Tupperware
Embark.com Ninth House Network Volvo
Esprit Nordstrom.com Williams-Sonoma
eToys Ofoto
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Selected Case Studies
The following case studies illustrate different uses of our products.
Customers described in these case studies purchased products from us since
January 1, 1999.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Customer Case Study
- ------------------------------------------------------------------------------
<C> <S>
Petopia.com Petopia.com, an internet retailer of pet food, animal
care products, toys and information to pet enthusiasts,
used Essentials to better understand its web audience.
Working with Personify, the Petopia.com marketing team
discovered a behavioral segment that was substantially
more likely than average to purchase products. This
insight enabled Petopia.com to reorient its spending on
content, promotions and advertising to maximize the
presence and yield of this customer segment.
- ------------------------------------------------------------------------------
Hoovers Online Hoovers Online, a leading source of business-to-business
information on the internet, used Essentials to optimize
its advertising and promotional spending. Using our
products, Hoovers Online discovered a behavioral segment
that was more than three times as likely as its overall
audience to subscribe to Hoover's services. Personify
also helped Hoovers Online identify advertising buys
projected to be up to eight times more effective at
attracting this segment to its website.
- ------------------------------------------------------------------------------
Volvo Volvo, a leading automotive brand, used Essentials to
analyze the effectiveness of its website's features and
content. Volvo had invested in lifestyle and cultural
content to attract repeat visits and greater audience
involvement over time. Using our products, Volvo
discovered that it could attract more repeat visitors by
providing greater product detail and product-related
content and fewer cultural and lifestyle features. This
insight enabled Volvo to make better informed
investments in its internet marketing efforts.
- ------------------------------------------------------------------------------
Blue Shield of Mylifepath.com, an online healthcare news and
California information service provided by Blue Shield of
(Mylifepath.com) California, used Essentials to discover the behaviors of
their online visitors and compare those against the
properties of known segments in Blue Shield of
California's offline customer base. In particular, they
were interested in enriching the customer experience of
their primary target segment, well-educated, health-
conscious consumers skeptical of traditional medicine.
By gaining insight into how these consumers search for
information, explore alternative medicine options and
approach wellness, Mylifepath.com revised their
newsletters and content to increase customer
satisfaction and retention.
- ------------------------------------------------------------------------------
</TABLE>
Strategic Relationships
We seek to enter into strategic relationships with third parties to
assist us in marketing, selling and deploying our products. We currently have
over 20 relationships which fall into the following categories:
Strategic alliances. We have strategic alliances with Deloitte
Consulting, Ernst & Young and marchFIRST, which is the entity formed from the
merger of Whittman-Hart and USWeb/CKS. We believe that these relationships will
facilitate the accelerated adoption and deployment of our products.
. Deloitte Consulting and Ernst & Young have made an equity investment
in us and have agreed to commit resources to promote, sell and deploy
our products. In order to improve their opportunity to generate
service fees, each of these entities has committed resources to
training their consultants on our products, co-marketing our products
with their services and incorporating our products into
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their customer relationship management marketing strategies. Both
firms are also making investments of resources to further our joint
education and training, professional services and sales processes. In
return, we are providing training, apprenticeships and joint
professional service engagement opportunities to further the
alliances.
. Our relationship with marchFIRST encourages both companies to jointly
pursue business and shared customer opportunities as well as
facilitate the training of marchFIRST's consultants on Personify
products.
In addition to these strategic alliances, we have relationships with
interactive and traditional services firms such as Echolink, Fort Point
Partners, iXL Enterprises, Lot 21, Prophet, Sapient, SFInteractive and
xCelerate. These companies have referred customers to us and, in some cases,
have performed Personify-related services.
E-business technology relationships. We have e-business technology
relationships with a number of companies in an effort to facilitate the
integration and co-marketing of our products with the offerings made by these
companies. These relationships include Axciom, Art Technology Group, Digital
Impact, Interwoven, MessageMedia, Post Communications, a subsidiary of
Netcentives, Responsys.com and Vignette.
Technology platform relationships. We have platform relationships with
IBM, Microsoft, Oracle and Sun Microsystems to ensure that our products are
based on industry standards and take advantage of current and emerging
technologies. These relationships enable us to focus on our core competencies,
reduce time to market and simplify the task of designing and developing
applications.
Technology
Our primary product, Essentials, contains several software technologies
that differentiate our offerings from those of other companies. Our
technologies include:
Web ETL. Extraction, transformation and loading, or ETL, is a well
established technology for processing data in traditional enterprises. We have
developed and deployed a version of ETL specialized for the scale and
complexity of web behavioral data, which we refer to as Web ETL. Web ETL allows
us to extract data from offline and online sources, transform that raw data
into profiles of visitors and prospects, and finally integrate and load those
profiles into a unified database.
Beacons. We have developed a methodology and supporting software that
facilitates defining profiles, analyses, and targeting in terms relevant to
business objectives and work processes. We refer to this technology as Beacons.
By using Beacons, ordinary business users can look at their data, highlight
important profile characteristics and hide irrelevant data in ways that they
find intuitive. Then, when the users perform analyses or create target groups
for personalized offerings, the Beacons view allows them to access the full
extent of the underlying data without the burden of its complexity.
Web-optimized predictive modeling. Predictive modeling enables companies
to use data about prospects and customers to predict future behavior. We
designed our technology to exceed traditional predictive-modeling capabilities
by optimizing our techniques for the scale and complexity of web behavioral
data. Currently, our customers use our web-optimized predictive modeling
primarily to generate statistically derived segments of their audiences. In
addition, our software architecture has been designed to support additional
predictive software applications, which we intend to release in future
products.
Behavioral OLAP. Traditional OLAP, or online analytical processing, is a
technology for representing large amounts of data to facilitate rapid answers
to complex questions. Traditional OLAP tools are often unable to efficiently
handle the massive volume and complexity of web-generated behavioral data. In
response, we developed an OLAP technology specifically designed for web
behavioral data.
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<PAGE>
Accelerator Framework. We have developed a software interface, the
Accelerator Framework, which enables the rapid development and deployment of
Accelerators. By providing access to a common set of profiling and analytical
technologies, this interface allows us to focus our Accelerators development
efforts on the unique user-interface and workflow characteristics of specific
Accelerators.
Proactive Framework. Through our Proactive Framework, we enable our
customers to extract information from their Essentials profile databases for
use by the customer's other applications, such as a personalization system.
Currently, companies such Art Technology Group, Digital Impact, Interwoven,
MarketFirst, MessageMedia, Post Communications and Responsys.com have announced
their support of our Proactive Framework for integrating Personify-generated
profiles with their products and services.
Access across the internet. Users can access Essentials from anywhere
with an internet connection, using Microsoft's Internet Explorer 5 Web-browser
software. As a result, customers do not need to manually install our software
on each user's computer; they only need to install our software on a single
server. This configuration is designed to reduce administration costs at
customers' sites. In addition, this enables us to provide our customers with
the option to use our software as a service through our Central offering, where
we host and administer the product for customers.
Sales and Marketing
We target our products to large, traditional companies with web divisions
and prominent internet-based companies. We sell our products through a direct
sales force based in San Francisco, with satellite offices in Atlanta, Boston,
Chicago, Los Angeles, New York City, McLean, Virginia and Blue Bell,
Pennsylvania. In addition, our products are marketed and referred to customers
through our relationships with services and technology companies.
Our direct sales team is focused on developing customer relationships
with companies based upon geographic location, industry or strategic account
designation. We use a combination of field sales representatives and in-house
sales development representatives to target senior management across key
functional areas and to develop an understanding and commitment from the
ultimate decision-maker.
We currently sell our products primarily in the United States. We intend
to expand our international sales presence by leveraging our relationships with
global services organizations.
Competition
The market for our products is highly competitive and rapidly evolving
with both new entrants and the consolidation of many existing companies into
larger entities. In this environment, we have a variety of direct and indirect
competitors. The functionality offered by these competitors' products and
services overlaps in varying degrees with our products' functionality.
We believe three primary types of companies compete with us, including:
Packaged analytical application vendors. Packaged analytical application
vendors, such as E.piphany and Broadbase, offer suites of analytical
applications, components of which overlap with our products' functionality.
Recently, these companies have acquired other software firms to extend their
offerings to handle marketing campaign management and, in E.piphany's case,
sales-force automation.
Website analysis vendors. Companies such as Accrue, NetGenesis and
WebTrends provide software focused on analyzing website traffic. Traditionally,
these companies' products enabled analyses centered on Website characteristics,
such as the popularity of individual website pages, rather than analyses of
behavioral profiles.
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<PAGE>
In-house development efforts using generalized tools. Potential
customers may attempt to create in-house software with functionality similar to
those we offer, using generalized decision-support and database software tools
to develop customized applications.
Other companies, such as BroadVision, Net Perceptions and Vignette,
provide products that contain certain components which overlap with elements of
our functionality. Although prospective customers may perceive the products
offered by these companies as substitutes for our products, we believe that our
products are complementary to their core offerings. For example, many customers
run our software in conjunction with BroadVision's, Net Perceptions' and
Vignette's software.
We expect that we will encounter many additional competitors, either in
our present market or in new markets we may choose to pursue in the future.
These competitors may include not only new companies, but also existing
companies in the enterprise software market, such as Microsoft, Oracle, Siebel
and SAP.
We believe that customers make decisions between our and our competitors'
products primarily on the basis of product features, technical performance,
data capacity, ease of deployment, ease of use, ease of integration with other
systems, ease of maintenance, and price. We believe that we currently compete
favorably with respect to these factors, but the markets for our products are
still rapidly evolving. In the future, we may not be able to compete
successfully against current and potential competitors.
In addition, current and potential competitors have established or may
establish relationships among themselves or with third parties to increase the
ability of their products to address consumer needs. Accordingly, it is
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant marketshare. We also expect that competition will
increase as a result of industry consolidations.
Employees
As of December 31, 1999, we had a total of 82 employees. Our employees
are not represented by any collective bargaining unit, and we have never
experienced a work stoppage. We believe our relations with our employees are
good.
In September 1999, we acquired Anubis Solutions Incorporated, a data-
warehousing technology and services company. Through this transaction, we
acquired 28 employees, many of whom comprise our client services group.
Facilities
Our primary administrative, sales, marketing, research and development
facility is currently located in San Francisco, California and consists of
approximately 18,000 square feet of office space held under four leases and
subleases all of which expire in May 2000. We intend to relocate and
consolidate our operations in the second quarter of 2000 to a new facility in
San Francisco, California. The new facility consists of approximately 45,000
square feet under a five-year lease with expansion options.
Legal Proceedings
Although we are not currently a party to any litigation, we may from time
to time become involved in litigation relating to claims arising from our
ordinary course of business.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth, as of May 12, 2000, certain information
concerning our executive officers and directors:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Love Goel......................... 28 Chief Executive Officer and Director
Barry Wright...................... 50 President
Steve Krause...................... 32 Chief Technical Officer and Director
Richard Vinchesi.................. 33 Chief Financial Officer
Derek Yeager-Mazula............... 37 Vice President, Operations
Philip D. Black................... 33 Director
Andrew V. Johnson................. 44 Director
Lucio L. Lanza.................... 56 Chairman of the Board of Directors
Jerry Reitman..................... 62 Director
W. Ferrell Sanders................ 63 Director
</TABLE>
Love Goel has served as our Chief Executive Officer since May 2000, has
been a member of our board of directors since February 2000 and from January
2000 to May 2000 served as a consultant to our company. From March 1998 to
February 2000, Mr. Goel served as chief operating officer of the e-Commerce
division of Fingerhut Companies, a retail catalog company. From July 1996 to
February 1998, Mr. Goel was employed by Deloitte Consulting, a management
consulting firm, as a senior consultant. From August 1995 to June 1996, Mr.
Goel was employed by MCI Systemhouse Inc., a systems integration division of
MCI Worldcom. Mr. Goel holds a B.S. from the University of Minnesota.
Barry Wright has served as our President since April 2000. From June 1999
to April 2000, Mr. Wright served as co-president of Aspect Communications
Corporation, an electronic customer relationship management software company.
From December 1994 to June 1999, Mr. Wright held various executive management
positions at PeopleSoft, Inc., an enterprise resource planning software
company, most recently as Senior Vice President, North American Operations. Mr.
Wright holds a computer science degree from South London College.
Steve Krause has served as our Chief Technical Officer since May 2000 and
as a member of our board of directors since he co-founded our company in
January 1996. From January 1996 to April 2000, Mr. Krause served as our
President. From March 1994 to December 1995, Mr. Krause was a program manager
at SRI International, one of the world's largest independent research,
technology development and consulting organizations. From March 1990 to March
1994, Mr. Krause held several other positions at SRI including co-founding
SRI's Media Futures Program in 1992 and leading the iVALs research project, one
of the first efforts to analyze, segment and predict online consumer interests
and preferences. Mr. Krause holds a B.A. in politics from the University of
California at Santa Cruz.
Richard Vinchesi has served as our Chief Financial Officer since July
1999. From August 1996 to August 1999, Mr. Vinchesi served as chief financial
officer of Interact Electronic Marketing, Inc., a direct marketing company.
From April 1998 to August 1999, Mr. Vinchesi also served as Chief Operating
Officer at Interact Electronic Marketing. From January 1994 to August 1996,
Mr. Vinchesi was vice president, corporate finance at Salomon Brothers Inc., an
investment banking firm. Mr. Vinchesi holds a B.S. in finance and economics
from New York University and an M.B.A. from the J.L. Kellogg Graduate School of
Management of Northwestern University.
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<PAGE>
Derek Yeager-Mazula has been our Vice President, Operations since January
2000. From January 1999 to January 2000, Mr. Yeager-Mazula was the director of
the e-Commerce division of Fingerhut Companies, a retail catalog company. From
March 1995 to January 1999, Mr. Yeager-Mazula was a senior manager, consulting
at Deloitte Consulting, a management consulting firm. Mr. Yeager-Mazula holds a
B.A. in accounting from Iowa State University and an M.B.A. from the Wharton
School of the University of Pennsylvania.
Philip D. Black has served as a member of our board of directors since
August 1999. Since February 1999, Mr. Black has been a managing member of
Calvert Capital II, L.L.C., a venture capital investment firm. From January
1995 to February 1999, Mr. Black was a general partner at Weiss, Peck & Greer
Venture Partners, a venture capital investment firm. Mr. Black serves on the
board of directors of LifeMinders.com, Inc., an online direct marketing
company. Mr. Black holds an A.B. in economics from Stanford University.
Andrew V. Johnson has served as a member of our board of directors since
February 2000. Since September 1998, Mr. Johnson has served as President, e-
Commerce at Fingerhut Companies, Inc., a retail catalog company. From January
1995 to August 1998, Mr. Johnson served as Senior Vice President, Marketing at
Fingerhut Companies, Inc. Mr. Johnson holds a B.S. from the University of
Minnesota.
Lucio L. Lanza has served as a member of our board of directors since May
1996 and was named Chairman of our board of directors in January 2000. Mr.
Lanza is a limited partner of Presidio Management Group IV, L.P., a venture
capital investment firm, a position he has held since January 1996. From
December 1995 to December 1995, Mr. Lanza served as Chief Executive Officer of
Lanza Consulting Group. Mr. Lanza serves as Chairman of the board of directors
of Artisan Components Inc., a supplier of silicon intellectual property to the
semiconductor industry. Mr. Lanza holds a doctorate degree in electronic
engineering from Politecnico of Milano.
Jerry Reitman has served as a member of our board of directors since
March 1998. From August 1985 until his retirement in January 1997, Mr. Reitman
served as an executive vice president and director of integrated communicating
at Leo Burnett Co., an international marketing advertising agency. Mr. Reitman
also serves on the board of directors of Cadmus Communications Corp., a graphic
communications company, and Eagle Food Centers Inc., a regional supermarket
chain headquartered in Illinois. Mr. Reitman holds a B.S. in finance from
Pennsylvania State University.
W. Ferrell Sanders has served as a member of our board of directors since
May 1998. Since January 1996, Mr. Sanders has been a general partner of Alloy
Ventures, a venture capital investment firm, which was initially incorporated
under the name of Asset Management Associates, Inc. From March 1987 to December
1995 Mr. Sanders was a general partner of Asset Management Company, a venture
capital investment firm. Mr. Sanders also serves on the board of directors of
Adaptec, Inc., a computer hardware and software company. Mr. Sanders holds a
B.S. in electrical engineering from North Carolina State University and an
M.B.A. from the University of Santa Clara.
Committees of the Board of Directors
Our compensation committee consists of Mr. Black and Mr. Reitman. The
compensation committee makes recommendations regarding our various incentive
compensation and benefit plans and determines salaries for our executive
officers and incentive compensation for our employees and consultants.
Our audit committee consists of Mr. Black, Mr. Johnson and Mr. Sanders.
The audit committee makes recommendations to our board of directors regarding
the selection of our independent auditors, reviews the results and scope of the
audit and other services provided by our independent auditors and reviews and
evaluates our control functions.
37
<PAGE>
Board Composition
We currently have seven directors authorized. Our board of directors is
divided into three classes: class I, class II and class III, with each class
serving staggered three-year terms. The class I directors, currently
Messrs. Sanders, Black and Krause, will stand for reelection at our 2001 annual
meeting of stockholders. The class II directors, currently Messrs. Reitman and
Johnson, will stand for reelection at our 2002 annual meeting of stockholders.
The class III directors, Messrs. Goel and Lanza, will stand for reelection at
our 2003 annual meeting of stockholders. Any additional directorships resulting
from an increase in the number of directors will be distributed among the three
classes so that, as nearly as possible, each class will consist of one-third of
the directors. This staggered classification of our board of directors may have
the effect of delaying or preventing changes in control or management. There
are no family relationships among any of our directors, officers or key
employees.
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee were, at any time since
our formation, an officer or employee of our company. None of our executive
officers serves as a member of the board of directors or compensation committee
of any entity that has one or more executive officers serving as a member of
our board of directors or compensation committee. See "Related Party
Transactions" for a description of transactions between us and entities
affiliated with members of our compensation committee.
Director Compensation
Outside directors do not currently receive any cash compensation from us
for their services as members of our board of directors except for
reimbursement of reasonable expenses incurred in connection with serving as a
director. We grant our outside directors an initial option to purchase 15,000
shares of our common stock on the date upon which such person first becomes an
outside director, defined as a director not employed by the Company. After one
initial grant, a director will be granted a subsequent option to purchase 5,000
shares each year on the date of our annual meeting of stockholders, if on that
date he or she has served as a director for at least six months. The option
grants have a term of ten years. Each initial option will vest as to 1/3 of the
shares issuable under the option on each anniversary of the date of grant and
each subsequent option grant will vest as to 100% of the shares issuable under
the grant on the fourth anniversary of its date of grant. The exercise price of
all options will be 100% of the fair market value per share of our common stock
on the date of grant.
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<PAGE>
Executive Compensation
The following table sets forth the compensation earned for the year ended
December 31, 1999, by our chief executive officer and our two other most highly
compensated executive officers, each of whose aggregate compensation during our
last fiscal year exceeded $100,000:
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
---------------------------- ------------------
Securities
Name and Principal Position Fiscal Year Salary Bonus Underlying Options
- --------------------------- ----------- -------- ------- ------------------
<S> <C> <C> <C> <C>
Eileen H. Gittins.............. 1999 $163,333 -- --
Chief Executive Officer 1998 162,500 $20,000 390,400
1997 98,000 -- 248,920
Steve Krause................... 1999 130,000 -- --
President 1998 116,459 -- 325,360
1997 62,292 -- --
Richard Vinchesi............... 1999 78,461 20,000 284,131
Chief Financial Officer
</TABLE>
Ms. Gittins terminated her employment with us as of January 2000.
Mr. Krause became Chief Technology Officer in May 2000.
Mr. Vinchesi was hired as an executive officer in July 1999 and is
currently compensated at an annual rate of $180,000.
Mr. Goel was hired as an executive officer subsequent to December 31,
1999 and is compensated at an annual rate of $300,000. Mr. Goel also received
1,691,000 shares of restricted stock at a purchase price of $5.25 per share.
These shares are subject to a right of repurchase by us which lapsed
immediately with respect to 140,988 shares and which lapses with respect to the
remaining shares at a rate of 1/48 of the total number of shares at the end of
each month beginning at the date Mr. Goel commenced employment with us, May 12,
2000. In connection with Mr. Goel's purchase of these shares, we loaned him
$8,867,750 pursuant to a full recourse promissory note secured by the shares.
From January 2000 to May 2000, we paid Mr. Goel approximately $180,827 for his
consulting services to our company, of which $100,000 was paid to Mr. Goel as a
bonus, $56,750 was paid to Mr. Goel as consulting fees and approximately
$124,577 was paid to Mr. Goel as direct reimbursement for expenses. In
addition, during this period we loaned Mr. Goel $50,000.
Mr. Wright was hired as an executive officer subsequent to December 31,
1999 and is compensated at an annual rate of $200,000.
Mr. Yeager-Mazula was hired as an executive officer subsequent to
December 31, 1999 and is compensated at an annual rate of $130,000.
Option Grants in Last Fiscal Year
The following table sets forth information with respect to stock options
granted to each of the executive officers named in the summary compensation
table in the fiscal year ended December 31, 1999, including the potential
realizable value over the ten-year term of the options, based on assumed rates
of stock appreciation of 5% and 10%, compounded annually. These assumed rates
of appreciation comply with the rules
39
<PAGE>
of the Securities and Exchange Commission and do not represent our estimate of
future stock price. Actual gains, if any, on stock option exercises will be
dependent on the future performance of our common stock.
In the fiscal year ended December 31, 1999, we granted options to
purchase up to an aggregate of 2,439,725 shares to employees, directors and
consultants. All options were granted under our equity incentive plan at
exercise prices at or above the fair market value of our common stock on the
date of grant, as determined in good faith by our board of directors. All
options have a term of ten years. Optionees may pay the exercise price by cash,
check, cancellation of any outstanding indebtedness of the option holder to us
or delivery of already-owned shares of our common stock. All option shares
listed in the table below vest over four years, with 25% of the option shares
vesting one year after the option grantee date, and the remaining option shares
vesting at a rate of 1/48 of the total number of shares per month.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Options Term
---------------------------------------------------------- --------------------
Number of Percent of Total
Name and Principal Securities Underlying Options Granted Exercise Expiration
Position Options Granted in Fiscal 1999 Price Date 5% 10%
- ------------------ --------------------- ---------------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Eileen H. Gittins....... -- -- -- -- -- --
Chief Executive Officer
Steve Krause............ -- -- -- -- -- --
President
Richard Vinchesi ....... 284,131 11.6% $0.50 7/09 $89,344 $226,416
Chief Financial Officer
</TABLE>
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table describes the exercisable and unexercisable options
held by the executive officers named in the summary compensation table as of
December 31, 1999. The "Value of Unexercised In-the-Money Options at December
31, 1999" is based on a value of $2.75 per share, the fair market value of our
common stock as of December 31, 1999, as determined by our board of directors,
less the per share exercise price, multiplied by the number of shares issued
upon exercise of the option. All options were granted under our equity
incentive plan. None of our executive officers exercised options in 1999.
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options
at December 31, 1999 at December 31, 1999
------------------------- -------------------------
Name and Principal
Position Exercisable Unexercisable Exercisable Unexercisable
- ------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Eileen H. Gittins....... 366,333 272,987 $975,313 $722,815
Chief Executive Officer
Steve Krause............ 81,340 244,020 213,518 640,553
President
Richard Vinchesi........ -- 284,131 -- 639,295
Chief Financial Officer
</TABLE>
Compensation Plans
Amended and Restated 2000 Equity Incentive Plan
Our amended and restated 2000 Equity Incentive Plan provides for the
grant of incentive stock options to our employees, including our officers and
employee directors, and for the grant of nonstatutory stock options
40
<PAGE>
and stock purchase rights to our employees, directors and consultants. The 2000
Equity Incentive Plan was originally adopted by our board of directors on July
25, 1996 as the 1996 Stock Option Plan, and approved by our stockholders on
November 24, 1996. This amended and restated 2000 Equity Incentive Plan was
adopted by our board of directors in March 2000, and we expect that it will be
approved by our stockholders in May 2000.
A total of 7,199,673 shares of our common stock are reserved for issuance
under our 2000 Equity Incentive Plan as of March 31, 2000. In addition, annual
increases will be added beginning in 2001, equal to the lesser of 3,000,000
shares, 5% of our outstanding shares, or a lesser amount determined by our
board of directors. As of March 31, 2000, options to purchase 931,437 shares of
common stock have been exercised, options to purchase 4,285,692 shares of
common stock were outstanding and 2,913,981 shares were available for future
grant.
Administration. Our board of directors or a committee of our board of
directors administers our 2000 Equity Incentive Plan. The administrator has the
power to determine, among other things:
. the terms of the options or stock purchase rights granted, including
the exercise price of the option or stock purchase right;
. the number of shares subject to each option or stock purchase right;
. the exercisability of each option or stock purchase right; and
. the form of consideration payable upon the exercise of each option or
stock purchase right.
Options. The administrator determines the exercise price of options
granted under our 2000 Equity Incentive Plan, but with respect to all incentive
stock options and nonstatutory stock options intended to qualify as
"performance-based compensation" within the meaning of Section 162(m) of the
Internal Revenue Code, the exercise price must at least equal the fair market
value of our common stock on the date of grant. The term of an incentive stock
option may not exceed ten years, except that with respect to any participant
who owns 10% of the voting power of all classes of our outstanding capital
stock, the term must not exceed five years and the exercise price must equal at
least 110% of the fair market value on the grant date. The administrator
determines the term of all other options.
No optionee may be granted options to purchase more than 1,000,000 shares
in any fiscal year, except that in connection with his or her initial service,
an optionee may be granted an additional option to purchase up to 1,000,000
shares.
After termination of one of our participants, he or she may exercise his
or her option for the period of time stated in the option agreement. Generally,
if termination is due to death or disability, the option will remain
exercisable for 12 months. In all other cases, the option will generally remain
exercisable for 3 months. However, an option may never be exercised later than
the expiration of its term.
Stock Purchase Rights. The administrator determines the exercise price of
stock purchase rights granted under our 2000 Equity Incentive Plan. Unless the
administrator determines otherwise, the restricted stock purchase agreement
will grant us a repurchase option that we may exercise upon the voluntary or
involuntary termination of the purchaser's service with us for any reason,
including death or disability. The purchase price for shares we repurchase will
generally be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to us. The administrator
determines the rate at which our repurchase option will lapse.
Transferability of Options and Stock Purchase Rights. Our 2000 Equity
Incentive Plan generally does not allow for the transfer of options or stock
purchase rights and only the optionee may exercise an option or stock purchase
right during his or her lifetime.
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<PAGE>
Adjustments upon Merger, Reverse Merger or Asset Sale. Our 2000 Equity
Incentive Plan provides that in the event of our merger with or into another
corporation, a reverse merger or a sale of substantially all of our assets, the
successor corporation will assume or substitute an equivalent option or right
for each outstanding option or stock purchase right.
If there is no assumption or substitution of outstanding options or stock
purchase rights, then each optionee will fully vest in and have the right to
exercise the option or stock purchase right as to all of the shares subject to
the option or stock purchase right, including shares which would not otherwise
be vested or exercisable. The options or stock purchase rights which are not
assumed or substituted will terminate on or prior to the merger, reverse merger
or asset sale.
Amendment and Termination of our 2000 Equity Incentive Plan. Our
2000 Equity Incentive Plan will automatically terminate in 2010, unless we
terminate it sooner. In addition, our board of directors has the authority to
amend, suspend or terminate the 2000 Equity Incentive Plan provided it does not
adversely affect any previously granted option or stock purchase right or any
previously issued shares of common stock.
2000 Employee Stock Purchase Plan
Our 2000 Employee Stock Purchase Plan was adopted by our board of
directors in March 2000, and we expect that it will be approved by our
stockholders in May 2000. A total of 1,000,000 shares of our common stock have
been reserved for issuance, plus annual increases beginning in 2001 equal to
the lesser of 500,000 shares, 1.5% of the outstanding shares on such date, or
an amount determined by our board of directors. As of the date of this
prospectus, no shares have been issued under our 2000 Employee Stock Purchase
Plan.
Structure of the 2000 Employee Stock Purchase Plan. Our 2000 Employee
Stock Purchase Plan is intended to qualify under Section 423 of the Code and
contains consecutive, overlapping 24-month offering
periods. Each offering period includes four 6-month purchase periods. The
offering periods generally start on the first trading day on or after June 1
and November 1 of each year and terminate on the first trading day on or after
the June 1 or November 1 offering period commencement date 24 months later,
except for the first such offering period which will commence on the first
trading day on or after the effective date of this offering and will end on the
last trading day on or after June 1, 2002.
Eligibility. All of our employees are eligible to participate if they are
customarily employed by us or any participating subsidiary for at least 20
hours per week and more than five months in any calendar year. However, an
employee may not be granted an option to purchase stock under our 2000 Employee
Stock Purchase Plan if such employee:
. immediately after grant owns stock possessing 5% or more of the total
combined voting power or value of all classes of our capital stock, or
. has rights to purchase stock under all of our employee stock purchase
plans that accrues at a rate in excess of $25,000 worth of stock for
each calendar year.
Purchases. Our 2000 Employee Stock Purchase Plan permits participants to
purchase common stock through payroll deductions of up to 15% of their eligible
compensation which includes a participant's base straight time gross earnings
and commissions, but exclusive of overtime pay, shift premium, incentive
compensation, incentive payments, bonuses and other compensation. A participant
may purchase a maximum of 3,000 shares during a 6-month purchase period.
42
<PAGE>
Amounts deducted and accumulated by the participant are used to purchase
shares of our common stock at the end of each six-month purchase period. The
price is 85% of the lower of the fair market value of our common stock either:
. at the beginning of an offering period, or
. at the end of a purchase period.
If the fair market value at the end of a purchase period is less than the
fair market value at the beginning of the offering period, participants will be
withdrawn from the current offering period following their purchase of shares
on the purchase date and will be automatically re-enrolled in a new offering
period. Participants may end their participation at any time during an offering
period, and will be paid their payroll deductions to date. Participation ends
automatically upon termination of employment with us.
Transferability of Rights. A participant may not transfer rights granted
under our 2000 Employee Stock Purchase Plan other than by will, the laws of
descent and distribution or as otherwise provided under the plan.
Merger or Asset Sale. In the event of our merger with or into another
corporation or a sale of all or substantially all of our assets, a successor
corporation will assume or substitute each outstanding option. If the successor
corporation refuses to assume or substitute for the outstanding options, the
offering period then in progress will be shortened, and a new exercise date
will be set.
Amendment and Termination of the 2000 Employee Stock Purchase Plan. Our
board of directors has the authority to amend or terminate our 2000 Employee
Stock Purchase Plan, except that no such action may adversely affect any
outstanding rights to purchase stock under the plan.
401(k) Plan
We maintain a 401(k) plan which covers all of our eligible employees.
Pursuant to the 401(k) Plan, participants may elect to reduce their current
compensation, on a pre-tax basis, up to 25%, or the statutory prescribed annual
limit, whichever is lower, and have the amount of the reduction contributed to
the 401(k) Plan. Participants' salary reduction contributions are fully vested
at all times. In our sole discretion, we make matching employer contributions,
additional employer contributions and qualified non-elective employer
contributions to the 401(k) Plan. Each participant's interest in their matching
employer contributions, additional employer contributions and qualified non-
elective employer contributions, if any, is subject to a six year graduated
vesting schedule. The 401(k) Plan is intended to qualify under Section 401(a)
of the Internal Revenue Code, and its accompanying trust is intended to be a
tax exempt trust under Section 501(a) of the Internal Revenue Code.
Contributions made on behalf of participants, on a pre-tax basis, to the 401(k)
Plan, and income earned on such contributions are tax deductible by us. The
trustee under the 401(k) Plan, at the direction of participants, invests the
assets of the 401(k) Plan in any number of designated investment options.
Employment Agreements and Change in Control Arrangements
We entered into an employment agreement with Mr. Goel, dated January 6,
2000 which became effective May 12, 2000. Under this agreement, we agreed to
pay Mr. Goel an annual salary of $300,000, and we granted him the right to
purchase 1,691,000 shares of the Company's common stock which he exercised. Mr.
Goel's common stock is subject to a right of repurchase which has lapsed
immediately with respect to 140,988 shares and lapses with respect to the
remaining shares at a rate of 1/48 of the total number of shares at the end of
each month beginning May 12, 2000, the date Mr. Goel commenced employment with
us. In the event of a change of control, our right of repurchase will lapse as
to 845,500 shares of our common stock. If a change of control occurs as a
result of action by the board of directors to which Mr. Goel does not consent,
our right of repurchase will lapse as to all of the shares. A change of control
is defined as a merger or consolidation in which we are not the surviving
corporation or our transfer of all or substantially all of our assets.
43
<PAGE>
We entered into an employment agreement with Mr. Vinchesi, dated June 17,
1999. Under the agreement, we agreed to pay Mr. Vinchesi an annual salary of
$180,000 and granted him an option to purchase 284,131 shares of our common
stock. In the event Mr. Vinchesi is constructively terminated or terminated
without cause, Mr. Vinchesi will receive as severance twelve months base salary
and his options will accelerate by one year. In the event of a change of
control, if Mr. Vinchesi is constructively terminated or terminated without
cause, Mr. Vinchesi will receive as severance twelve months base salary and his
options will accelerate by one year.
We entered into an employment with Mr. Wright, dated April 15, 2000.
Under the terms of the agreement, we agreed to pay Mr. Wright an annual salary
of $200,000 with unlimited potential bonuses contingent upon completion of
specific performance milestones. We granted Mr. Wright an option to purchase
250,000 shares of our common stock which vests at a rate of 1/48 per month over
a period of four years beginning May 1, 2000 and an option to purchase
10,000 shares of our common stock which vests fully after a period of one year
beginning on Mr. Wright's first day of employment. In the event that Mr. Wright
is terminated for any reasons other than for cause, Mr. Wright will receive
$200,000 and any additional cash bonuses accrued. In the event that Mr. Wright
chooses to terminate his employment prior to April 23, 2001, Mr. Wright will
lose rights to any future cash, stock, unvested options or bonus related
income. In the event of a change of control, the lesser of 24 months of
unvested shares subject to stock options or any remaining unvested shares
subject to stock options will immediately vest. A change of control is defined
as a merger or consolidation in which we are not the surviving corporation or
our sale or transfer of all or substantially all of our assets.
Limitations of Liability and Indemnification Matters
Our amended and restated certificate of incorporation limits the
liability of our directors to the maximum extent permitted by Delaware law.
Delaware law provides that directors of a corporation will not be personally
liable for monetary damages for breach of their fiduciary duties as directors,
except liability for:
. any breach of their duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
. any transaction from which the director derived an improper personal
benefit. Such limitation of liability does not apply to liabilities
arising under the federal securities laws and does not affect the
availability of equitable remedies such as injunctive relief or
rescission.
Our amended and restated bylaws provide that we must indemnify our
directors and executive officers and may indemnify our other officers and
employees and other agents to the fullest extent permitted by law. We believe
that indemnification under our amended and restated bylaws covers at least
negligence and gross negligence on the part of indemnified parties. Our amended
and restated bylaws also permit us to secure insurance on behalf of any
officer, director, employee or other agent for any liability arising out of his
or her actions in such capacity, regardless of whether the amended and restated
bylaws would permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our amended and
restated bylaws. These agreements, among other things, indemnify our directors
and executive officers for certain expenses, including attorneys' fees,
judgments, fines and settlement amounts incurred by any such person in any
action or proceeding, including any action by us arising out of such person's
services as our director or executive officer, any of our subsidiaries or any
other company or enterprise to which the person provides services at our
request. We believe that these provisions and agreements are necessary to
attract and retain qualified persons as directors and executive officers.
44
<PAGE>
RELATED PARTY TRANSACTIONS
Preferred Stock Sales
Series A Preferred Stock
In May 1996, we sold 1,400,000 shares of our Series A preferred stock at
a purchase price per share of $0.25. We received aggregate proceeds of $350,000
from the sale of our Series A preferred stock. Each share of Series A preferred
stock will convert into one share of common stock immediately prior to the
closing of this offering. The following 5% stockholders purchased shares of our
Series A preferred stock:
<TABLE>
<CAPTION>
Number of
Common
Equivalent Aggregate
Purchaser Shares Consideration
--------- ---------- -------------
<S> <C> <C>
U.S. Venture Partners IV, L.P..................... 1,206,800 $301,700.00
Second Ventures II, L.P. ......................... 147,000 36,750.00
U.S.V.P. Entrepreneur Partners II, L.P............ 42,000 10,500.00
2180 Associates Fund.............................. 4,200 1,050.00
</TABLE>
The entities listed in the table above are the beneficial owners of the
number of shares listed opposite their name and hold voting and investment
power with respect to these shares. The share numbers and price per share above
reflect the two-for-one stock split of our capital stock effected in August
1997 and the two-for-one stock split of our capital stock effected in August
1999. Pursuant to our certificate of incorporation, for so long as there are
1,400,000 shares of our Series A preferred stock outstanding, the holders of
our Series A preferred stock are entitled to elect one director. This director
is currently Lucio Lanza. Mr. Lanza is a limited partner of Presidio Management
Group IV, L.P., which is the general partner of each of U.S. Venture Partners
IV, L.P., Second Ventures II, L.P. and U.S.V.P. Entrepreneur Partners II, L.P.
This right expires upon the closing of this offering.
Series B Preferred Stock
In February 1997, we entered into a subscription and loan agreement with
U.S. Venture Partners IV, L.P., Second Ventures II, L.P., U.S.V.P. Entrepreneur
Partners II, L.P. and 2180 Associates Fund, L.P.. Pursuant to the agreement,
each of U.S. Venture Partners IV, L.P., Second Ventures II, L.P., U.S.V.P.
Entrepreneur Partners II, L.P. and 2180 Associates Fund, L.P. agreed to
purchase notes from us in the aggregate amount of $300,000. In addition, we
agreed to issue warrants to each investor equal to 5% of the outstanding
principal on April 9, 1997 plus an additional 5% of the outstanding principal
balance every thirty days thereafter divided by the Series B preferred stock
purchase price. Pursuant to this agreement, the following 5% stockholders
purchased notes bearing interest at a rate of 5.81% per annum:
<TABLE>
<CAPTION>
Noteholder Principal
---------- ---------
<S> <C>
U.S. Venture Partners IV, L.P.................................... $258,600
Second Ventures II, L.P.......................................... 31,500
U.S.V.P. Entrepreneur Partners II, L.P........................... 9,000
2180 Associates Fund, L.P........................................ 900
</TABLE>
45
<PAGE>
In July 1997, we amended the subscription and loan agreement to increase
the aggregate loan amount to $500,000. Pursuant to this amendment, the
following 5% stockholders purchased notes bearing interest at a rate of 6% per
annum:
<TABLE>
<CAPTION>
Noteholder Principal
---------- ---------
<S> <C>
U.S. Venture Partners IV, L.P.................................... $172,400
Second Ventures II, L.P.......................................... 21,000
U.S.V.P. Entrepreneur Partners II, L.P........................... 6,000
2180 Associates Fund, L.P........................................ 600
</TABLE>
Each of these notes was due and payable upon the earlier of the closing
of our Series B preferred stock financing or August 7, 1997. At the option of
the noteholder, in lieu of cash payment, all principal and interest outstanding
at the time of the closing of our Series B preferred stock financing could be
converted into shares of Series B preferred stock.
In August 1997 we issued warrants to purchase shares of our Series B
preferred stock in the following amounts to the following 5% stockholders:
<TABLE>
<CAPTION>
Number of
Common
Equivalent
Warrantholder Shares
------------- ----------
<S> <C>
U.S. Venture Partners IV, L.P................................... 115,576
Second Ventures II, L.P......................................... 14,078
U.S.V.P. Entrepreneur Partners II, L.P.......................... 4,022
2180 Associates Fund, L.P....................................... 402
</TABLE>
These warrants expire on the earlier of the closing of our initial public
offering of common stock or August 24, 2004. The share numbers above reflect
the two-for-one split of our capital stock effected in August 1999.
In August 1997, we sold 2,011,172 shares of our Series B preferred stock
at a purchase price of $0.4475 per share. We received aggregate proceeds of
$900,000 from the sale of our Series B preferred stock. The following 5%
stockholder purchased shares of our Series B preferred stock:
<TABLE>
<CAPTION>
Number of
Common
Equivalent Aggregate
Purchaser Shares Consideration
--------- ---------- -------------
<S> <C> <C>
U.S. Venture Partners IV, L.P..................... 1,733,628 $775,798
Second Ventures II, L.P. ......................... 211,174 94,500
U.S.V.P. Entrepreneur Partners II, L.P. .......... 60,336 27,000
2180 Associates Fund L.P. ........................ 6,034 2,700
</TABLE>
The entities listed in the table above are the beneficial owners of the
number of shares listed opposite their name and hold voting and investment
power with respect to these shares. The share numbers and price per share above
reflect the two-for-one stock split of our capital stock effected in August
1999.
For so long as there are 1,200,000 shares of our Series A and Series B
preferred stock outstanding, the holders of our Series A and Series B preferred
stock are entitled, voting as a single series, to elect one director in
addition to the director elected by the holders of shares of Series A preferred
stock. This right expires upon the closing of this offering.
46
<PAGE>
Series C Preferred Stock
In May 1998, we sold 6,282,722 shares of our Series C preferred stock at
a purchase price of $0.955 per share. We received aggregate proceeds of
$5,999,999 from the sale of our Series C preferred stock. The following 5%
stockholder purchased shares in the financing:
<TABLE>
<CAPTION>
Number of
Common
Equivalent Aggregate
Purchaser Shares Consideration
--------- ---------- -------------
<S> <C> <C>
U.S. Venture Partners IV, L.P..................... 1,038,010 $ 991,299
Second Ventures II, L.P........................... 126,440 120,750
U.S.V.P. Entrepreneur Partners II, L.P............ 36,126 34,500
2180 Associates Fund.............................. 3,612 3,449
Asset Management Associates 1996, L.P............. 2,921,466 2,790,000
Alpine Technology Ventures, L.P................... 1,594,488 1,522,736
Alpine Technology Ventures II, L.P................ 290,328 277,263
</TABLE>
The entities listed in the table above are the beneficial owners of the
number of shares listed opposite their name and hold voting and investment
power with respect to these shares. The share numbers and price per share above
reflect the two-for-one stock split of our capital stock effected in August
1999. Pursuant to our certification of incorporation, for so long as there are
2,000,000 shares of our Series C preferred stock outstanding, the holders of
our Series C preferred stock are entitled, voting as a single series, to elect
one director who is currently W. Ferrell Sanders. Mr. Sanders is a general
partner of AMC Partners 96, L.P., which is the general partner of Asset
Management Associates 1996, L.P. This right expires upon the closing of this
offering.
In connection with our sale of Series C preferred stock, we issued
warrants to purchase shares of our Series C preferred stock in the following
amounts to the following 5% stockholders:
<TABLE>
<CAPTION>
Number of
Common
Equivalent
Warrantholder Shares
------------- ----------
<S> <C>
U.S. Venture Partners IV, L.P................................... 56,414
Second Ventures II, L.P......................................... 6,872
U.S.V.P. Entrepreneur Partners II, L.P.......................... 1,964
2180 Associates Fund, L.P....................................... 196
</TABLE>
These warrants expire on the earlier of the closing of our initial public
offering of common stock or May 26, 2005. The share numbers above reflect the
two-for-one split of our capital stock effected in August 1999.
47
<PAGE>
Series D Preferred Stock
In August 1999, we sold 4,285,716 shares of our Series D preferred stock
at a purchase price of $4.20 per share. We received aggregate proceeds of
$18,000,007 from the sale of our Series D preferred stock. The following 5%
stockholders purchased shares of our Series D preferred stock:
<TABLE>
<CAPTION>
Number of
Common
Equivalent Aggregate
Purchaser Shares Consideration
--------- ---------- -------------
<S> <C> <C>
U.S. Venture Partners IV, L.P..................... 820,953 $3,448,002
Second Ventures II, L.P........................... 100,000 420,000
U.S.V.P. Entrepreneurs Partners II, L.P........... 28,571 119,998
2180 Associates Fund.............................. 2,857 11,999
Asset Management Associates 1996, L.P............. 235,715 990,003
AMA98 Partners, L.P............................... 10,613 44,574
AMA98 Ventures, L.P............................... 175,351 736,474
AMA98 Corporate, L.P.............................. 21,042 88,376
AMA98 Investors, L.P.............................. 26,328 110,577
Alpine Technology Ventures, L.P................... 201,420 845,964
Alpine Technology Ventures II, L.P................ 36,675 154,035
ABS Ventures PSY, L.L.C........................... 2,072,538 8,704,659
</TABLE>
The entities listed in the table above are the beneficial owners of the
number of shares listed opposite their name and hold voting and investment
power with respect to these shares.
Investor Rights Agreement
We have entered into an agreement with the preferred stockholders
described above as well as the former stockholders of Anubis Solutions, Inc.,
pursuant to which these stockholders will have registration rights with respect
to their shares of common stock following this offering. Set forth below is a
summary of these registration rights.
Demand Registrations. At any time after the earlier of December 31, 2000
or six months following the closing date of the initial public offering of our
common stock, the holders of 40% of the stock subject to registration rights
may request us to register shares of common stock subject to our right to defer
the registration for 90 days and, upon the advice of our underwriters, to
reduce the number of shares proposed to be registered. We will be obligated to
effect only four registrations pursuant to such a request by holders of
registration rights. If shares requested to be included in a registration must
be excluded due to limitations on the number of shares to be registered on
behalf of the selling stockholders pursuant to the underwriters' advice, the
shares registered on behalf of the selling stockholders will be allocated among
all selling stockholders in proportion, as nearly as practicable, to the
holders of shares with rights to be included in the registration on the basis
of the number of shares with these rights held by these stockholders.
Piggyback Registration Rights. The holders who have registration rights
have unlimited rights to request that shares be included in any company-
initiated registration of common stock on a form that would be suitable for a
registration involving solely securities held by the selling stockholders. The
underwriters may, for marketing reasons, limit the number of shares to be
registered by holders of registration rights to not less than 25% of the
securities included in the registration, or in case of our Initial Public
Offering, we may exclude all or part of the shares requested to be registered
on behalf of all stockholders having the right to request inclusion in such
registration.
48
<PAGE>
Form S-3 Registrations. After we have qualified for registration on Form
S-3, which will not be available until at least 12 months after we become a
publicly reporting company, holders of registration rights may request in
writing that we effect up to two registrations a year of their shares on Form
S-3 as long as the reasonably anticipated aggregate price to the public, net
of offering expenses, would not be less than $500,000. We are not obligated to
effect a registration of Form S-3 within six months immediately following the
effective date of any public offering of our common stock or if within ten
days of a request for registration we give notice of a bona fide intention to
file a registration statement within 60 days. If we provide the holders with a
certificate signed by our President stating that in the good faith judgment of
the board of directors it would be seriously detrimental to us or our
stockholders for the registration statement to be filed in the near future, we
may defer the registration for a period not to exceed 90 days from the date of
the request for registration on Form S-3 by holders of securities entitled to
be registered. We may exercise this right to defer only once in any twelve
month period.
Transferability. The registration rights are transferable by a holder to
a transferee or assignee of at least 20% of that holders' shares subject to
registration rights so long as the holder provides us with notice of the
transfer prior to the transfer and the transferee or assignee is not be a
person deemed by the board of directors to be a competitor or potential
competitor of ours.
Termination. The registration rights will terminate five years after the
date of our initial public offering.
Transactions with Officers and Directors
In May 1996, we sold 456,164 shares of our common stock to Steve Krause,
our Chief Technology Officer and a member of our board of directors, at a
price per share of $0.025.
In March 1998, we granted Jerry Reitman, a member of our board of
directors, an option to purchase 47,400 shares of our common stock at an
exercise price of $0.05 per share and in February 1999, we granted Mr. Reitman
an option to purchase 92,600 shares of our common stock at an exercise price
of $0.125. Each of these options vest as to 1/48 of the shares each month from
the date of grant. In addition, in June 1999 we granted Mr. Reitman 35,000
shares of our common stock in exchange for services rendered at a deemed fair
market value of $0.50.
In August 1999, we sold 20,000 shares of our Series D Preferred Stock to
Dunlap-Black Investments LLC. Philip Black, a member of our board of
directors, is a member of Dunlap-Black Investments LLC; however, Mr. Black has
no voting or investment power over these shares.
In September 1999, we issued a total of 1,438,428 shares of our common
stock, for an aggregate purchase price valued at approximately $3.6 million,
to the stockholders of Anubis Solutions Incorporated in consideration for our
acquisition of all of the outstanding capital stock of Anubis Solutions. In
addition, we issued a total of 640,764 options and warrants to purchase shares
of our common stock at a per share exercise price of approximately $2.50.
In January 2000, we entered into a separation agreement with Eileen
Gittins, our former Chief Executive Officer, under which we agreed to pay her
$14,583 per month for six months and to accelerate the vesting of 113,158 of
her options to purchase our common stock. Ms. Gittins purchased a total of
186,891 shares of our common stock at a per share price of $0.05 and 292,800
shares of our common stock at a per share price of $0.125 for an aggregate
purchase price of $45,944.55. In connection with Ms. Gittins' purchase of
these shares, we loaned her $46,000 pursuant to a full recourse promissory
note.
In February 2000, we granted Steve Krause, our Chief Technology Officer
and a member of our board of directors, an option to purchase 220,000 shares
of our common stock. These options will vest as to 25% of the shares one year
from the date of grant and as to 1/48 of the total number of shares each month
thereafter.
49
<PAGE>
In February 2000, we sold 1,691,000 shares of our common stock to Love
Goel, our Chief Executive Officer and a member of our board of directors, at a
purchase price per share of $5.25 in exchange for an interest-free, full-
recourse promissory note of $8.9 million collateralized by the restricted
stock. These shares are subject to a right of repurchase which lapses
immediately with respect to 140,988 shares and lapses with respect to the
remaining shares at a rate of 1/48 of the total number of shares at the end of
each month beginning at the date Mr. Goel commenced his employment with us, May
12, 2000.
In connection with the purchase by Mr. Goel of 1,691,000 shares of our
restricted stock we entered into a registration rights agreement under which
Mr. Goel has piggyback registration rights with respect to these shares under
certain circumstances. Under this agreement, Mr. Goel is entitled to have his
shares included in a registration statement under the 1933 Act filed by us on
any form that would also permit the registration of Mr. Goel's shares and the
registration statement is filed on our behalf or on behalf of selling
securityholders for the general registration of our securities to be sold for
cash, other than Form S-4 or S-8 or filed in connection with an exchange offer
or an offering solely to our existing stockholders. We or, in the case of an
underwritten offering, our underwriters may exclude a pro rata portion of all
registrable stock, including Mr. Goel's shares for certain marketing reasons.
In February 2000, we granted Andrew V. Johnson, a member of our board of
directors, an option to purchase 15,000 shares of our common stock at an
exercise price of $15.00 per share. This option will vest at a rate of 1/36 of
the total number of shares beginning on the date of grant.
In May 2000, we granted Barry Wright, our President, an option to
purchase 200,000 shares of our common stock. The option will vest at a rate of
1/48 of the total number of shares beginning on May 1, 2000.
For further information regarding agreement between us and some of our
executive officers, please see "Management--Employment Contracts and Change of
Control Arrangements."
50
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of March 31, 2000 by:
. each person known by us to be the beneficial owner of more than 5% of
our outstanding common stock;
. each of our directors and executive officers named in the summary
compensation table; and
. all of our executive officers and directors as a group.
Except as otherwise noted, the address of each person listed in the table
is care of Personify, Inc., 425 Battery Street, Suite 450B, San Francisco,
California 94111. The table includes all shares of common stock issuable within
60 days of March 31, 2000 upon the exercise of options and other rights
beneficially owned by the indicated stockholders on that date. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and includes voting and investment power with respect to
the shares.
To our knowledge, except under applicable community property laws or as
otherwise indicated, the persons named in the table have sole voting and sole
investment control with respect to all shares beneficially owned.
The applicable percentage of ownership for each stockholder is based on
19,474,079 shares of common stock outstanding as of March 31, 2000, together
with applicable options for that stockholder. Shares of common stock issuable
upon exercise of options and other rights beneficially owned are deemed
outstanding for the purpose of computing the percentage ownership of the person
holding those options and other rights, but are not deemed outstanding for
computing the percentage ownership of any other person.
<TABLE>
<CAPTION>
Percentage Beneficially Owned
Number of Shares --------------------------------
Name and Address of Beneficial Owner Beneficially Owned Prior to Offering After Offering
- ------------------------------------ ------------------ ----------------- --------------
<S> <C> <C> <C>
5% Stockholders:
Entities affiliated with U.S. Venture Partners... 5,767,265 29.6%
2180 Sand Hill Road, Suite 300
Menlo Park, California 94025
Entities affiliated with Alloy Ventures, Inc..... 3,390,515 17.4
480 Cowper Street, Second Floor
Palo Alto, California 94301
Entities affiliated with Alpine Technology
Ventures....................................... 2,122,911 10.9
20300 Stevens Creed Boulevard, Suite 495
Cupertino, California 95014
ABS Ventures PSY L.L.C........................... 2,072,538 10.6
1 South Street, Suite 2150
Baltimore, Maryland 21202
Directors and Executive Officers:
Eileen H. Gittins................................ 479,691 2.5
Barry Wright..................................... -- *
Love Goel........................................ 1,691,000 8.7
Steve Krause..................................... 576,844 3.0
Richard Vinchesi................................. -- *
Philip D. Black.................................. 2,072,538 10.6
Andrew V. Johnson................................ -- *
Lucio L. Lanza................................... 5,767,265 29.6
Jerry Reitman.................................... 89,612 *
W. Ferrell Sanders............................... 3,390,515 17.4
All executive officers and directors as a group
(10 persons)................................... 13,859,581 71.2
</TABLE>
- --------
* Less than 1% of the outstanding shares of common stock.
51
<PAGE>
The shares listed above for entities affiliated with U.S. Venture
partners consist of 4,799,391 shares held by U.S. Venture Partners, IV, L.P.,
584,614 shares held by Second Ventures II, L.P., 167,033 shares held by
U.S.V.P. Entrepreneur Partners II, L.P. and 16,703 shares held by 2180
Associate Fund and 171,990 shares underlying warrants held by U.S. Venture
Partners IV, L.P., 20,950 shares underlying warrants held by Second Ventures
II, L.P., 5,986 shares underlying warrants held by U.S.V.P. Entrepreneur
Partners II, L.P. and 598 shares underlying warrants held by 2180 Associates
Fund, L.P. Lucio L. Lanza, one of our directors, is a limited partner of
Presidio Management Group IV, L.P., which is the general partner of each of
U.S. Venture Partners IV, L.P., Second Ventures II, L.P. and U.S.V.P.
Entrepreneur Partners II. L.P. Mr. Lanza has no voting or investment power over
and disclaims beneficial ownership of shares held by these entities, except to
the extent of his pecuniary interest in these entities as a limited partner of
Presidio Management Group IV, L.P.
The shares listed above for entities affiliated with Alloy Ventures
consist of 3,157,181 shares held by Asset Management Associates 1996, L.P.,
175,351 shares held by AMA98 Ventures, L.P., 26,328 shares held by AMA98
Investors, L.P., 21,042 shares held by AMA98 Corporate, L.P. and 10,613 shares
held by AMA98 Partners, L.P. W. Ferrell Sanders, one of our directors, is a
general partner of AMC Partners 96, L.P., which is the general partner of Asset
Management Associates 1996, L.P., and Mr. Sanders is a limited partner of AMA98
Partners, L.P., which coinvests with AMA98 Ventures, L.P., AMA98 Corporate,
L.P. and AMA98 Investors, L.P. Alloy Ventures 1998, LLC is the general partner
of each of these entities and is managed by Alloy Ventures, Inc., where Mr.
Sanders is employed. Mr. Sanders disclaims beneficial ownership of shares held
by these entities except to the extent of his pecuniary interest in these
entities.
The shares listed above for entities affiliated with Alpine Technology
Ventures consist of 1,795,908 shares held by Alpine Technology Ventures, L.P.
and 456,164 shares held by Alpine Technology Ventures II, L.P.
The shares listed above for Ms. Gittins were purchased on January 7,
2000, pursuant to a separation agreement.
The shares listed above for Mr. Krause include options to purchase
122,010 shares of our common stock which will be exercisable as of May 30,
2000.
The shares listed above for Mr. Goel consist of 1,691,000 shares of
restricted stock which may be repurchased by us. Our repurchase option lapses
immediately with respect to 105,688 shares and lapses with respect to the
remaining shares at a rate of 1/48 per month.
The shares listed above for Mr. Black consist of 2,072,538 shares held by
ABS Ventures PSY L.L.C. and 20,000 shares held by Dunlap-Black Investments LLC.
Mr. Black, one of our directors, is a managing member of Calvert Capital II,
LLC, which is the managing member of ABS Ventures PSY L.L.C., and Mr. Black is
a member of Dunlap-Black Investments LLC. However, Mr. Black has no voting or
investment power over shares held by Dunlap-Black Investments LLC. Mr. Black
disclaims beneficial ownership of shares held by these entities, except to the
extent of his pecuniary interest in these entities.
The shares listed above for Mr. Lanza consist of 4,799,391 shares held by
U.S. Venture Partners, IV, L.P., 584,614 shares held by Second Ventures II,
L.P. and 167,033 shares held by U.S.V.P. Entrepreneur Partners II, L.P. Lucio
L. Lanza, one of our directors, is a limited partner of Presidio Management
Group IV, L.P., which is the general partner of each of U.S. Venture Partners
IV, L.P., Second Ventures II, L.P., U.S.V.P. Entrepreneur Partners II. L.P. and
16,703 shares held by 2180 Associate Fund and 171,990 shares underlying
warrants held by U.S. Venture Partners IV, L.P., 20,950 shares underlying
warrants held by Second Ventures II, L.P., 5,986 shares underlying warrants
held by U.S.V.P. Entrepreneur Partners II, L.P. and 598 shares underlying
warrants held by 2180 Associates Fund, L.P. Mr. Lanza has no voting or
investment power over and disclaims beneficial ownership of shares held by
these entities, except to the extent of his pecuniary interest in these
entities as a limited partner of Presidio Management Group IV, L.P.
52
<PAGE>
The shares listed above for Mr. Reitman include 35,000 shares of common
stock and options to purchase 54,612 shares of our common stock which will be
exercisable as of May 30, 2000.
The shares listed above for Mr. Sanders consist of 3,157,181 shares held
by Asset Management Associates 1996, L.P., 175,351 shares held by AMA98
Ventures, L.P., 26,328 shares held by AMA98 Investors, L.P., 21,042 shares held
by AMA98 Corporate, L.P. and 10,613 shares held by AMA98 Partners, L.P.
W. Ferrell Sanders, one of our directors, is a general partner of AMC Partners
96, L.P., which is the general partner of Asset Management Associates 1996,
L.P., and Mr. Sanders is a limited partner of AMA98 Partners, L.P., which
coinvests with AMA98 Ventures, L.P., AMA98 Corporate, L.P. and AMA98 Investors,
L.P. Alloy Ventures 1998, LLC is the general partner of each of these entities
and is managed by Alloy Ventures, Inc., where Mr. Sanders is employed. Mr.
Sanders disclaims beneficial ownership of shares held by these entities except
to the extent of his pecuniary interest in these entities.
53
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Upon the completion of this offering, we will be authorized to issue
200,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares of
undesignated preferred stock, $0.001 par value.
Common Stock
As of March 31, 2000, there were 19,474,079 shares of our common stock
outstanding, assuming the conversion of all outstanding shares of preferred
stock. There will be shares outstanding, assuming no exercise of the
underwriters' over-allotment options and no exercise or conversion of
outstanding options after March 31, 2000, effective upon the closing of this
offering.
Each holder of common stock is entitled to one vote for each share held
on all matters to be voted upon by the stockholders and there are no cumulative
voting rights. Subject to preferences that may be applicable to any outstanding
preferred stock, holders of common stock are entitled to receive ratably such
dividends as may be declared by our board of directors out of funds legally
available therefor. See "Dividend Policy." In the event of a liquidation,
dissolution or winding up of Personify, holders of common stock would be
entitled to share in our assets remaining after the payment of liabilities and
the satisfaction of any liquidation preference granted to the holders of any
outstanding shares of preferred stock. Holders of common stock have no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable. The
rights, preferences and privileges of the holders of common stock are subject
to, and may be adversely affected by the rights of the holders of shares of any
series of preferred stock which we may designate in the future.
Preferred Stock
Our board of directors is authorized, without any further action by the
stockholders, subject to any limitations prescribed by law, from time to time
to issue up to an aggregate of 5,000,000 shares of preferred stock, no par
value per share, in one or more series, each of such series to have such rights
and preferences, including voting rights, dividend rights, conversion rights,
redemption privileges and liquidation preferences, as shall be determined by
our board of directors. The rights of the holders of common stock will be
subject to, and may be adversely affected by, the rights of holders of any
preferred stock that may be issued in the future. Issuance of preferred stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from attempting
to acquire, a majority of our outstanding voting stock. We have no present
plans to issue any shares of preferred stock.
Registration Rights of Certain Holders
As of March 31, 2000, the holders of 16,664,406 shares of our common and
preferred stock or their transferees are entitled to rights with respect to the
registration of these shares under the Securities Act. These rights are
provided under the terms of an agreement between us and the holders of these
securities. Subject to limitations in the agreement, if we register any of our
common stock either for our own account or for the account of other security
holders after this offering, these holders are entitled to include their shares
of common stock in that registration, subject to the ability of the
underwriters to limit the number of shares included in the offering. We will be
responsible for paying all registration expenses, and the holders selling their
shares will be responsible for paying all selling expenses.
54
<PAGE>
Certain Provisions of Our Charter and Bylaws and Delaware Law
Certain provisions of our amended and restated certificate of
incorporation and amended and restated bylaws may have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, control of our company. Such provisions could limit
the price that certain investors might be willing to pay in the future for
shares of our common stock. Certain of these provisions allow us to issue
preferred stock without any vote or further action by the stockholders,
eliminate the right of stockholders to act by written consent without a meeting
and eliminate cumulative voting in the election of directors. These provisions
may make it more difficult for stockholders to take certain corporate actions
and could have the effect of delaying or preventing a change in control of our
company.
Our amended and restated certificate of incorporation eliminates the
right of stockholders to call special meetings of stockholders or to act by
written consent without a meeting. The amended and restated certificate of
incorporation and amended and restated bylaws do not provide for cumulative
voting in the election of directors. The authorization of undesignated
preferred stock makes it possible for our board of directors to issue preferred
stock with voting or other rights or preferences that could impede the success
of any attempt to change control of our company. These and other provisions may
have the effect of deferring unsolicited takeovers or delaying changes in
control or management of our company. The amendment of any of these provisions
would require approval by holders of at least 66 2/3% of the outstanding common
stock.
In addition, we are subject to Section 203 of the Delaware General
Corporation Law which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder, unless:
. prior to such date, the board of directors of the corporation approved
either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder;
. upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder; the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding, for purposes of determining
the number of shares outstanding, those shares owned by persons who
are directors and also officers and by employee stock plans in which
employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or
. on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting
of stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the interested
stockholder.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is EquiServe Trust,
Boston, Massachusetts.
Nasdaq National Market Listing
We have applied to list our common stock on The Nasdaq National Market
under the trading symbol "PSFY."
55
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
If our stockholders sell substantial amounts of our common stock,
including shares issued upon the exercise of outstanding options, in the public
market following this offering, the market price of our common stock could fall
dramatically. These sales also might make it more difficult for us to sell
equity or equity-related securities in the future at a time and price that we
deem appropriate.
The number of shares of common stock available for sale in the public
market is limited by restrictions under federal securities law and by lock-up
agreements that our stockholders have entered into with the underwriters. For a
description of these lock-up agreements, please see "Underwriting."
Upon completion of this offering, we will have outstanding
shares of common stock, based upon shares outstanding as of March 31, 2000,
assuming no exercise of the underwriters' over allotment option and no exercise
of outstanding options after March 31, 2000. Taking into account the lock-up
agreements and assuming FleetBoston Robertson Stephens Inc. does not release
stockholders from these agreements, the following shares will be eligible for
sale in the public market at the following times:
. beginning on the date of this prospectus, only the shares sold in the
offering will be immediately available for sale in the public market;
and
. beginning 180 days after the date of this prospectus, approximately
19,268,547 shares will be eligible for sale pursuant to Rules 144 and
701 of the Securities Act.
Any common stock that has been purchased or may be purchased in this
offering by our affiliates, as defined in Rule 144 of the Securities Act, will
be subject to the volume limits and other selling limitations under Rule 144 of
the Securities Act for as long as they remain affiliates. All of the shares
eligible for sale beginning 180 days after the date of this prospectus will be
subject initially to certain volume limits and other limitations under Rule 144
of the Securities Act.
On or prior to the 180th day following the date of this prospectus, we
intend to register for resale an additional 8,131,110 shares of common stock
reserved for issuance under our employee stock plans based upon the number of
shares reserved for issuance as of March 31, 2000. In addition, the holders of
approximately 16,664,406 shares of our common stock have the right to require
us to register their shares for sale to the public. If these holders cause a
large number of shares to be registered and sold in the public market, our
stock price could decline materially.
56
<PAGE>
UNITED STATES TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following is a general discussion of the principal United States
federal income and estate tax consequences of the acquisition, ownership and
disposition of our common stock by a Non-U.S. Holder. As used in this
prospectus, the term "Non-U.S. Holder" is a person who holds our common stock
other than:
. a citizen or resident of the United States,
. a corporation or other entity taxable as a corporation created or
organized in or under the laws of the United States or of any
political subdivision of the United States,
. an estate the income of which is includable in gross income for United
States federal income tax purposes regardless of its source, or
. a trust subject to the primary supervision of a United States court
and the control of one or more United States persons, or a trust
(other than a wholly-owned grantor trust) that was treated as a
domestic trust on August 19, 1996 and made a valid election to
continue to be treated as a domestic trust despite not meeting the
requirement described above.
This discussion does not consider:
. state, local or foreign tax consequences,
. specific facts and circumstances that may be relevant to a particular
Non-U.S. Holder's tax position in light of their particular
circumstances,
. the tax consequences for the stockholders or beneficiaries of a Non-
U.S. Holder,
. special tax rules that may apply to certain Non-U.S. Holders,
including without limitation, partnerships, banks, insurance
companies, dealers in securities and traders in securities, or
. special tax rules that may apply to a Non-U.S. Holder that holds our
common stock as part of a "straddle," "hedge" or "conversion
transaction."
The following discussion is based on provisions if the United States
Internal Revenue Code of 1986, as amended, also known as the Code, applicable
Treasury regulations and administrative and judicial interpretations, all as of
the date of this prospectus, and all of which are subject to change,
retroactively or prospectively. The following discussion assumes that our
common stock is held as a capital asset. The following summary is for general
information. Accordingly, each Non-U.S. Holder should consult a tax advisor
regarding the United States federal, state, local and foreign income and other
tax consequences of acquiring, holding and disposing of shares of our common
stock.
Dividends
We do not anticipate paying cash dividends on our common stock in the
foreseeable future. See "Dividend Policy." In the event, however, that
dividends are paid on shares of our common stock, dividends paid to a Non-U.S.
Holder of our common stock generally will be subject to withholding of United
States federal income tax at a 30% rate, or such lower rate as may be provided
by an applicable income tax treaty. Non-U.S. Holders should consult their tax
advisors regarding their entitlement to benefits under a relevant income tax
treaty.
Dividends that are effectively connected with a Non-U.S. Holder's conduct
of a trade or business in the United States or, if an income tax treaty
applies, attributable to a permanent establishment in the United States, known
as "United States trade or business income", are generally subject to United
States federal income tax on a net income basis at regular graduated rates, but
are not generally subject to the 30% withholding tax if the Non-U.S. Holder
files the appropriate United States Internal Revenue Service form with
57
<PAGE>
the payor. Any United States trade or business income received by a Non-U.S.
Holder that is a corporation may also, under certain circumstances, be subject
to an additional "branch profits tax" at a 30% rate or such lower rate as
specified by an applicable income tax treaty.
Dividends paid prior to 2001 to an address in a foreign country are
presumed, absent actual knowledge to the contrary, to be paid to a resident of
such country for purposes of the withholding discussed above and for purposes
of determining the applicability of a tax treaty rate. For dividends paid after
2000, a Non-U.S. Holder of our common stock who claims the benefit of an
applicable income tax treaty rate generally will be required to satisfy
applicable certification and other requirements.
A Non-U.S. Holder of our common stock that is eligible for a reduced rate
of United States withholding tax under an income tax treaty may obtain a refund
or credit of any excess amounts withheld by filing an appropriate claim for a
refund with the United States Internal Revenue Services.
Gain on Disposition of Common Stock
A Non-U.S. Holder generally will not be subject to United States federal
income tax in respect of gain recognized on a disposition of our common stock
unless:
. the gain is United States trade or business income, in which case the
branch profits tax described above may apply to a corporate Non-U.S.
Holder,
. the Non-U.S. Holder is an individual who holds our common stock as a
capital asset within the meaning of Section 1221 of the Code, is
present in the United States for more than 182 days in the taxable
year of the disposition and meets certain other requirements,
. the Non-U.S. Holder is subject to tax pursuant to the provisions of
the United States tax law applicable to certain United States
expatriates, or
. we are or have been a "United States real property holding
corporation" for United States federal income tax purposes at any time
during the shorter of the five-year period ending on the date of
disposition of the period that the Non-U.S. Holder held our common
stock.
Generally, a corporation is a "United States real property holding
corporation" if the fair market value of its "United States real property
interest", such as interests in real property located in the United States or
the Virgin Islands, and contain interests in other United States real property
holding corporations, equals or exceeds 50% of the sum of the fiar market value
of its worldwide real property interests plus its other assets used or held for
use in a trade or business. We believe we have never been, are not currently
and are not likely to become a United States real property holding corporation
for United States federal income tax purposes.
Federal Estate Tax
Common stock owned or treated as owned by an individual who is a Non-U.S.
Holder at the time of death will be included in the individual's gross estate
for United States federal estate tax purposes, unless an applicable estate tax
or other treaty provides otherwise.
Information Reporting and Backup Withholding Tax
We must report annually to the United States Internal Revenue Service and
to each Non-U.S. Holder the amount of dividends paid to that holder and the tax
withheld with respect to those dividends. Copies of the information returns
reporting those dividends and withholding may also be made available to the tax
authorities in the country in which the Non-U.S. Holder is a resident under the
provisions of an applicable income tax treaty or agreement.
58
<PAGE>
Under certain circumstances, United States Treasury Regulations require
information reporting and backup withholding at a rate of 31% on certain
payments on our common stock. Under currently applicable law, Non-U.S. Holders
of our common stock, generally will be exempt from these information reporting
requirements and from backup withholding on dividends paid prior to 2001 to an
address outside the United States. For dividends paid after 2000, however, a
Non-U.S. Holder of our common stock that fails to certify its Non-U.S. Holder
status in accordance with applicable United States Treasury Regulations may be
subject to backup withholding at a rate of 31% of dividends.
The payment of the proceeds of the disposition of our common stock by a
holder to or through the United States office of a broker generally will be
subject to information reporting and backup withholding at a rate of 31% unless
the holder either certifies its status as a Non-U.S. Holder under penalties of
perjury or otherwise establishes an exemption. The payment of the proceeds of
the disposition by a Non-U.S. Holder of our common stock to or through a
foreign office of a foreign broker will not be subject to backup withholding or
information reporting unless the foreign broker will not be subject to backup
withholding or information reporting unless the foreign broker is a "United
States related person." In the case of the payment of proceeds from the
disposition of our common stock by or through a foreign office of a broker that
is a United States person or a "United States related person," information
reporting, but currently not backup withholding, on the payment applies unless
the broker receives a statement from the owner, signed under penalty of
perjury, certifying its foreign status or the broker has documentary evidence
in its files that the holder is a Non-U.S. Holder and the broker has no actual
knowledge to the contrary. For this purpose, a "United States related person"
is:
. a "controlled foreign corporation" for United States federal income
tax purposes,
. a foreign person 50% or more of whose gross income from all sources
for the three-year period ending with the close of its taxable year
preceding the payment, or for such part of the period that the broker
has been in existence, is derived from activities that are effectively
connected with the conduct of a United States trade or business,
. effective after 2000, a foreign partnership if, at any time during the
taxable year, (A) at least 50% of the capital or profits interest in
the partnership is owned by United States persons, or (B) the
partnership is engaged in a United States trade or business, or
. Certain U.S. branches of foreign banks or insurance companies.
Effective after 2000, backup withholding may apply to the payment of
disposition proceeds by or through a foreign office or a broker that is a
United States person or a United States related person unless certain
certification requirements are satisfied or an exemption is otherwise
established and the broker has no actual knowledge that the holder is a United
States person. Non-U.S. Holders should consult their own tax advisors regarding
the application of the information reporting and backup withholding rules to
them, including changes to these rules that will become effective after 2000.
Any amounts withhold under the backup withholding rules from a payment to
a Non-U.S. Holder will be refunded, or credited against the holder's United
States federal income tax liability, if any, provided that the required
information is furnished to the United States Internal Revenue Service.
59
<PAGE>
UNDERWRITING
We are offering the shares of common stock described in this prospectus
through a number of underwriters. FleetBoston Robertson Stephens Inc., J.P.
Morgan Securities Inc., Dain Rauscher Incorporated and Wit SoundView
Corporation are the representatives of the underwriters. We entered into an
underwriting agreement with the representatives. Subject to the terms and
conditions of the underwriting agreement, we agreed to sell to the
underwriters, and each underwriter separately agreed to purchase from us, the
number of shares of common stock listed next to its name below at the public
offering price, less the underwriting discount described on the cover page of
this prospectus:
<TABLE>
<CAPTION>
Number
of
Underwriter Shares
----------- ------
<S> <C>
FleetBoston Robertson Stephens Inc..................................
J.P. Morgan Securities Inc. ........................................
Dain Rauscher Incorporated..........................................
Wit SoundView Corporation...........................................
<CAPTION>
International Underwriter
-------------------------
<S> <C>
FleetBostonRobertson Stephens International Limited.................
J.P. Morgan Securities Ltd. ........................................
Dain Rauscher Incorporated..........................................
Wit SoundView Corporation...........................................
-----
Total.............................................................
=====
</TABLE>
The underwriting agreement provides that the underwriters must buy all of
these shares from us if they buy any of them. The underwriters will sell these
shares to the public when and if the underwriters buy them from us. The
underwriters are offering the common stock subject to a number of conditions,
including:
. the underwriters' receipt and acceptance of the common stock from us;
and
. the underwriters' right to reject orders in whole or in part.
FleetBoston Robertson Stephens Inc. expects to deliver the shares of
common stock to purchasers on , 2000.
Over-allotment option. We have granted the underwriters an option to buy
up to additional shares of our common stock at the same price per share
as they are paying for the shares shown in the table above. The underwriters
may exercise this option only to the extent that they sell more than the total
number of shares shown in the table above. The underwriters may exercise this
option at any time within 30 days after the date of this prospectus. To the
extent that the underwriters exercise this option, the underwriters will be
obligated to purchase the additional shares from us in the same proportions as
they purchased the shares shown in the table above. If purchased, these
additional shares will be sold by the underwriters on the same terms as those
on which the other shares are sold.
Stock market listing. We expect our common stock will be quoted on the
Nasdaq National Market under the symbol "PSFY."
Determination of offering price. Before this offering, there has been no
public market for our common stock. The initial public offering price will be
determined through negotiations between us and the representatives. In addition
to prevailing market conditions, the factors to be considered in determining
the initial public offering price will include:
. the valuation multiples of publicly-traded companies that the
representatives believe are comparable to us;
60
<PAGE>
. our financial information;
. our history and prospects and the outlook for our industry;
. an assessment of our management, our past and present operations, and
the prospects for, and timing of, our future revenues;
. the present state of our development and the progress of our business
plan; and
. the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours.
An active trading market for our shares may not develop. Even if an
active market does develop, the public price at which our shares trade in the
future may be below the offering price.
Underwriting discounts. The underwriting discount is the difference
between the price the underwriters pay to us and the price at which the
underwriters initially offer the shares to the public. The underwriting
discount will be determined through arms-length negotiations between us and the
underwriters. The following table shows the per share and total underwriting
discounts to be received by the underwriters. These amounts are shown assuming
no exercise and full exercise of the underwriters' over-allotment option
described above:
<TABLE>
<CAPTION>
Total
-------------------------
Per No Exercise Full Exercise
Share of Option of Option
----- ----------- -------------
<S> <C> <C> <C>
Public offering price...................... $ $ $
Underwriting discount...................... $ $ $
Proceeds, before expenses, to us........... $ $ $
</TABLE>
The expenses of this offering, not including the underwriting discount,
are estimated to be approximately $ and will be paid by us. Expenses
include the Securities and Exchange Commission filing fee, the NASD filing fee,
Nasdaq listing fees, printing expenses, legal and accounting fees, transfer
agent and registrar fees and other miscellaneous fees and expenses.
Lock-up agreements. We and our executive officers, directors and all of
our stockholders, have agreed, with exceptions, not to sell or transfer any
shares of our common stock for 180 days after the date of this prospectus
without first obtaining the written consent of FleetBoston Robertson Stephens
Inc. Specifically, we and these other individuals have agreed not to, directly
or indirectly:
. offer to sell, contract to sell, or otherwise sell or dispose of any
shares of our common stock;
. loan, pledge or grant any rights with respect to any shares of our
common stock;
. engage in any hedging or other transaction that might result in a
disposition of shares of our common stock by anyone;
. execute any short sale, whether or not against the box; or
. purchase, sell or grant any put or call option or other right with
respect to our common stock or with respect to any security other than
a broad-based market basket or index that includes, relates to or
derives any significant part of its value from our common stock.
These lock-up agreements apply to shares of our common stock and also to
any options or warrants to purchase any shares of our common stock or any
securities convertible into or exchangeable for shares of our common stock.
These lock-up agreements apply to all such securities that are owned or later
acquired by the persons executing the agreements, except for securities
acquired on the open market. In addition, we have
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<PAGE>
agreed with FleetBoston Robertson Stephens Inc. that, to the extent that we
have separate lock-up agreements with some of our stockholders, we will not
consent to the stockholders' disposition of any shares subject to those
separate lock-up agreements prior to the expiration of the lock-up period.
However, FleetBoston Robertson Stephens Inc. may release any of us from these
agreements at any time during the 180 day period, in its sole discretion and
without notice, as to some or all of the shares covered by these agreements.
Indemnification of the underwriters. We will indemnify the underwriters
against some civil liabilities, including liabilities under the Securities Act
and liabilities arising from breaches of our representations and warranties
contained in the underwriting agreement. If we are unable to provide this
indemnification, we will contribute to payments the underwriters may be
required to make in respect of those liabilities.
Dealers' compensation. The underwriters initially will offer our shares
to the public at the price specified on the cover page of this prospectus. The
underwriters may allow to selected dealers a concession of not more than $
per share. The underwriters may also allow, and any other dealers may reallow,
a concession of not more than $ per share to some other dealers. If all the
shares are not sold at the public offering price, the underwriters may change
the public offering price and the other selling terms. A change in the public
offering price will not affect the amount of proceeds that we receive.
Discretionary accounts. The underwriters do not expect to sell more than
5% of the shares of our common stock in the aggregate to accounts over which
they exercise discretionary authority.
Directed share program. At our request, the underwriters have reserved
for sale, at the initial public offering price, up to shares, or 5%, of
the shares of our common stock offered by this prospectus for sale to some of
our directors, officers and employees and their family members, and other
persons with relationships with us. The number of shares of our common stock
available for sale to the general public will be reduced to the extent those
persons purchase the reserved shares. Any reserved shares which are not orally
confirmed for purchase within one day of the pricing of this offering may be
offered by the underwriters to the general public on the same terms as the
other shares offered by this prospectus.
Online activities. A prospectus in electronic format may be made
available on the internet sites or through other online services maintained by
one or more of the underwriters of this offering, or by their affiliates. In
those cases, prospective investors may view offering terms online and,
depending upon the particular underwriter, prospective investors may be allowed
to place orders online. The underwriters may agree with us to allocate a
specific number of shares for sale to online brokerage account holders. Any
such allocation for online distributions will be made by the representatives on
the same basis as other allocations.
A prospectus in electronic format is being made available on an internet
website maintained by Wit SoundView's affiliate, Wit Capital Corporation. In
addition, a copy of the prospectus in electronic format will be made available
on the internet websites hosted by E*OFFERING Corp. and E*TRADE Securities,
Inc. E*TRADE will accept conditional offers to purchase shares from all of its
customers that pass and complete an online eligibility profile. In the event
that the demand for shares from the customers of E*TRADE exceeds the amounts of
shares allocated to it, E*TRADE will use a random allocation methodology to
distribute shares in even lots of 100 shares per customer. Other than the
prospectus in electronic format, the information on these websites and any
information contained on any other website maintained by Wit Capital,
E*OFFERING or E*TRADE is not part of this prospectus or the registration
statement of which this prospectus forms a part, has not been approved and/or
endorsed by us or any underwriter in its capacity as underwriter and should not
be relied upon by investors.
Stabilization and other transactions. The rules of the Securities and
Exchange Commission generally prohibit the underwriters from trading in our
common stock on the open market during this offering. However, the underwriters
are allowed to engage in some open market transactions and other activities
during this offering that may cause the market price of our common stock to be
above or below that which would
62
<PAGE>
otherwise prevail in the open market. These activities may include
stabilization, short sales and over-allotments, syndicate covering transactions
and penalty bids.
. Stabilizing transactions consist of bids or purchases made by the lead
representative for the purpose of preventing or slowing a decline in
the market price of our common stock while this offering is in
progress;
. Short sales and over-allotments occur when the representatives, on
behalf of the underwriting syndicate, sell more of our shares than
they purchase from us in this offering. In order to cover the
resulting short position, the representatives may exercise the over-
allotment option described above and/or they may engage in syndicate
covering transactions;
. Syndicate covering transactions are bids for or purchases of our
common stock on the open market by the representatives on behalf of
the underwriters in order to reduce a short position incurred by the
representatives on behalf of the underwriters;
. A penalty bid is an arrangement permitting the representatives to
reclaim the selling concession that would otherwise accrue to an
underwriter if the common stock originally sold by that underwriter
was later repurchased by the representatives and therefore was not
effectively sold to the public by such underwriter.
If the underwriters commence these activities, they may discontinue them
at any time without notice. The underwriters may carry out these transactions
on the Nasdaq National Market, in the over-the-counter market or otherwise.
Passive market making. Following the pricing of this offering, and until
the commencement of any stabilizing bid, underwriters and dealers who are
qualified market makers on the Nasdaq National Market may engage in passive
market making transactions. Passive market making is allowed during the period
when the SEC's rules would otherwise prohibit market activity by the
underwriters and dealers who are participating in this offering. Passive market
makers must comply with applicable volume and price limitations and must be
identified as such. In general, a passive market maker must display its bid at
a price not in excess of the highest independent bid for our common stock; but
if all independent bids are lowered below the passive market maker's bid, the
passive market maker must also lower its bid once it exceeds specified purchase
limits. Net purchases by a passive market maker on each day are limited to a
specified percentage of the passive market maker's average daily trading volume
in our common stock during a specified period and must be discontinued when
such limit is reached. Underwriters and dealers are not required to engage in
passive market making and may end passive market making activities at any time.
Some of the underwriters may in the future perform financial advisory
services for us.
63
<PAGE>
LEGAL MATTERS
The validity of our common stock offered hereby will be passed upon for
us by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California, and for the underwriters by O'Melveny & Myers LLP, San Francisco,
California. Jeffrey D. Saper, a member of Wilson Sonsini Goodrich & Rosati,
serves as our Secretary. Persons associated with Wilson Sonsini Goodrich &
Rosati hold a warrant to purchase 77,500 shares of common stock at a purchase
price of $15.00 per share.
EXPERTS
The consolidated financial statements of Personify, Inc. as of December
31, 1998 and 1999, and for each of the three years in the period ended December
31, 1999 appearing in this prospectus have been included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given upon the
authority of said firm as experts in accounting and auditing.
The financial statements of Anubis Solutions, Inc. as of December 31,
1998 and September 30, 1999, and for the year ended December 31, 1998 and the
nine months ended September 30, 1999 appearing in this prospectus have been
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, 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, or SEC, a
registration statement on Form S-1 under the Securities Act with respect to the
common stock offered hereby. This prospectus, which constitutes a part of the
registration statement, does not contain all of the information set forth in
the registration statement and the exhibits filed as a part thereof, certain
parts of which are omitted in accordance with the rules and regulations of the
SEC. For further information with respect to us and the common stock offered
hereby, reference is made to the registration statement and to the exhibits
filed as a part thereof. Statements contained in this prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete and are qualified in their entirety by reference to each
such contract, agreement or other document which is filed as an exhibit to the
registration statement. The registration statement, including the exhibits and
schedules thereto, may be inspected without charge at the principal office of
the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at the
Regional Offices of the SEC at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300, New
York, New York 10048. The public may obtain information on the operation of the
public reference room by calling the SEC at 1 (800) SEC-0330. Our SEC filings
are also available to the public from the SEC's Web site at www.sec.gov. In
addition, such material will be available for inspection at the offices of The
Nasdaq Stock Market, Inc., at 1735 K Street, N.W., Washington, D.C. 20006.
Copies of such material may be obtained by mail from the Public Reference
Branch of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates.
64
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Personify, Inc.
Report of Independent Accountants......................................... F-2
Consolidated Balance Sheets............................................... F-3
Consolidated Statements of Operations..................................... F-4
Consolidated Statements of Stockholders' Deficit.......................... F-5
Consolidated Statements of Cash Flows..................................... F-6
Notes to Consolidated Financial Statements................................ F-7
Pro Forma Combined Financial Statements
Overview.................................................................. F-25
Unaudited Pro Forma Consolidated Statement of Operations.................. F-26
Anubis Solutions Incorporated
Report of Independent Accountants......................................... F-27
Balance Sheets............................................................ F-28
Statements of Operations.................................................. F-29
Statements of Shareholders' Equity........................................ F-30
Statements of Cash Flows.................................................. F-31
Notes to Financial Statements............................................. F-32
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Personify, Inc.
The reincorporation described in Note 10 to the consolidated financial
statements has not been consummated at March 29, 2000. When the reincorporation
has been consummated, we will be in a position to furnish the following report
assuming that from March 29, 2000 to the date of such reincorporation, no other
material events have occurred that would affect the accompanying consolidated
financial statements or require disclosure therein:
"In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' deficit,
and of cash flows present fairly, in all material respects, the
financial position of Personify, Inc. and its subsidiaries, at
December 31, 1998 and 1999 and the results of their operations and
cash flows for each of the three years in the period ended December
31, 1999, in conformity with accounting principles generally accepted
in the United States. These financial statements are the
responsibility of Personify, Inc.'s management; our responsibility is
to express an opinion on these financial statements based on our
audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above."
San Francisco, California
March 29, 2000
F-2
<PAGE>
PERSONIFY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
December 31, Equity
----------------- March 31, March 31,
1998 1999 2000 2000
------- -------- --------- -------------
(Note 2)
(unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents......... $ 3,313 $ 11,803 $ 9,919
Accounts receivable, net of
allowances of $0, $133 and $146
at December 31, 1998, 1999 and
March 31, 2000 (unaudited),
respectively.................... 200 1,681 2,398
Prepaid expenses and other
assets.......................... 87 162 872
------- -------- --------
Total current assets.............. 3,600 13,646 13,189
Property and equipment, net....... 167 1,043 2,323
Goodwill and other intangible
assets, net..................... -- 3,839 3,488
Restricted cash................... 6 1,840 1,840
Other assets...................... 9 30 317
------- -------- --------
$ 3,782 $ 20,398 $ 21,157
======= ======== ========
Liabilities, Mandatorily
Redeemable Preferred Stock and
Warrants and
Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable.................. $ 120 $ 472 $ 1,937
Accrued liabilities............... 137 1,204 2,684
Deferred revenue.................. 212 1,560 2,240
Capital lease obligations, current
portion......................... -- 29 31
------- -------- --------
Total current liabilities......... 469 3,265 6,892
Capital lease obligations, less
current portion................. -- 39 31
Line of credit.................... -- 15 14
------- -------- --------
469 3,319 6,937
------- -------- --------
Commitments and contingencies
(Notes 5 and 8)
Mandatorily redeemable preferred
stock and warrants:
Preferred stock; convertible and
mandatorily redeemable;
14,563,281 shares authorized and
designated as:
Series A, no par value, 1,400,000
shares authorized, issued and
outstanding at December 31,
1998, 1999, and March 31, 2000
(unaudited), no shares, pro
forma (unaudited) (aggregate
liquidation preference $350).... 429 464 473
Series B, no par value, 2,145,250
shares authorized, 2,011,172
shares issued and outstanding at
December 31, 1998, 1999, and
March 31, 2000 (unaudited), no
shares, pro forma (unaudited)
(aggregate liquidation
preference $900)................ 1,011 1,101 1,123
Series C, no par value, 6,348,168
shares authorized, 6,282,722
shares issued and outstanding at
December 31, 1998, 1999, and
March 31, 2000 (unaudited), no
shares, pro forma (unaudited)
(aggregate liquidation
preference $6,000).............. 5,931 5,931 5,931
Series D, no par value, 4,500,000
shares authorized, 4,285,716
shares issued and outstanding at
December 31, 1999 and March 31,
2000 (unaudited), no shares, pro
forma (unaudited) (aggregate
liquidation preference
$18,000)........................ -- 17,942 17,942
Series E (unaudited), no par
value, 169,863 shares
authorized, 167,472 shares
issued and outstanding at March
31, 2000, no shares, pro forma
(aggregate liquidation
preference $3,500).............. -- -- 3,440
Notes receivable from
stockholders.................... -- -- (1,000)
Warrants for mandatorily
redeemable preferred stock...... 102 102 102
------- -------- --------
7,473 25,540 28,011
------- -------- --------
Stockholders' equity (deficit):
Common stock, $0.001 par value,
30,000,000 shares authorized,
1,259,670, 2,946,912 and
5,326,997 shares issued and
outstanding at December 31,
1998, 1999, and March 31, 2000
(unaudited), respectively,
19,474,079 shares issued and
outstanding, pro forma
(unaudited)..................... 1 3 5 $ 19
Additional paid-in capital........ (212) 7,296 53,876 82,873
Unearned stock-based
compensation.................... -- (2,484) (31,636) (31,636)
Notes receivable from
stockholders.................... -- -- (8,914) (9,914)
Accumulated deficit............... (3,949) (13,276) (27,122) (27,122)
------- -------- -------- --------
Total stockholders' equity
(deficit)....................... (4,160) (8,461) (13,791) $ 14,220
------- -------- -------- ========
Total liabilities, mandatorily
redeemable preferred stock and
warrants and stockholders'
equity (deficit)................ $ 3,782 $ 20,398 $ 21,157
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
PERSONIFY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
------------------------- -----------------
1997 1998 1999 1999 2000
------- ------- ------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues
License revenues................ $ 10 $ 24 $ 639 $ 65 $ 645
Service revenues................ 5 166 704 37 568
------- ------- ------- ------- --------
Total net revenues............ 15 190 1,343 102 1,213
------- ------- ------- ------- --------
Cost of revenues
Cost of license revenues........ -- 10 23 8 26
Cost of service revenues
(exclusive of stock-based
compensation of $39 and $165
for the year ended December
31, 1999 and the three months
ended March 31, 2000,
respectively)................. 2 97 1,938 131 1,344
------- ------- ------- ------- --------
Total cost of revenues........ 2 107 1,961 139 1,370
------- ------- ------- ------- --------
Gross profit (loss)........... 13 83 (618) (37) (157)
------- ------- ------- ------- --------
Operating expenses
Research and development
(exclusive of stock-based
compensation of $87 and $173
for the year ended December
31, 1999 and the three months
ended March 31, 2000,
respectively)................. 506 1,081 2,549 471 947
Sales and marketing (exclusive
of stock-based compensation of
$266, $1 and $465 for the year
ended December 31, 1999 and
the three months ended March
31, 1999 and 2000,
respectively)................. 270 1,277 4,336 667 2,857
General and administrative
(exclusive of stock-based
compensation of $298, $2 and
$7,227 for the year ended
December 31, 1999 and the
three months ended March 31,
1999 and 2000, respectively).. 134 468 1,024 192 1,652
Stock-based compensation........ -- -- 690 3 8,030
Amortization of intangible
assets........................ -- -- 350 -- 350
------- ------- ------- ------- --------
Total operating expenses...... 910 2,826 8,949 1,333 13,836
------- ------- ------- ------- --------
Operating loss................ (897) (2,743) (9,567) (1,370) (13,993)
Interest income.................. 69 104 250 20 153
Other income (expense), net...... (134) (8) (10) (1) (6)
------- ------- ------- ------- --------
Net loss......................... (962) (2,647) (9,327) (1,351) (13,846)
Dividend accretion on preferred
stock.......................... (88) (125) (125) (31) (31)
------- ------- ------- ------- --------
Net loss attributable to common
stockholders................... $(1,050) $(2,772) $(9,452) $(1,382) $(13,877)
======= ======= ======= ======= ========
Net loss per share attributable
to common stockholders, basic
and diluted.................... $ (0.72) $ (2.14) $ (5.47) $ (1.10) $ (3.91)
======= ======= ======= ======= ========
Weighted average shares used in
computing net loss per share
attributable to common
stockholders, basic and
diluted........................ 1,457 1,298 1,728 1,260 3,549
======= ======= ======= ======= ========
Pro forma net loss per share
attributable to common
stockholders, basic and diluted
(unaudited).................... $ (0.71) $ (0.79)
======= ========
Weighted average shares used in
computing pro forma net loss
attributable to common
stockholders, basic and diluted
(unaudited).................... 13,077 17,535
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
PERSONIFY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(in thousands, except share data)
<TABLE>
<CAPTION>
Notes
Common Stock Additional Unearned Receivable Total
----------------- Paid-In Stock-based from Accumulated Stockholders'
Shares Amount Capital Compensation Stockholders Deficit Deficit
--------- ------ ---------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1997...... 1,470,000 $ 1 $ 1 $ -- $ -- $ (340) $ (338)
Cancellation of common stock..... (31,500) (1) (1)
Issuance of common stock in
exchange for services.......... 10,500 --
Issuance of common stock upon
exercise of stock options...... 1,312 --
Accretion of mandatorily
redeemable preferred stock
Series A to redemption value... (58) (58)
Accretion of mandatorily
redeemable preferred stock
Series B to redemption value... (30) (30)
Net loss......................... (962) (962)
--------- --- ------- -------- ------- -------- --------
Balances at December 31, 1997.... 1,450,312 1 (88) -- -- (1,302) (1,389)
Repurchase of common stock from
founder........................ (217,868) --
Issuance of common stock upon
exercise of stock options...... 27,226 1 1
Accretion of mandatorily
redeemable preferred stock
Series A to redemption value... (35) (35)
Accretion of mandatorily
redeemable preferred stock
Series B to redemption value... (90) (90)
Net loss......................... (2,647) (2,647)
--------- --- ------- -------- ------- -------- --------
Balances at December 31, 1998.... 1,259,670 1 (212) -- -- (3,949) (4,160)
Issuance of common stock upon
exercise of stock options...... 213,814 27 27
Issuance of common stock in
exchange for services.......... 35,000 80 80
Issuance of common stock and
common stock options upon
acquisition of Anubis.......... 1,438,428 2 4,432 4,434
Unearned stock-based
compensation................... 3,094 (3,094) -
Amortization of unearned stock-
based compensation............. 610 610
Accretion of mandatorily
redeemable preferred stock
Series A to redemption value... (35) (35)
Accretion of mandatorily
redeemable preferred stock
Series B to redemption value... (90) (90)
Net loss......................... (9,327) (9,327)
--------- --- ------- -------- ------- -------- --------
Balances at December 31, 1999.... 2,946,912 3 7,296 (2,484) -- (13,276) (8,461)
Issuance of common stock upon
exercise of stock options...... 689,085 182 (46) 136
Remeasurement of acceleration of
stock options.................. 1,554 1,554
Issuance of restricted stock..... 1,691,000 2 31,699 (22,823) (8,868) 10
Issuance of warrants in exchange
for services................... 2,910 2,910
Unearned stock-based
compensation................... 10,266 (10,266) --
Amortization of unearned stock-
based compensation............. 3,937 3,937
Accretion of mandatorily
redeemable preferred stock
Series A to redemption value... (9) (9)
Accretion of mandatorily
redeemable preferred stock
Series B to redemption value... (22) (22)
Net loss......................... (13,846) (13,846)
--------- --- ------- -------- ------- -------- --------
Balances at March 31, 2000
(unaudited).................... 5,326,997 $ 5 $53,876 $(31,636) $(8,914) $(27,122) $(13,791)
========= === ======= ======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
PERSONIFY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended Three Months
December 31, Ended March 31,
----------------------- -----------------
1997 1998 1999 1999 2000
----- ------- ------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities
Net loss.......................... $(962) $(2,647) $(9,327) $(1,351) $(13,846)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Noncash financing expenses....... 60 -- -- -- --
Depreciation and amortization of
tangible assets................ 11 51 242 30 128
Amortization of intangible
assets......................... -- -- 350 -- 350
Stock-based compensation......... -- -- 690 -- 8,030
Changes in operating assets and
liabilities:
Accounts receivable............. (5) (195) (1,116) (277) (717)
Prepaid expenses and other
assets........................ (18) (79) (60) (5) (586)
Other long-term assets.......... -- -- (21) (72) (40)
Accounts payable................ 29 82 292 135 1,465
Accrued liabilities............. 20 47 818 (5) 1,196
Deferred revenue................ -- 212 1,348 220 680
----- ------- ------- ------- --------
Net cash used in operating
activities.................. (865) (2,529) (6,784) (1,325) (3,340)
----- ------- ------- ------- --------
Cash flows from investing
activities
Purchases of property and
equipment....................... (16) (197) (947) (166) (1,124)
Cash acquired in Anubis
acquisition..................... -- -- 106 -- --
Restricted cash................... -- -- (1,834) -- --
----- ------- ------- ------- --------
Net cash used in investing
activities.................. (16) (197) (2,675) (166) (1,124)
----- ------- ------- ------- --------
Cash flows from financing
activities
Payments of principal under
capital lease obligation........ -- -- (21) -- (6)
Payments of principal under line
of credit....................... -- -- -- -- (1)
Proceeds from issuance of bridge
loans........................... 375 590 -- -- --
Proceeds from issuance of common
stock........................... -- 1 28 -- 147
Proceeds from issuance of
preferred stock, net............ 516 5,383 17,942 -- 2,440
----- ------- ------- ------- --------
Net cash provided by financing
activities.................. 891 5,974 17,949 -- 2,580
----- ------- ------- ------- --------
Net increase (decrease) in cash and
cash equivalents................. 10 3,248 8,490 (1,491) (1,884)
Cash and cash equivalents,
beginning of period.............. 55 65 3,313 3,313 11,803
----- ------- ------- ------- --------
Cash and cash equivalents, end of
period........................... $ 65 $ 3,313 $11,803 $ 1,822 $ 9,919
===== ======= ======= ======= ========
Supplemental disclosures of cash
flow information
Unearned stock-based
compensation.................... $ -- $ -- $ 3,094 $ 57 $ 33,089
===== ======= ======= ======= ========
Issuance of preferred stock
warrants........................ $ 60 $ 42 $ -- $ -- $ --
===== ======= ======= ======= ========
Conversion of bridge loans to
preferred stock................. $ 375 $ 590 $ -- $ -- $ --
===== ======= ======= ======= ========
Conversion of interest accrued on
bridge loans to preferred
stock........................... $ 7 $ 7 $ -- $ -- $ --
===== ======= ======= ======= ========
Interest paid..................... $ -- $ 13 $ -- $ -- $ --
===== ======= ======= ======= ========
Accretion of preferred stock to
redemption value................ $ 88 $ 125 $ 125 $ 31 $ 31
===== ======= ======= ======= ========
Issuance of common stock and
common stock options upon
acquisition of Anubis........... $ -- $ -- $ 4,434 $ -- $ --
===== ======= ======= ======= ========
Issuance of Series E preferred
stock........................... $ -- $ -- $ -- $ -- $ 1,000
===== ======= ======= ======= ========
Issuance of common stock
warrants........................ $ -- $ -- $ -- $ -- $ 371
===== ======= ======= ======= ========
Issuance of stockholder notes
receivable...................... $ -- $ -- $ -- $ -- $ 8,868
===== ======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
PERSONIFY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Company
Personify, Inc. (the "Company") was incorporated on March 20, 1996, and
is a provider of e-business software that enables companies to measure, analyze
and optimize customer focused profitability metrics such as the percentage of
prospects that become customers, shopping-cart abandonment rates, advertising
return on investments and email conversion rates.
2. Summary of Significant Accounting Policies
Principles of consolidation and basis of presentation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, ASI Acquisition Corporation. All significant
intercompany balances and transactions have been eliminated.
Business risks and liquidity
The Company operates in the internet industry which is evolving and
highly competitive. The Company has relied on equity and debt financing to fund
its operating and investing activities to date. Management forecasts that
additional financing will be required to fund its operations. The success of
the Company is dependent upon, among other things, the Company's ability to
raise capital and to generate significant customer usage of its products.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of expenses during the reporting period.
Such estimates include the valuation allowance for deferred tax assets and
accounts receivable and the value of the Company's stock. Actual results could
differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid investments with an original
maturity or remaining maturity at date of purchase of three months or less to
be cash equivalents. Cash and cash equivalents are on deposit with principally
one financial institution and exceed federal insurance levels.
Restricted cash
Restricted cash is primarily in relation to an office lease. According to
the lease agreement, this deposit is restricted for at least one year, and
shall be automatically renewed annually throughout the term of the lease. It
shall be reduced if the Company achieves a net worth of $50,000,000 and shall
be reduced over the last three years of the lease.
Concentration risks
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents
and accounts receivable. The Company maintains its cash and
F-7
<PAGE>
PERSONIFY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
cash equivalents in commercial checking and money market accounts with two
high-quality financial institutions.
The Company performs ongoing customer credit evaluations within the
context of the industry in which it operates and maintains reserves for
potential credit losses on customer accounts when deemed necessary. The
following table sets forth customers comprising 10% or more of the Company's
total net revenues or aggregate accounts receivable for each of the periods
presented:
<TABLE>
<CAPTION>
Revenue Accounts Receivable
-------------- --------------------
1997 1998 1999 1997 1998 1999
---- ---- ---- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Customer A............................. -- -- 29% -- -- 20%
Customer B............................. -- 17% -- -- -- --
Customer C............................. -- 13% -- -- 49% --
Customer D............................. 67% -- -- 100% 27% --
Customer E............................. 33% -- -- -- -- --
</TABLE>
Property and equipment
Property and equipment, is stated at cost and depreciated using the
straight-line method over the estimated useful lives of the respective assets
which is generally three years. Maintenance and repairs are charged to expense
as incurred, and improvements and betterments are capitalized. When assets are
retired or otherwise disposed of, the cost and accumulated depreciation are
removed from the accounts and any resulting gain or loss is reflected in
operations in the period realized.
Long-lived assets
The Company accounts for long-lived assets under Statement of Financial
Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of, which requires the
Company to review for impairment of long-lived assets whenever events or
changes in circumstances indicate that the carrying amount of an asset might
not be recoverable. When such an event occurs, the Company estimates the future
cash flows expected to result from the use of the asset and its eventual
disposition. If the undiscounted expected future cash flows is less than the
carrying amount of the asset, an impairment loss is recognized. To date, no
impairment loss has been recognized.
Revenue recognition
The Company derives revenues from two sources as follows: (i) software
revenues from end users under term licenses and (ii) service revenues which
include implementation, consulting services and maintenance and customer
support. Effective January 1, 1998, the Company adopted the provisions of
Statement of Position 97-2, or SOP 97-2, Software Revenue Recognition, as
amended by Statement of Position 98-4, Deferral of the Effective Date of
Certain Provisions of SOP 97-2, effective January 1, 1998. SOP 97-2 supersedes
Statement of Position 91-1 Software Revenue Recognition.
For software license contracts with multiple obligations (e.g. software
licenses, implementation, consulting services and customer support), revenues
are generally recognized ratably over the term of the contract because these
contracts provide for post contract support, which includes unspecified future
products and customer support, for which vendor specific objective evidence
does not exist. Under the terms of these contracts the Company does not have
any obligation for delivering post contract support after the expiration of the
contract term.
F-8
<PAGE>
PERSONIFY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For contracts involving implementation services without post contract
support, the Company recognizes revenues upon completion of the services when
no significant contractual obligations exist and when collection of the
resulting receivable is deemed probable, unless the contract provides for
futures deliverables, which are typically in relation to software licenses.
Then in this instance, the revenue is deferred and recognized ratably
commencing after implementation of the software licenses.
Service revenues from consulting are recognized as the related services
are performed. Service revenues from maintenance and support agreements are
deferred and recognized on a straight-line basis over the term of the related
agreement when vendor specific objective evidence exists for these services.
Vendor specific objective evidence is based on the price when the element is
sold separately.
The Company recognizes revenue on the basis set forth above when an
executed agreement or purchase order has been received, the amounts to be paid
by the customer are fixed or determinable and deemed collectible.
Advertising costs
The Company expenses advertising costs as they are incurred. Advertising
expense for the years ended December 31, 1997, 1998 and 1999 was $0, $582 and
$18,061, respectively.
Product development costs
The costs of establishing the technological feasibility of the Company's
software products or product enhancements are expensed as product development
costs when incurred. The costs incurred subsequent to the establishment of
technological feasibility and prior to a product's general release are
capitalized. Due to the close proximity of establishing technological
feasibility to product release, such costs have been insignificant and have
been expensed to date.
Costs incurred in the design, creation and maintenance of content,
graphics and user interface of the Company's Web sites are expensed as incurred
in accordance with SOP 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. Costs incurred in the development of
application and infrastructure of the Web sites are capitalized and amortized
over the useful life of the web sites. In 1999, the costs that could be
capitalized were insignificant.
Income taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes.
Deferred tax assets and liabilities are determined for temporary differences
between the financial statement and tax bases of assets and liabilities and net
operating loss and credit carryforwards, using enacted tax rates in effect for
the year in which the differences are expected to reverse. Valuation allowances
are established when necessary to reduce deferred tax assets to the amounts
expected to be realized.
Stock split
During August 1997 and again in August 1999, the Board of Directors
approved a two-for-one split of its outstanding shares of common and preferred
stock. All share and per share information included in these consolidated
financial statements has been retroactively adjusted to reflect these stock
splits.
F-9
<PAGE>
PERSONIFY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Comprehensive income
The Company adopted the provisions of SFAS No. 130, Reporting
Comprehensive Income, effective January 1, 1998. This statement requires
companies to classify items of comprehensive income by their nature in the
consolidated financial statements and to display the accumulated balance of
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of the balance sheet. To date, the Company has
not had any transactions that are required to be reported as comprehensive
income.
Segment information
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information. The
Company identifies its operating segments based on business activities,
management responsibility and geographical location. For all periods presented
the Company operated in a single business segment in the United States.
Stock-based compensation
The Company accounts for stock-based employee compensation arrangements
in accordance with provisions of Accounting Principles Board Opinion ("APB")
No. 25, Accounting for Stock Issued to Employees, and Financial Accounting
Standards Board Interpretation ("FIN") No. 28, Accounting for Stock
Appreciation Rights and Other Variable Stock Option or Award Plans, and has
adopted with the disclosure provisions of SFAS No. 123, Accounting for Stock-
Based Compensation. Under APB No. 25, compensation expense is based on the
difference, if any, on the date of grant, between the fair value of the
Company's common stock and the exercise price. SFAS No. 123 defines a "fair
value" based method of accounting for an employee stock option or similar
equity investment. The pro forma disclosures of the difference between the
compensation expense included in net loss and the related cost measured by the
fair value method are presented in Note 6. The Company accounts for equity
instruments issued to nonemployees in accordance with the provisions of SFAS
No. 123 and Emerging Issues Task Force ("EITF") 96-18, Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling Goods or Services.
Fair value of financial instruments
The reported amounts of certain of the Company's financial instruments
including cash and cash equivalents, accounts receivable, accounts payable and
accrued liabilities approximate fair value due to their short maturities. The
reported amount of capital lease obligations approximate fair value due to the
market interest rates which these debts bear.
Certain risks and uncertainties
The Company's products are concentrated in the industry segment for
internet infrastructure software which is characterized by rapid technological
advances, changes in customer requirements and evolving regulatory requirements
and industry standards. These products depend in part on third-party technology
which the Company licenses from a limited number of suppliers. Also, the
Company has depended on a limited number of products and customers for
substantially all revenue to date. Failure by the Company to anticipate or to
respond adequately to technological developments in its industry, changes in
customer or supplier requirements or changes in regulatory requirements or
industry standards, or any significant delays in the development or
introduction of products or services, could have a material adverse effect on
the Company's business and operating results.
F-10
<PAGE>
PERSONIFY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Net loss per share
The Company computes net loss per share in accordance with SFAS No. 128,
Earnings per Share. Under the provisions of SFAS No. 128, basic net loss per
share is computed by dividing the net loss attributable to common stockholders
for the period by the weighted average number of common shares outstanding
during the period. Diluted net income per share is computed by dividing the net
income for the period by the weighted average number of common stock and common
stock equivalent shares outstanding during the period. However, because the
Company generated net losses in all periods presented, common equivalent
shares, composed of incremental common shares issuable upon the exercise of
stock options and warrants and upon conversion of convertible preferred stock,
are not included in diluted net loss per share because such shares are anti-
dilutive.
The following table sets forth the computation of basic and diluted net
loss per share for the periods indicated (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
------------------------- -----------------
1997 1998 1999 1999 2000
------- ------- ------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Numerator
Net loss........................ $ (962) $(2,647) $(9,327) $(1,351) $(13,846)
Accretion of mandatorily
redeemable preferred stock to
redemption value.............. (88) (125) (125) (31) (31)
------- ------- ------- ------- --------
Net loss attributable to common
stockholders................. $(1,050) $(2,772) $(9,452) $(1,382) $(13,877)
======= ======= ======= ======= ========
Denominator
Weighted average shares used in
computing net loss
attributable to common
stockholders, basic and
diluted....................... 1,457 1,298 1,728 1,260 3,549
======= ======= ======= ======= ========
Net loss per share attributable
to common stockholders, basic
and diluted................... $ (0.72) $ (2.14) $ (5.47) $ (1.10) $ (3.91)
======= ======= ======= ======= ========
</TABLE>
F-11
<PAGE>
The following table sets forth potential shares of common stock that are
not included in the diluted net loss per share calculation above because to do
so would be anti-dilutive for the periods indicated (in thousands):
<TABLE>
<CAPTION>
Year Ended Three Months
December 31, Ended March 31,
------------------ ---------------
1997 1998 1999 1999 2000
----- ----- ------ ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Weighted average effect of common stock
equivalents
Options outstanding........................ 38 792 2,830 2,069 3,941
Shares resulting from the conversion of:
Series A preferred stock.................. 1,400 1,400 1,400 1,400 1,400
Series B preferred stock.................. 694 2,011 2,011 2,011 2,011
Series C preferred stock.................. -- 3,752 6,283 6,283 6,283
Series D preferred stock.................. -- -- 1,655 -- 4,286
Series E preferred stock.................. -- -- -- -- 6
Restricted stock........................... -- -- -- -- 524
Warrants to purchase preferred stock....... 46 173 200 200 200
----- ----- ------ ------- -------
2,178 8,128 14,379 11,963 18,651
===== ===== ====== ======= =======
</TABLE>
Pro forma net loss per share (unaudited)
Pro forma net loss per share of the year ended December 31, 1999 and
March 31, 2000 is computed using the weighted average number of common shares
outstanding, including the pro forma effects of the automatic conversion of
convertible preferred stock into common stock effective upon the closing of the
Company's initial public offering on an as-if-converted basis. Pro forma
diluted net loss per share is computed using the pro forma weighted average
number of common and common equivalent shares outstanding. Common equivalent
shares, composed of common shares issuable upon the exercise of stock options
and warrants, are not included in pro forma diluted net loss per share because
such shares are anti-dilutive.
The following table sets forth the computation of pro forma basic and
diluted net loss per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
1999 2000
------------ ------------
(unaudited)
<S> <C> <C>
Numerator
Net loss....................................... $(9,327) $(13,846)
======= ========
Denominator
Weighted average shares used in computing basic
and diluted net loss per share............... 1,728 3,549
Adjustment to reflect assumed conversion of all
preferred stock from date of issuance........ 11,349 13,986
------- --------
Shares used in computing pro forma basic and
diluted net loss per share................... 13,077 17,535
======= ========
Basic and diluted pro forma net loss per share.. $ (0.71) $ (0.79)
======= ========
Antidilutive securities including options,
warrants and restricted stock not included in
pro forma net loss per share calculation...... 3,030 4,665
======= ========
</TABLE>
F-12
<PAGE>
PERSONIFY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pro forma stockholders' equity (unaudited)
Upon closing of the offering, the shares of preferred stock will convert
into shares of common stock at a one-for-one conversion rate. The pro forma
effects of these transactions are unaudited and have been reflected in the
accompanying pro forma stockholders' equity at March 31, 2000.
Unaudited Interim Consolidated Financial Statements
The consolidated financial statements as of March 31, 2000 and for the
three months ended March 31, 2000 and March 31, 1999 are unaudited but have
been prepared in accordance with generally accepted accounting principles for
interim financial statements and the rules of the Securities and Exchange
Commission and do not include all disclosures required by generally accepted
accounting principles for annual financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation have been included. The results of operations
of any interim period are not necessarily indicative of the results of
operations for the full year.
Recently issued accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. SFAS No. 133, as amended by SFAS No.
137, is effective for fiscal years beginning after June 15, 2000, with earlier
application encouraged. The Company is evaluating the possible impact, if any,
that SFAS No. 133 may have on its financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") 101, Revenue Recognition, which provides
guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provides guidance for disclosure
related to revenue recognition policies. The Company believes that their
current revenue recognition policy is in compliance with SAB 101.
In March 2000, the FASB issued Interpretation No. 44, ("FIN 44"),
Accounting for Certain Transactions Involving Stock Compensation--An
Interpretation of APB25. This interpretation clarifies (a) the definition of
employee for purposes of applying Opinion 25, (b) the criteria for determining
whether a plan qualifies as a non compensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. This Interpretation is effective July 1,
2000, but certain conclusions in this Interpretation cover specific events that
occur after either December 15, 1998, or January 12, 2000. To the extent that
this Interpretation covers events occurring during the period after December
15, 1998, or January 12, 2000, but before the effective date of July 1, 2000,
the effects of applying this Interpretation are recognized on a prospective
basis from July 1, 2000. Personify has not yet determined the impact, if any,
of adopting this interpretation.
F-13
<PAGE>
PERSONIFY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Acquisition
Effective September 30, 1999, the Company acquired all outstanding shares
of Anubis Solutions Incorporated ("Anubis"), which provided data-warehousing
technology and services. The acquisition has been accounted for using the
purchase method of accounting. The total purchase consideration consisted of
1,438,428 shares of the Company's common stock with an estimated fair value of
approximately $3.6 million, and options and warrants to purchase 640,764 shares
of the Company's common stock with an estimated fair value of approximately
$837,000. The fair value of the common stock options was estimated using the
Black-Scholes model with the following weighted average assumptions: deemed
fair value of the underlying common stock of $2.50, risk-free interest rate of
5.06% to 5.90%, expected life of 3.5 years, expected dividend rate of 0% and
volatility rate of 65%. The purchase price, including related transaction costs
of $102,000 was allocated to the tangible and intangible assets acquired and
liabilities assumed on the basis of their respective fair values on the
acquisition date. The excess of the purchase price over the fair value of the
net tangibles and identifiable intangible assets acquired has been recorded as
goodwill. The fair value of net assets acquired was determined by an
independent appraiser. The allocation of the purchase price is summarized below
(in thousands):
<TABLE>
<S> <C>
Assembled workforce............................................... $1,035
Acquired technology............................................... 1,964
Covenants not to compete.......................................... 269
Goodwill.......................................................... 921
Assets acquired................................................... 569
Liabilities assumed............................................... (222)
------
Total purchase price............................................ $4,536
======
</TABLE>
Goodwill and other identifiable intangible assets are being amortized on
a straight-line basis over their estimated useful economic lives of three
years.
The following unaudited pro forma financial information reflects the
results of operations for the years ended December 31, 1998 and 1999 as if the
acquisition of Anubis had occurred on January 1, 1998 and 1999, respectively,
and after giving effect to purchase accounting adjustments. These pro forma
results have been prepared for comparative purposes only and do not purport to
be indicative of what the Company's operating results would have been had the
acquisition actually taken place on January 1, 1998 or 1999, and may not be
indicative of future operating results (in thousands, except share data):
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------
1998 1999
------- --------
<S> <C> <C>
Net revenue............................................ $ 2,133 $ 3,205
Loss from operations................................... (4,325) (10,763)
Net loss attributable to common stockholders........... (4,359) (10,730)
Basic and diluted net loss per share................... $ (1.59) $ (3.83)
</TABLE>
F-14
<PAGE>
PERSONIFY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Balance Sheet Components (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------
1998 1999
------ -------
<S> <C> <C>
Property and equipment, net
Computer equipment........................................ $ 202 $ 1,157
Software.................................................. 16 30
Furniture, fixtures and office equipment.................. -- 177
Equipment under capital lease............................. -- 87
----- -------
218 1,451
Less accumulated depreciation and amortization............ (51) (408)
----- -------
$ 167 $ 1,043
===== =======
</TABLE>
Accumulated amortization relating to assets under capital lease amounted
to $0 and $20,611 as of December 31, 1998 and 1999, respectively.
<TABLE>
<CAPTION>
December 31,
-------------
1998 1999
-------------
<S> <C> <C>
Goodwill and other intangible assets, net
Assembled workforce........................................ $ -- $ 1,035
Acquired technology........................................ -- 1,964
Covenant not to compete.................................... -- 269
Goodwill................................................... -- 921
----- -------
-- 4,189
Less accumulated amortization.............................. -- (350)
----- -------
$ -- $ 3,839
===== =======
<CAPTION>
December 31,
-------------
1998 1999
-------------
<S> <C> <C>
Accrued liabilities
Accrued payments to vendors................................ $ 53 $ 661
Accrued payroll............................................ 28 288
Accrued vacation........................................... 43 191
Accrued sales tax.......................................... 13 64
----- -------
$ 137 $ 1,204
===== =======
</TABLE>
5. Preferred Stock
At December 31, 1999, the Company was authorized to issue 14,393,418
shares of preferred stock. The Company had designated 1,400,000 shares as
Series A preferred stock, 2,145,250 shares as Series B preferred stock,
6,348,168 shares as Series C preferred stock and 4,500,000 shares as Series D
preferred stock. In May 1996, the Company issued 1,400,000 shares of Series A
preferred stock for proceeds of $335,598, net of issuance costs of $14,402. In
August 1997, the Company issued 2,011,172 shares of Series B preferred stock
for proceeds of $890,643, net of issuance costs of $9,357. In May 1998, the
Company issued 6,282,722 shares of Series C preferred stock for proceeds of
$5,972,652, net of issuance costs and attached warrants of $27,348 and $41,749,
respectively. In August 1999, the Company issued 4,285,716 shares of Series D
preferred stock for proceeds of $17,941,951 net of issuance costs of $58,055.
F-15
<PAGE>
PERSONIFY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Redemption
Shares of Series A preferred stock are redeemable upon election by 66% of
the outstanding Series A preferred stockholders. Shares of Series B preferred
stock are redeemable upon election by 66% of the outstanding Series B preferred
stockholders. Redemption may not occur earlier than December 31, 2001 or upon
an event of default as defined in the Series A and Series B Preferred Stock
Purchase Agreements. The redemption price with respect to Series A preferred
stock is equal to $0.25 per share (the Series A adjusted purchase price) plus
the greater of the amount of declared and unpaid dividends, or an amount equal
to a 10% annual dividend on the Series A adjusted purchase price. The
redemption price with respect to Series B preferred stock is an amount equal to
$0.45 per share plus the greater of the amount of declared and unpaid
dividends, or an amount equal to a 10% annual dividend on the Series B original
purchase price. In the event of a redemption by reason of default, such
redemption shall be effected in a single payment within 60 days of the date
redemption is elected. In the event of a non-default redemption, such
redemption shall be made in twelve equal quarterly installments within 60 days
of the redemption being elected. If the Company is unable to pay the redemption
price upon presentation of Series A and Series B preferred stock, those Series
A and Series B preferred stock shares will remain outstanding and be entitled
to all original dividend and other preferential rights.
The Company recorded $88,333 in accreted dividends relating to Series A
and Series B preferred stock for the year ended December 31, 1997 and $124,999
in accreted dividends for each of the years ended December 31, 1998 and 1999.
If required by the stockholders the redeemable preferred stock payment,
including required accretion, would be $1.8 million on December 31, 2001.
Liquidation
In the event of any liquidation, dissolution or winding up of the
Company, either voluntary or involuntary, the holders of shares of Series A, B,
C and D preferred stock are entitled to receive, in preference to the holders
of common stock, an amount equal to the Series A original purchase price of
$0.25 per share, the Series B original purchase price of $0.4475 per share, the
Series C original purchase price of $0.955 per share and the Series D original
purchase price of $4.20 per share. Thereafter, holders of Series A, B, C and D
preferred stock are entitled to receive their pro rata share of the assets and
funds remaining available for distribution, if any, until the holders of Series
A and B preferred stock have received distributions in an amount equal to seven
times the Series A original purchase price or the Series B original purchase
price and the holders of Series C have received distributions in an amount
equal to four times the Series C original purchase price and the holders of the
Series D have received distribution in an amount equal to two times the Series
D original purchase price. Such pro rata shares are calculated as if all
outstanding shares of Series A, B, C and D are converted into the number of
shares that would otherwise be convertible pursuant to the conversion paragraph
below.
Voting
Holders of shares of preferred stock are entitled to the number of votes
for each share of common stock into which their shares could be converted. For
so long as 1,400,000 shares of Series D preferred stock are outstanding, the
holders of the Series D preferred stock will be entitled, voting as a separate
series, to elect one director. As long as there are 2,000,000 shares of Series
C preferred stock outstanding, the holders are entitled, as a separate class,
to elect two directors. As long as there are 1,200,000 shares of Series A and
Series B preferred stock (Series A-B) outstanding, holders of Series A and B,
voting together as a single class are entitled to elect one director. Any
director elected solely by the holders of the common stock, the
F-16
<PAGE>
PERSONIFY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Series A-B preferred stock, the Series C preferred stock or the Series D
preferred stock, as the case may be, may be removed, either with or without
cause, by, and only by, the affirmative vote of the holders of a majority of
the shares of the common stock, the Series A-B preferred stock, the Series C
preferred stock or the Series D preferred stock.
Conversion
The holders of the shares of Series A, B, C and D preferred stock may
convert their shares into common shares at any time. The number of shares of
common stock into which each share of Series A will be converted will be equal
to the original purchase price, divided by the Series A conversion price of
$0.25. The number of shares of common stock into which each share of Series B
will be converted will be equal to the original purchase price divided by the
Series B conversion price of $0.4475. The number of shares of common stock into
which each share of Series C will be converted will be equal to the original
purchase price divided by the Series C conversion price of $0.955. The number
of shares of common stock into which each share of Series D will be converted
will be equal to the original purchase price divided by the Series D conversion
price of $4.20.
Each share of Series A, B, C and D preferred stock will automatically be
converted to common stock, at the then applicable conversion rate, (i) in the
event of the closing of an underwritten public offering of any of the Company's
securities in which the aggregate gross proceeds to the Company exceeds
$15,000,000, at a per share offering price of $7.00 or more, or (ii) upon the
conversion into common stock of at least a majority of the outstanding shares
of Series A, B, C and D preferred stock.
The shares of Series A, B, C and D preferred stock also carry provisions
which protect the holders from dilution caused by capital reorganizations,
stock splits, or other similar capital changes.
Dividends
Each fiscal year, holders of the shares of Series A, B, C and D preferred
stock are entitled to receive annual dividends prior and in preference to
common stockholders, when and if declared by the Board of Directors on a
noncumulative basis, in an amount of $0.025 per share for Series A preferred
stock, $0.045 per share of Series B preferred stock, $0.096 per share of Series
C preferred stock, and $0.42 per share of Series D preferred stock whenever
funds are legally available. No dividends shall be declared or paid with
respect to the common stock during any fiscal year until any declared dividends
in the foresaid amounts have been paid to the shareholders Series A, B, C and D
preferred stock. Through December 31, 1999, no dividends had been declared.
Warrants
In February and July 1997, the Company issued warrants to purchase
134,078 shares of Series B preferred stock in connection with bridge loan
agreements entered into in conjunction with the sale of Series B preferred
stock. Such warrants have an exercise price equal to the price per share for
the Series B preferred stock of $0.4475 and have a ten-year term. The Company
recorded $59,999 in interest expense during 1997 representing the fair value of
these warrants.
In May 1998, the Company issued warrants to purchase 65,446 shares of
Series C preferred stock in connection with the issuance of such preferred
stock. The warrants have an exercise price of $0.955 and a seven-year term. The
fair value of the warrants of $41,749 was estimated using the Black-Scholes
model with
F-17
<PAGE>
PERSONIFY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the following weighted average assumptions: risk-free interest rate of 4.65%,
expected life of 7 years, expected dividend rate of 0%, and volatility rate of
65%.
6. Common Stock
At December 31, 1999, the Company was authorized to issue 25,000,000
shares of common stock.
Each share of common stock has the right to one vote. The holders of
common stock are also entitled to receive dividends whenever funds are legally
available and when declared by the Board of Directors, subject to the prior
rights of holders of all classes of stock at the time outstanding having
priority rights as to dividends.
At December 31, 1999, the Company had reserved shares of common stock
for future issuance as follows (in thousands):
<TABLE>
<S> <C>
Preferred stock..................................................... 13,980
Warrants............................................................ 206
Stock option plan................................................... 5,140
------
19,326
======
</TABLE>
Common stock options
The Company has reserved up to 5,382,000 shares of common stock issuable
upon exercise of options granted to certain employees, directors, and
consultants pursuant to the Company's 1998 Equity Incentive Plan, which
amended the 1996 Stock Option Plan. Such options are exercisable over a term
of up to ten years. Employees have a vested interest in 25% of the options
upon completion of one year of service measured from the date of hire. The
balance vest 1/48 at the end of each one-month period thereafter. If an option
holder loses his or her eligibility, vested options held at that date may be
exercised within 30 days in the event that the loss of eligibility is due to
reasons other than just cause of termination or the holder's death or
disability, and within 180 days after such loss by reason of the holder's
death or disability.
Common stock warrants
In connection with the acquisition of Anubis (Note 3) the Company issued
6,496 warrants to purchase common stock at a price of $3.12 per share with a
remaining life of 52 months. The fair value of these warrants was included in
the purchase price of Anubis.
F-18
<PAGE>
PERSONIFY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of the activity under the Company's stock option plan during
the three years ended December 31, 1999 and three months ended March 31, 2000
(unaudited). Information with respect to stock options that have been granted
is as follows:
<TABLE>
<CAPTION>
Options Outstanding
Shares ----------------------------------------
Available Number of Aggregate Weighted Average
for Grant Shares Price Exercise Price
---------- --------- ----------- ----------------
<S> <C> <C> <C> <C>
Options outstanding at
January 1, 1997....... 1,264,250 15,750 $ 394 $0.03
Additional shares
reserved............. 81,500
Granted................ (521,116) 521,116 24,166 0.05
Exercised.............. -- (1,312) (33) 0.03
Canceled............... 3,938 (3,938) (98) 0.03
---------- --------- -----------
Options outstanding at
December 31, 1997..... 828,572 531,616 24,429 0.05
Additional shares
reserved............. 1,720,500
Granted................ (1,462,568) 1,462,568 173,020 0.12
Exercised.............. -- (27,226) (1,225) 0.05
Canceled............... 85,856 (85,856) (4,184) 0.05
---------- --------- -----------
Options outstanding at
December 31, 1998..... 1,172,360 1,881,102 192,040 0.10
Additional shares
reserved............. 2,300,000
Granted................ (2,439,725) 2,439,725 2,110,218 0.86
Exercised.............. -- (213,814) (27,693) 0.13
Canceled............... 308,279 (308,279) (53,702) 0.17
---------- --------- -----------
Options outstanding at
December 31, 1999..... 1,340,914 3,798,734 2,220,863 0.58
Additional shares
reserved............. 2,749,110
Granted................ (1,393,375) 1,393,375 11,722,281 8.41
Exercised.............. -- (689,085) (182,060) 0.26
Canceled............... 217,332 (217,332) (40,417) 0.19
---------- --------- -----------
Options outstanding at
March 31, 2000
(unaudited)........... 2,913,981 4,285,692 $13,720,667 $3.20
========== ========= =========== =====
</TABLE>
The following information concerning the Company's stock option plan is
provided in accordance with Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation. As permitted by SFAS No. 123, the
Company accounts for such plans in accordance with APB No. 25 and related
interpretations.
The fair value of each option is estimated on the date of grant using the
minimum value method with the following assumptions:
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Expected life (years).................................... 4 4 4
Risk-free interest rate.................................. 5.21% 4.65% 5.82%
Volatility............................................... 0% 0% 0%
Dividend yield........................................... 0% 0% 0%
</TABLE>
F-19
<PAGE>
PERSONIFY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option's vesting period. The Company's
pro forma information follows (in thousands, except share data):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Net loss attributable to common stockholders.. $(1,050) $(2,772) $(9,452)
======= ======= =======
Pro forma net loss--SFAS No. 123 adjusted..... $(1,051) $(2,778) $(9,488)
======= ======= =======
Net loss per share--as reported (Note 2)
Basic and diluted............................ $ (0.72) $ (2.14) $ (5.47)
======= ======= =======
Pro forma net loss per share--SFAS No. 123
adjusted
Basic and diluted............................ $ (0.72) $ (2.14) $ (5.49)
======= ======= =======
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure may not
be indicative of future amounts.
The weighted average fair value of options granted during the years ended
December 31, 1998 and 1999 was $0.12 and $0.86, respectively. The weighted
average exercise price and contractual life information are as follows:
<TABLE>
<CAPTION>
Options Exercisable at
Options Outstanding at December 31, 1999 December 31, 1999
-------------------------------------------- ----------------------
Range of Average Remaining Weighted Weighted
Exercise Number Contractual Life Average Number Average
Prices Outstanding (Years) Exercise Price Vested Exercise Price
-------- ----------- ----------------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C>
$0.025--$0.05 401,692 7.99 $0.05 257,736 $0.05
$0.125--$0.50 2,434,791 9.09 $0.28 439,825 $0.16
$1.24--$2.75 962,251 9.68 $1.57 --
--------- -------
3,798,734 697,561
========= =======
</TABLE>
Unearned stock-based compensation
In connection with certain stock option grants in 1999, the Company
recognized stock-based compensation which is being amortized over the vesting
periods of the related options, usually 48 months, in accordance with FASB
Interpretation No. 28. The total stock-based compensation charge recorded by
the Company, which also includes compensation expense for common stock grants
during the year ended December 31, 1997 and 1998 was $0, and $3,173,735 for the
year ended December 31, 1999. Stock-based compensation expense recognized
during the years ended December 31, 1997 and 1998 was $0, and $689,662 for the
year ended December 31, 1999.
7. 401(k) Savings Plan
The Company sponsors a 401(k) savings plan (the "401(k) Plan") which is a
defined contribution retirement plan intended to qualify under Section 401(a)
and 401(k) of the Internal Revenue Code. All full-time employees of the Company
are eligible to participate in the 401(k) Plan pursuant to the terms of the
Plan. Contributions by the Company are discretionary and no contributions have
been made to date.
F-20
<PAGE>
PERSONIFY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Commitments and Contingencies
The Company leases equipment and office space under capital and operating
lease agreements. During November 1999, the Company signed a noncancelable
operating lease agreement for office space which expires in April 2005. Rent
expense under all leases for the years ended December 31, 1997, 1998 and 1999
amounted to $43,000, $102,000 and $258,000, respectively.
Future minimum lease payments under capital and noncancelable operating
leases at December 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
------- ---------
<S> <C> <C>
2000..................................................... $ 39 $ 832
2001..................................................... 43 1,323
2002..................................................... -- 1,612
2003..................................................... -- 1,648
2004..................................................... -- 1,665
Thereafter............................................... -- 654
---- ------
Total minimum obligations................................ 82 $7,734
======
Less interest............................................ (14)
----
Present value of minimum obligations..................... 68
Less current portion..................................... (29)
----
Long term portion at December 31, 1999................... $ 39
====
</TABLE>
From time to time, the Company may be involved in litigation arising out
of claims in the normal course of business. Based upon the information
presently available, including discussion with outside legal counsel,
management believes that there are no claims or actions pending or threatened
against the Company, the ultimate resolution of which will have a material
adverse effect on the Company's financial position, liquidity or results of
operations.
9. Income Taxes
As of December 31, 1999, the Company had net operating loss carryforwards
of approximately $11,800,000 for federal income tax purposes and $7,800,000 for
state income tax purposes and research and experimentation carryforwards of
approximately $140,000 for federal income tax purposes and $106,000 for state
income taxes purposes. The federal and state net operating loss carryforwards
expire in through 2019 and 2004 for federal and California purposes,
respectively, if not utilized beforehand. The federal and state research and
experimentation credits expire beginning in the year 2011.
The Company's ability to utilize its net operating loss and research and
experimentation tax credit carryforwards to offset future taxable income, if
any, may be subject to restrictions attributable to equity transactions that
result in changes in ownership as defined in the Tax Reform Act of 1986. These
restrictions may limit, on an annual basis, the Company's future use of its net
operating loss carryforwards and research and experimentation tax credit
carryforwards.
F-21
<PAGE>
PERSONIFY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The estimated tax effect of significant temporary differences and
carryforwards that give rise to deferred income tax assets as of December 31,
1998 and 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------
1998 1999
------- -------
<S> <C> <C>
Net operating loss carryforwards......................... $ 1,524 $ 4,476
Research and experimentation credit carryforwards........ 154 246
Reserves and other accruals.............................. 54 119
------- -------
1,732 4,841
Valuation allowance...................................... (1,732) (4,841)
------- -------
$ -- $ --
======= =======
</TABLE>
The Company has recorded a valuation allowance against its net deferred
tax assets as management estimates that it is more likely than not that they
will not be realized.
The difference between the Company's effective income tax rate and the
federal statutory rate is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Statutory tax benefit.......................... $ (327) $ (900) $ (3,171)
State taxes, net of federal benefit............ (57) (154) (270)
Stock-based compensation....................... -- -- 275
Goodwill amortization.......................... -- -- 139
Research and development credits............... (77) (77) (92)
Other.......................................... (18) (27) (15)
Change in valuation allowance.................. 479 1,158 3,134
------ ------- --------
$ -- $ -- $ --
====== ======= ========
</TABLE>
The difference between the income tax benefit at the federal statutory
rate of 34% and the Company's effective tax rate is due primarily to the
provision of a valuation allowance to offset deferred tax assets.
10. Events Subsequent to December 31, 1999
Initial public offering
In May 2000, the Company's Board of Directors authorized management to
file a registration statement with the Securities and Exchange Commission to
permit the Company to sell shares of its common stock to the public.
Issuance of restricted stock (Unaudited)
In February 2000, the Company sold 1,691,000 shares of restricted common
stock to Mr. Love Goel at a price of $5.25 per share in exchange for an
interest-free, full-recourse promissory note of $8.9 million collateralized by
the restricted stock. These shares are subject to a right of repurchase by the
Company which lapses immediately with respect to 140,988 shares and lapses with
respect to the remaining shares at a rate of 1/48
F-22
<PAGE>
PERSONIFY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of the total number of shares per month. Payment of the promissory note is
required from the proceeds of any sale of the restricted stock. For the three
months ended March 31, 2000 the Company recorded stock-based compensation
expense of approximately $2.1 million and at March 31, 2000 had approximately
$20.7 million unearned stock-based compensation associated with the issuance.
Unearned stock-based compensation was initially measured based on the
difference between the deemed fair value of the Company's common stock and the
exercise price on the day of grant. Unearned stock-based compensation on the
remaining restricted stock is remeasured at the end of each period.
Amortization of the unearned stock-based compensation is recognized over the
period which the restriction on the stock lapses. Subsequently, Mr. Goel was
hired by the Company as an employee effective May 2000. Upon becoming an
employee, the value of the stock was remeasured in accordance with APB 25.
Issuance of stock options (Unaudited)
From January 1, 2000 to April 30, 2000, the Company granted options to
purchase 1,393,375 shares of common stock to existing and new employees at a
weighted average price of $8.41 per share. In connection with these grants the
Company recognized approximately $10.3 million in unearned stock-based
compensation that will be recognized over the related vesting period.
Offering of Series E preferred stock
In March 2000, the Company raised approximately $3.4 million through
issuance of 167,472 shares of Series E preferred stock at $20.90 per share. In
the event of any liquidation, dissolution or winding up of the Company, either
voluntary or involuntary, the holders of Series E preferred stock are entitled
to receive, in preference to the holders of common stock, an amount equal to
the Series E original purchase price of $20.90.
Holders of Series E preferred stock are entitled to the number of votes
for each share of common stock into which their shares could be converted.
The holders of the shares of Series E preferred stock may convert into
common shares at any time. The number of shares of common stock into which each
share of Series E will be converted will be equal to the original purchase
price divided by the Series E conversion price of $20.90. Each share of Series
E preferred stock will automatically be converted to common stock, at the then
applicable conversion rate, (i) in the event of the closing of an underwritten
public offering of any of the Company's securities in which the aggregate
proceeds to the Company exceeds $15,000,000, at a per share offering price of
$7.00 or more, (ii) upon the conversion into common stock of at least a
majority of the outstanding shares of Series E preferred stock. The shares of
Series E preferred stock also carry provisions which protect the holders from
dilution caused by capital reorganizations, stock splits, or other similar
capital changes.
Each fiscal year, holders of the shares of Series E preferred stock are
entitled to receive annual dividends prior and in preference to common
stockholders, when and if declared by the Board of Directors on a noncumulative
basis, in an amount of $2.09 per share. No dividends shall be declared or paid
with respect to the common stock during any fiscal year until any declared
dividends in the foresaid amounts have been paid to the shareholders Series E
preferred stock. Through March 31, 2000, no dividends had been declared.
Warrants (Unaudited)
In February 2000, the Company issued warrants to purchase 140,917 shares
of common stock to a service provider in conjunction with the hiring of a new
CEO. The warrants have an exercise price of $5.25 and a five-year term. The
fair value of these warrants of $1,674,376 was estimated using the Black-
Scholes
F-23
<PAGE>
PERSONIFY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
option pricing model and the following assumptions: deemed fair value of common
stock of $14.78; dividend yield of 0%; volatility of 65%, risk free interest
rate of 6.7%; and a term of 5 years. The fair value of these warrants was
recorded as stock-based compensation expense in the three months ended March
31, 2000.
In February 2000, the Company issued warrants to purchase 77,500 shares
of common stock to a service provider. The warrants have an exercise price of
$15.00 and a five-year term. The fair value of these warrants of $864,358 was
estimated using the Black-Scholes option pricing model and the following
assumptions: deemed fair value of common stock of $17.43; dividend yield of 0%;
volatility of 65%, risk free interest rate of 6.5%; and a term of 5 years. The
fair value of these warrants was recorded as stock-based compensation expense
in the three months ended March 31, 2000.
Loan and Security Agreement (Unaudited)
During March 2000, the Company entered into a loan and security agreement
establishing a credit facility consisting of a $3.0 million equipment lease
line and a revolving line of credit that provides for borrowings of up to the
lesser of $1.0 million or 85% of eligible accounts receivable. The line of
credit bears interest at the bank's prime lending rate plus 2.0%.
In connection with signing of the loan and security agreement, the
Company issued warrants to acquire 22,000 shares of common stock. The price of
the warrant is set as 75% of the per share price applicable in the earlier to
occur of the following two transactions: (1) the next equity financing
transaction or (2) the initial public offering, if either (1) or (2) does not
occur by August 31, 2000, the price shall be deemed to be $4.20. The fair value
of these warrants of $371,140 was estimated using the Black-Scholes option
pricing model and the following assumptions: deemed fair value of common stock
of $18.90; dividend yield of 0%; volatility of 65%, risk free interest rate of
6.6%; and a term of 7 years. The value will be amortized over the term of the
facility.
Reincorporation
In March 2000, the Company's board of directors approved the Company's
reincorporation in the State of Delaware prior to the effectiveness of the
offering referred to above. In addition, the Company changed its name to
Personify, Inc. All references to the Company and the share and par value
information included in these consolidated financial statements have been
adjusted to reflect these changes.
Employee stock purchase plan
In March 2000, the Company's board of directors approved the Employee
Stock Purchase Plan covering an aggregate of 1,000,000 shares of common stock.
The Employee Stock Purchase Plan will become effective on the effective date of
the initial public offering and is intended to qualify as an "Employee Stock
Purchase Plan" within the meaning of Section 423 of the Internal Revenue Code
of 1986, as amended.
2000 Equity Incentive Plan
In March 2000, the Company's board of directors approved the amendment
and restatement of the 1998 Equity Incentive Plan, renamed 2000 Equity
Incentive Plan.
F-24
<PAGE>
PERSONIFY, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
OVERVIEW
Effective September 30, 1999, the Company acquired all outstanding shares
of Anubis Solutions Incorporated ("Anubis"), which provided data-warehousing
technology and services. The acquisition has been accounted for using the
purchase method of accounting. The total purchase consideration consisted of
1,438,428 shares of the Company's common stock with an estimated fair value of
approximately $3.6 million, and options and warrants to purchase 640,764 shares
of the Company's common stock with an estimated fair value of approximately
$837,000. The fair value of the common stock options was estimated using the
Black-Scholes model with the following weighted average assumptions: deemed
fair value of the underlying common stock of $2.50, risk-free interest rate of
5.06% to 5.90%, expected life of 3.5 years, expected dividend rate of 0% and
volatility rate of 65%. The purchase price, including related transaction costs
of $102,000 was allocated to the tangible and intangible assets acquired and
liabilities assumed on the basis of their respective fair values on the
acquisition date. The excess of the purchase price over the fair value of the
net tangibles and identifiable intangible assets acquired has been recorded as
goodwill. The fair value of net assets acquired was determined by an
independent appraiser. The allocation of the purchase price is summarized below
(in thousands):
<TABLE>
<S> <C>
Assembled workforce............................................... $1,035
Acquired technology............................................... 1,964
Covenants not to compete.......................................... 269
Goodwill.......................................................... 921
Assets acquired................................................... 569
Liabilities assumed............................................... (222)
------
Total purchase price............................................ $4,536
======
</TABLE>
Goodwill and other identifiable intangible assets are being amortized on
a straight-line basis over their estimated useful economic lives of three
years.
The following unaudited pro forma financial information reflects the
results of operations for the year ended December 31, 1999 as if the
acquisition of Anubis had occurred on January 1, 1999, and after giving effect
to purchase accounting adjustments. This pro forma result has been prepared for
comparative purposes only and does not purport to be indicative of what the
Company's operating result would have been had the acquisition actually taken
place on January 1, 1999, and may not be indicative of future operating
results.
F-25
<PAGE>
PERSONIFY, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, 1999
-----------------------------------------
Personify Anubis Adjustments Pro Forma
--------- ------ ----------- ---------
<S> <C> <C> <C> <C>
Net revenues
License revenues................ $ 639 $ 359 $ -- $ 998
Service revenues................ 704 1,503 -- 2,207
------- ------ ------- --------
Total net revenues............ 1,343 1,862 -- 3,205
Cost of revenues................. 1,961 775 -- 2,736
------- ------ ------- --------
Gross profit (loss)........... (618) 1,087 -- 469
------- ------ ------- --------
Operating expenses
Research and development........ 2,549 315 -- 2,864
Sales and marketing............. 4,336 654 -- 4,990
General and administrative...... 1,024 108 -- 1,132
Stock-based compensation........ 690 155 -- 845
Amortization of intangible
assets........................ 350 -- 1,051 (A) 1,401
------- ------ ------- --------
Total operating expenses...... 8,949 1,232 1,051 11,232
------- ------ ------- --------
Operating loss................... (9,567) (145) (1,051) (10,763)
Other income (expense), net...... 240 (82) -- 158
------- ------ ------- --------
Net loss......................... (9,327) (227) (1,051) (10,605)
Dividend accretion on preferred
stock.......................... (125) -- -- (125)
------- ------ ------- --------
Net loss attributable to common
stockholders................... $(9,452) $ (227) $(1,051) $(10,730)
======= ====== ======= ========
Net loss per share attributable
to common stockholders, basic
and diluted.................... $ (3.83)(B)
========
Weighted average shares used in
computing net loss per share
attributable to common
stockholders, basic and
diluted........................ 2,800
========
</TABLE>
- --------
(A) The pro forma Personify and Anubis financial information for 1999 were
adjusted to record the amortization of intangible assets and goodwill
related to Personify's acquisition of Anubis as if the transaction occurred
January 1, 1999. Acquired intangible assets and goodwill amounting to $4.2
million are to be amortized over their estimated useful life of 3 years,
resulting in annual amortization of approximately $1,401,000.
(B) Pro forma basic and diluted net loss per share for the year ended December
31, 1999, is computed using the weighted average number of common shares
outstanding, including pro forma effects of issuance of 1,438,428 common
shares in conjunction with the acquisition as if these shares were
outstanding from January 1, 1999.
F-26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Anubis Solutions Incorporated
In our opinion, the accompanying balance sheets and the related
statements of operations, of shareholders' equity and of cash flows present
fairly, in all material respects, the financial position of Anubis Solutions
Incorporated at December 31, 1998 and September 30, 1999, and the results of
its operations and its cash flows for the year ended December 31, 1998 and nine
months ended September 30, 1999 in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Anubis Solutions, Inc.'s management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
March 24, 2000
F-27
<PAGE>
ANUBIS SOLUTIONS INCORPORATED
BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.......................... $115 $ 106
Accounts receivable, net of allowance of $0 at
December 31, 1998 and September 30, 1999......... 424 365
Prepaid expenses and other assets.................. 9 16
---- -----
Total current assets............................. 548 487
Property and equipment, net......................... 122 82
---- -----
$670 $ 569
==== =====
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable................................... $ 41 $ 61
Accrued liabilities................................ 101 145
Deferred revenue................................... 27 126
Capital lease obligation, current portion.......... 2 2
Notes payable, current portion..................... 205 4
---- -----
Total current liabilities........................ 376 338
Capital lease obligation, less current portion...... 3 --
Long term notes payable............................. 13 9
---- -----
392 347
---- -----
Commitments (Note 3)
Shareholders' equity:
Common stock, no par value; 20,000,000 shares
authorized; 8,800,000 and 8,875,426 shares issued
and outstanding at December 31, 1998 and
September 30, 1999, respectively................. 8 660
Unearned stock-based compensation.................. -- (481)
Retained earnings.................................. 270 43
---- -----
Total shareholders' equity....................... 278 222
---- -----
Total liabilities and shareholders' equity..... $670 $ 569
==== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
ANUBIS SOLUTIONS INCORPORATED
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Net revenues
License revenues................................................... $ 155 $ 359
Service revenues................................................... 1,787 1,503
------ ------
Total net revenues............................................... 1,942 1,862
Cost of revenues (exclusive of stock-based compensation of $73 in
1999)............................................................. 918 775
------ ------
Gross profit..................................................... 1,024 1,087
------ ------
Operating expenses
Research and development (exclusive of stock-based compensation
of $21 in 1999).................................................. 311 315
Sales and marketing (exclusive of stock-based compensation
of $53 in 1999).................................................. 794 654
General and administrative (exclusive of stock-based compensation
of $8 in 1999)................................................... 101 108
Stock-based compensation........................................... -- 155
------ ------
Total operating expenses......................................... 1,206 1,232
------ ------
Operating loss...................................................... (182) (145)
Interest and other expenses, net.................................... 5 82
------ ------
Net loss............................................................ $ (187) $ (227)
====== ======
Net loss per share, basic and diluted .............................. $(0.02) $(0.03)
====== ======
Weighted average shares used in computing net loss per share, basic
and diluted ...................................................... 8,800 8,805
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
ANUBIS SOLUTIONS INCORPORATED
STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
Common Stock Unearned Total
---------------- Stock-based Retained Shareholders'
Shares Amount Compensation Earnings Equity
--------- ------ ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
Balances at January 1,
1998................... 8,800,000 $ 5 $ -- $ 457 $ 462
Warrants issued in
connection with line of
credit agreement....... 3 3
Net loss................. (187) (187)
--------- ---- ----- ----- -----
Balance at December 31,
1998................... 8,800,000 8 -- 270 278
Issuance of common stock
for cash............... 75,426 16 16
Stock-based
compensation........... 8 8
Unearned stock-based
compensation........... 628 (628) --
Amortization of unearned
stock-based
compensation........... 147 147
Net loss................. (227) (227)
--------- ---- ----- ----- -----
Balances at September 30,
1999................... 8,875,426 $660 $(481) $ 43 $ 222
========= ==== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
ANUBIS SOLUTIONS INCORPORATED
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Cash flows from operating activities
Net loss........................................... $(187) $(227)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization of tangible
assets.......................................... 52 48
Issuance of warrants in connection with line of
credit agreement................................ 3 --
Amortization of stock-based compensation.......... -- 155
Changes in operating assets and liabilities:
Accounts receivable.............................. 8 59
Prepaid expenses and other assets................ 9 (7)
Accounts payable and accrued liabilities......... 88 64
Deferred revenue................................. 27 99
----- -----
Net cash provided by operating activities...... -- 191
----- -----
Cash flows from investing activities
Purchases of property and equipment................ (104) (8)
----- -----
Net cash used in investing activities.......... (104) (8)
----- -----
Cash flows from financing activities
Repayment of capital lease obligation.............. (7) (3)
Proceeds from notes payable........................ 217 --
Repayment of notes payable......................... -- (205)
Proceeds from issuance of common stock............. -- 16
----- -----
Net cash provided by (used in) financing
activities................................... 210 (192)
----- -----
Net increase (decrease) in cash and cash
equivalents.................................. 106 (9)
Cash and cash equivalents, beginning of period...... 9 115
----- -----
Cash and cash equivalents, end of period............ $ 115 $ 106
===== =====
Supplemental disclosures of cash flow information
Unearned stock-based compensation.................. $ -- $ 628
===== =====
Interest paid..................................... $ 3 $ 2
===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
ANUBIS SOLUTIONS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
1. The Company and Summary of Significant Accounting Policies
The Company
Anubis Solutions Incorporated ("Anubis" or the "Company") was
incorporated under the laws of California in 1996. The Company is a provider of
e-commerce analytical applications and sophisticated data warehouse solutions.
Anubis' businesses are comprised of consulting services, aimed at end-to-end
data warehouse implementation and software products that reduce analytical
application implementation costs and time.
Basis of presentation
Effective September 30, 1999, the Company and Personify, Inc.
("Personify") entered into an agreement whereby the Company was merged (the
"Merger") with and into ASI Acquisition Corporation ("ASI"), a wholly-owned
subsidiary of Personify. Upon consummation of the Merger, the Company became a
wholly-owned subsidiary of ASI. The accompanying financial statements for the
periods ended September 30, 1999 and December 31, 1998 reflect the accounts of
the Company on a historical basis as a stand-alone entity prior to purchase
accounting adjustments arising from the Merger.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash equivalents
The Company considers all highly liquid investments with an original
maturity or remaining maturity at date of purchase of three months or less to
be cash equivalents.
Concentration risks
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents
and accounts receivable. The Company maintains its cash and cash equivalents in
commercial checking and money market accounts with two high-quality financial
institutions.
For and as of the nine months ended September 30, 1999, two customers
comprised 44% and 33%, respectively, of aggregate revenues and 19% and 54%,
respectively, of aggregate accounts receivable. As of and for the year ended
December 31, 1998, three customers comprised 32%, 26% and 0%, respectively, of
aggregate accounts receivable and 39%, 19% and 10%, respectively of aggregate
revenues.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets, which
is generally three years. Equipment recorded under capital leases are amortized
using the straight-line method over the shorter of the lease-term or estimated
useful life of the asset.
F-32
<PAGE>
ANUBIS SOLUTIONS INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
Long-lived assets
The Company accounts for long-lived assets under Statement of Financial
Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of, which requires the
Company to review for impairment of long-lived assets whenever events or
changes in circumstances indicate that the carrying amount of an asset might
not be recoverable. When such an event occurs, the Company estimates the future
cash flows expected to result from the use of the asset and its eventual
disposition. If the undiscounted expected future cash flows is less than the
carrying amount of the asset, an impairment loss is recognized. To date, no
impairment loss has been recognized.
Revenue recognition
Anubis derives revenues from two sources as follows: (i) software license
revenues to end users and (ii) service revenues which include consulting and
maintenance and support services. Effective January 1, 1998, Anubis adopted the
provisions of Statement of Position ("SOP") 97-2, or SOP 97-2, Software Revenue
Recognition, as amended by SOP 98-4, Deferral of the Effective Date of Certain
Provisions of SOP 97-2, effective January 1, 1998. SOP 97-2 supersedes SOP 91-
1, Software Revenue Recognition. License revenues from sales to end users are
recognized upon shipment of the product, if an executed agreement or purchase
order has been received, the fee is fixed and determinable and collection is
deemed probable. Service revenues from consulting are recognized as the related
services are performed and collectibility is deemed probable. Service revenues
from maintenance and support agreements are deferred and recognized on a
straight-line basis over the term of the related agreement. Payments of
maintenance fees are generally made in advance and are nonrefundable.
For contracts with multiple obligations (e.g. software licenses,
consulting services and maintenance), Anubis allocates revenues to each
component of the contract based on objective evidence of its fair value, which
is based on the price each component is sold separately. Anubis recognizes
revenues allocated to the undelivered products when the criteria for revenue
recognition set forth are met.
Advertising costs
The Company's advertising costs, which have not been significant, are
expensed as incurred.
Product development costs
The costs of establishing the technological feasibility of the Company's
software products or product enhancements are expensed as product development
costs when incurred. The costs incurred subsequent to the establishment of
technological feasibility and prior to a product's general release are
capitalized. Due to the close proximity of establishing technological
feasibility to product release, such costs have been insignificant and have
been expensed to date.
Income taxes
The Company has elected S Corporation status for federal and applicable
state tax reporting purposes. Accordingly, income taxes are generally the
responsibility of the shareholders, not the Company, except with respect to
California state franchise taxes applied to S Corporations.
F-33
<PAGE>
ANUBIS SOLUTIONS INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
Stock-based compensation
The Company accounts for stock-based employee compensation arrangements
in accordance with provisions of Accounting Principles Board Opinion ("APB")
No. 25, Accounting for Stock Issued to Employees, and Financial Accounting
Standards Board Interpretation ("FIN") No. 28, Accounting for Stock
Appreciation Rights and Other Variable Stock Option or Award Plans, and has
adopted with the disclosure provisions of SFAS No. 123, Accounting for Stock-
Based Compensation. Under APB No. 25, compensation expense is based on the
difference, if any, on the date of grant, between the fair value of the
Company's common stock and the exercise price. SFAS No. 123 defines a "fair
value" based method of accounting for an employee stock option or similar
equity investment. The pro forma disclosures of the difference between the
compensation expense included in net loss and the related cost measured by the
fair value method are presented in Note 5. The Company accounts for equity
instruments issued to nonemployees in accordance with the provisions of SFAS
No. 123 and Emerging Issues Task Force ("EITF") 96-18, Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling Goods or Services.
Comprehensive income
The Company adopted the provisions of SFAS No. 130, Reporting
Comprehensive Income, effective January 1, 1998. This statement requires
companies to classify items of comprehensive income by their nature in the
consolidated financial statements and to display the accumulated balance of
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of the balance sheet. To date, the Company has
not had any transactions that are required to be reported as comprehensive
income.
Segment information
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information. The
Company identifies its operating segments based on business activities,
management responsibility and geographical location. For all periods presented
the Company operated in a single business segment in the United States.
Net loss per share
The Company computes net loss per share in accordance with SFAS No. 128,
Earnings per Share. Under the provisions of SFAS No. 128, basic net loss per
share is computed by dividing the net loss available to common shareholders for
the period by the weighted average number of vested common shares outstanding
during the period. Diluted net income per share is computed by dividing the net
income for the period by the weighted average number of vested common and
common equivalent shares outstanding during the period. However, because the
Company generated net losses in all periods presented, common equivalent
shares, composed of incremental common shares issuable upon the exercise of
stock options and warrants are not included in diluted net loss per share
because such shares are antidilutive. The total weighted average number of
shares excluded from the calculations of diluted net loss per share were
approximately 8,000 and 578,000 for the year ended December 31, 1998 and the
nine months ended September 30, 1999, respectively.
F-34
<PAGE>
ANUBIS SOLUTIONS INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table sets forth the computation of basic and diluted net
loss per share for the periods indicated (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, 1998 September 30, 1999
----------------- ------------------
<S> <C> <C>
Numerator
Net loss............................ $ (187) $ (227)
====== ======
Denominator
Basic and diluted
Weighted average shares used in
computing basic and diluted net
loss per common share............. 8,800 8,805
====== ======
Basic and diluted net loss per
share............................. $(0.02) $(0.03)
====== ======
</TABLE>
Recently issued accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. SFAS No. 133, as amended by SFAS No.
137, is effective for fiscal years beginning after June 15, 2000, with earlier
application encouraged. The Company is evaluating the possible impact, if any,
that SFAS No. 133 may have on its financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition," which provides
guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provides guidance for disclosure
related to revenue recognition policies. The Company believes that their
current revenue recognition policy is in compliance with SAB 101.
2. Property and Equipment
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Computer equipment and software............... $117 $ 122
Furniture, fixtures, and office equipment..... 73 76
Capitalized leases............................ 17 17
---- -----
207 215
Less accumulated depreciation and
amortization................................ (85) (133)
---- -----
$122 $ 82
==== =====
</TABLE>
The cost of assets recorded under capital leases included in property and
equipment is approximately $17,000 as of December 31, 1998 and September 30,
1999. The accumulated amortization associated with these assets was $12,000 and
$15,000 as of December 31, 1998 and September 30, 1999, respectively.
F-35
<PAGE>
ANUBIS SOLUTIONS INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. Lease Commitments
The Company leases office space under a noncancellable operating lease,
which expires in October 1999. Rent expense from the operating lease was
approximately $96,000 and $77,000 for the year ended December 31, 1998 and the
nine months ended September 30, 1999, respectively. The remaining operating
lease obligation was $13,000 as of September 30, 1999.
In addition, the Company leases certain equipment under capital lease
agreements. The total remaining capital lease obligation at September 30, 1999
was $2,000, which matures June 2000.
4. Financing Arrangements
The Company had a revolving line of credit agreement (the "Agreement")
with a bank that allowed for borrowings up to $300,000 and $100,000 for
revolving advances and equipment purchases, respectively. The line was
collateralized by the Company's assets as defined in the Agreement. Interest on
revolving advances and equipment purchases accrue at prime plus 0.5% and prime
plus 1.0% per annum, respectively (8.25% at December 31, 1998 and 8.75% at
September 30, 1999). As defined in the Agreement, all revolving advances are
due by October 8, 1999 and all equipment advances are payable in 36 equal
monthly installments of principal plus interest, commencing on the date of each
equipment purchase. As of December 31, 1998 and September 30, 1999, $130,000
and $300,000 was available under the revolving credit agreement. To date, no
equipment purchases have been made. A nonrefundable commitment fee of
approximately $2,000 was paid in October 1998 upon closing of the Agreement.
The master loan and security agreement, which governs the terms and
conditions of the Agreement contains certain covenants. At December 31, 1998
and September 30, 1999, the Company was not in compliance with certain
covenants and terms of the Agreement. Effective September 30, 1999, the master
loan and security agreement was terminated.
In September 1998, the Company obtained a promissory note (the "Note")
with a bank that allows for a revolving line of credit up to $35,000. The line
is collateralized by the Company's assets as defined in the Note. Interest on
revolving advances accrues at prime plus 3.0% per annum (10.75% at December 31,
1998 and 11.25% at September 30, 1999). As defined in the Note, the revolving
line of credit expires on September 10, 2003. As of September 30, 1999 $35,000
was available under the revolving line of credit.
In May 1998, the Company converted approximately $19,000 of the existing
line-of-credit for a note to finance the purchase of certain office equipment.
The note bears an interest rate of 14.9% and matures on June 15, 2003. As of
December 31, 1998 and September 30, 1999, the Company had a balance outstanding
on the note of approximately $17,000 and $13,000, respectively.
5. Shareholders' Equity
Common Stock
As of September 30, 1999, the Company is authorized to issue 20,000,000
shares of common stock. On October 29, 1996, the Company declared a one-for-
88,000 stock split, leaving 8,800,000 shares issued and outstanding. All share
and per share information included in these financial statements have been
retroactively adjusted to reflect the stock split.
F-36
<PAGE>
ANUBIS SOLUTIONS INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
Common Stock Options
In March 1999, the Company adopted the 1999 Stock Plan, which provided
for the issuance of incentive and nonstatutory options to purchase shares of
common stock. The Company reserved 1,200,000 shares of common stock for
issuance. Nonstatutory options may be granted to employees, directors, and
consultants. Incentive options may be granted only to employees. Options have a
term no greater than 10 years and generally vest at the rate of 20% per year
over five years.
In September 1999, the Company amended the 1999 Stock Plan and authorized
an additional 2,717,237 options available for grant. The amendment provided
acceleration of vesting of up to 20% of the options granted in the original
plan immediately prior to the Merger and the vesting period was shortened in
order to vest the options on a monthly basis over a four year period.
The following table summarizes information concerning outstanding and
exercisable options as of September 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding
---------------------------
Shares Weighted Average
Available Exercise Price
for Grant Shares Per Shares
---------- --------- ----------------
<S> <C> <C> <C>
Options outstanding at December
31, 1998....................... -- -- $ --
Authorized...................... 3,917,237 -- --
Granted......................... (3,932,237) 3,932,237 0.20
Exercised....................... -- (3,500) 0.20
Cancelled....................... 15,000 (15,000) 0.20
---------- ---------
Options outstanding at September
30, 1999....................... -- 3,913,737 $0.20
========== =========
</TABLE>
The following table summarizes information concerning outstanding and
exercisable options as of September 30, 1999:
<TABLE>
<CAPTION>
Options Vested
Options Outstanding and Exercisable
------------------------------- -----------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Contractual Exercise Exercise
Life Price Per Price Per
Exercise Price Shares (Years) Share Shares Share
-------------- --------- ----------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
$ 0.20................... 3,913,737 9.92 $0.20 719,444 $0.20
</TABLE>
Pro forma information regarding net loss and net loss per share is
required by SFAS No. 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted under the fair value method. The fair value for these options was
estimated using the Black-Scholes option pricing model.
The Company calculated the minimum fair value of each option grant on the
date of grant using the Black-Scholes option pricing method as prescribed by
SFAS No. 123 with the following assumptions: no dividend yield, no volatility,
risk-free interest rate of 5.14%-5.84% and an expected life of four years.
The weighted average fair value of these options granted for the nine
months ended September 30, 1999 was $0.23.
F-37
<PAGE>
ANUBIS SOLUTIONS INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
Had compensation costs been determined based upon the fair value at the
grant date for awards under these plans, consistent with the methodology
prescribed under SFAS No. 123, the Company's pro forma net loss attributable to
common shareholders and pro forma basic and diluted net loss per share under
SFAS No. 123 would have been as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Net loss attributable to common shareholders
As reported.................................. $ (187) $ (227)
====== ======
Proforma..................................... $ (187) $ (245)
====== ======
Net loss per share attributable to common
shareholders
As reported.................................. $(0.02) $(0.03)
====== ======
Proforma..................................... $(0.02) $(0.03)
====== ======
</TABLE>
Unearned stock-based compensation
In connection with certain employee stock option grants, the Company
recognized stock-based compensation which is being amortized over the vesting
periods of the related options, typically four years, using FASB Interpretation
No. 28. The total stock-based compensation recorded by the Company for the nine
months ended September 30, 1999 was $628,000. Amortization expense recognized
during the nine months ended September 30, 1999 was $147,000.
Warrants
In October 1998, the Company issued warrants to purchase 40,000 shares of
common stock in connection with the line of credit agreement. The warrants have
an exercise price equal to $0.50 and a five-year term. The fair value of the
warrants of $3,000 was estimated using the Black-Scholes model with the
following weighted average assumptions: risk-free interest rate of 4.18%,
expected life of 5 years, expected dividend rate of 0%, and volatility rate of
65%. The fair value of the warrants was charged to interest expense.
Subsequently in September of 1999, in connection with antidilution provisions
in the line of credit agreement, the Company issued an additional 81 shares
with the same terms above.
In May 1999, the Company granted a consultant a warrant to purchase
80,000 shares of common stock at an exercise price of $0.20 for services.
18,000 shares vested immediately with the remainder vesting over four years.
The Company valued these shares using the Black-Scholes model and recorded
$8,000 to stock-based compensation expense in 1999. The following assumptions
were used in determining the value: exercise price of $0.20, deemed stock value
of $0.29, volatility of 65% and dividends of $0, weighted average interest rate
of 5.49%, and a term of 4 years.
F-38
<PAGE>
[LOGO]
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[INTERNATIONAL COVER PAGE]
SUBJECT TO COMPLETION, DATED MAY 24, 2000
[LOGO]
Shares
Common Stock
Personify, Inc. is offering shares of its common stock. Prior to this
offering, there has been no public market for our common stock. We anticipate
that the initial public offering price of our common stock will be between $
and $ per share. We have applied to list our common stock on the Nasdaq
National Market under the symbol "PSFY."
--------------
Investing in the common stock involves risks.
See "Risk Factors" beginning on page 5.
--------------
<TABLE>
<CAPTION>
Per
Share Total
------ ------
<S> <C> <C>
Public Offering Price............................................ $ $
Underwriting Discounts and Commissions........................... $ $
Proceeds to Personify, Inc. ..................................... $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
We have granted the underwriters a 30-day option to purchase up to an
additional shares of common stock to cover over-allotments.
--------------
Robertson Stephens International
J.P. Morgan Securities Ltd.
Dain Rauscher Wessels
Wit SoundView
The date of this prospectus is , 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth all fees and expenses payable by Personify
in connection with the registration of the common stock hereunder. All of the
amounts shown are estimates except for the SEC registration fee, NASD filing
fee and the Nasdaq National Market listing fees.
<TABLE>
<CAPTION>
Amount
to be
Paid
-------
<S> <C>
SEC Registration Fee.............................................. $13,200
NASD Filing Fee................................................... 5,500
Nasdaq National Market Listing Fee................................ *
Printing and Engraving Expenses................................... *
Legal Fees and Expenses........................................... *
Accounting Fees and Expenses...................................... *
Miscellaneous Expenses............................................ *
-------
Total........................................................... $ *
=======
</TABLE>
--------
* To be supplied by amendment.
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law allows for the
indemnification of officers, directors and any corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act. Our Amended and Restated Certificate of Incorporation and our
Amended and Restated Bylaws provide for indemnification of our directors,
officers, employees and other agents to the extent and under the circumstances
permitted by the Delaware General Corporation Law. We have also entered into
agreements with our directors and executive officers that require Personify
among other things to indemnify them against certain liabilities that may arise
by reason of their status or service as directors and executive officers to the
fullest extent permitted by Delaware law. We have also purchased directors and
officers liability insurance, which provides coverage against certain
liabilities including liabilities under the Securities Act.
Item 15. Recent Sales of Unregistered Securities
The following sets forth information regarding all securities sold by us
since March 1997:
1. In August 1997, we issued and sold an aggregate of 2,011,172 shares of
Series B Preferred Stock to a total of four investors at a purchase price
of $0.4475 per share.
2. In February 1997 and August 1997, we issued warrants to purchase an
aggregate of 134,078 shares of our Series B Preferred Stock to a total of
four investors at a per share exercise price of $0.45.
3. In May 1998, we issued and sold an aggregate of 6,282,722 shares of
Series C Preferred stock to a total of twelve investors at a purchase
price of $0.955 per share.
4. In May 1998, we issued warrants to purchase an aggregate of 65,446 shares
of our Series C Preferred Stock to a total of four investors at a per
share exercise price of $0.955.
II-1
<PAGE>
5. In August 1999, we completed a two-for-one split of our outstanding
common and preferred stock in which each outstanding share of our common
stock was split into two shares of common stock, and each share of
preferred stock was split into two shares of preferred stock.
6. In August 1999, we issued and sold an aggregate of 4,285,716 shares of
Series D Preferred stock to a total of twenty-five investors at a
purchase price of $4.20 per share.
7. On September 30, 1999, in connection with our acquisition of Anubis
Solutions Incorporated, we issued 1,438,428 shares of our common stock,
at a price per share of $2.50 and we issued options and a warrant to
purchase 640,764 shares of common stock at a per share exercise price of
$2.50.
8. In January 2000, we issued and sold to Eileen Gittins 186,891 shares of
our common stock at a purchase price of $0.05 per share and 292,800
shares of our common stock at a purchase price of $0.125 per share.
9. In February 2000, we issued and sold 1,691,000 shares of our common stock
to Love Goel at a purchase price of $5.25 per share.
10. In February 2000, we issued a warrant to purchase an aggregate of 140,917
shares of our common stock to one investor at a per share exercise price
of $5.25.
11. In February 2000, we issued a warrant to purchase an aggregate of 77,500
shares of our common stock to a service provider at a per share exercise
price of $15.00.
12. In March 2000, we issued and sold an aggregate of 167,472 shares of
Series E Preferred stock to a total of two investors at a purchase price
of $20.90 per share.
13. In March 2000, we issued a warrant to purchase an aggregate of 22,000
shares of our common stock to one investor at a per share exercise price
of 75% of the per share price of the earlier to occur of our next equity
financing or the initial public offering of our common stock. However, if
neither of those events occurs by August 31, 2000, the exercise price
will be $4.20 per share.
14. Since March 1997, we have granted stock options under our Amended and
Restated 2000 Equity Incentive Plan covering an aggregate of 4,285,692
shares of common stock (net of expirations and cancellations) at exercise
prices ranging from $0.025 to $15.00.
None of the foregoing transaction involved any underwriters, underwriting
discounts or commissions, or any public offering, and we believe that each
transaction was exempt from the registration requirements of the Securities Act
by virtue of Section 4(2) thereof, Regulation D promulgated thereunder or Rule
701 pursuant to compensatory benefit plans and contracts relating to
compensation as provided under such Rule 701. The recipients in such
transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof, and appropriate legends were affixed to the share
certificates and instruments issued in such transactions. All recipients had
adequate access to information about the Company.
In particular, the securities described in the preferred stock financings
are owned in their entirety by individuals or large institutional investors who
(A) represented to us that they were accredited investors within the definition
of Rule 501 of Regulation D, familiar with investing in private companies, (B)
represented to us that they understood that the securities they were purchasing
were restricted and the risk of possible loss associated with their investment,
(C) represented to us that they were familiar with our history and business,
(D) received our recent financial information and (E) were afforded the
opportunity to ask questions of our management. Each of the investors had
expressed previous interest to our officers and directors in making an
investment in us when an opportunity was available, and such investors were
contacted only on a one-to-one basis without any general solicitation or
advertising of the investment opportunity. Accordingly, we believe that each of
the foregoing transactions was exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ----------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Certificate of Incorporation
3.2* Form of Amended and Restated Certificate of Incorporation
3.3* Bylaws
4.1 Amended and Restated Investor Rights Agreement, dated March 24, 2000
4.2 Registration Rights Agreement by and between the Registrant and Love
Goel, dated February 29, 2000
4.3 Registration Rights Agreement between the Registrant and Silicon
Valley Bank, dated October 8, 1998
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
10.1 Amended and Restated Office Building Lease between the Registrant and
CEP-Sansome Investors LLC, dated November 12, 1999
10.2 2000 Equity Incentive Plan
10.3 2000 Employee Stock Purchase Plan
10.4 Form of Director and Officer Indemnification Agreement
10.5 Employment Agreement by and between the Registrant and Love Goel,
dated January 6, 2000
10.6 Employment Agreement by and between the Registrant and Richard
Vinchesi, dated June 30, 1999
10.7 Promissory Note between the Registrant and Love Goel, dated February
29, 2000
10.8 Separation Agreement between the Registrant and Eileen Gittins, dated
January 7, 2000
10.9 Loan and Security Agreement between the Registrant and Transamerica
Business Credit Corporation, dated March 31, 2000
10.10 Revolving Credit Note between the Registrant and Transamerica Business
Credit Corporation
10.11 Corporate Resolution to Borrow
10.12 Streamlined Facility Agreement between the Registrant and Transamerica
Business Credit Corporation, dated March 31, 2000
10.13 Form of Promissory Note between the Registrant and Transamerica
Business Credit Corporation
10.14 Month to Month Rental Agreement between the Registrant and BTW III
Inc. dated February 28, 2000
10.15 Letter of Intent to Sublease between the Registrant and Team 7
International dated October 7, 1999
10.16 Sublease between the Registrant and Richard E. Brown, Steven A. Fabro,
Randall H. Scarlett and the Law Firm of Brown, Fabro & Scarlett dated
February 1, 2000
10.17* Sublease between the Registrant and Sage IT Partners, dated December
15, 1998.
10.18 Employment Agreement by and between the Registrant and Barry Wright,
dated March 27, 2000
21.1 List of Subsidiaries
23.1* Consent of PricewaterhouseCoopers LLP
23.2 Consent of PricewaterhouseCoopers LLP
24.1 Power of Attorney (see page II-5)
27.1 Financial Data Schedule
</TABLE>
- --------
*To be filed by amendment.
II-3
<PAGE>
(b) Financial Statement Schedules:
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
of Personify, Inc.
The reincorporation described in Note 10 to the consolidated financial
statements has not been consummated at March 29, 2000. When the reincorporation
has been consummated, we will be in a position to furnish the following report
assuming that from March 29, 2000 to the date of such reincorporation, no other
material events have occurred that would affect the accompanying consolidated
financial statements or require disclosure therein:
"Our audits of the consolidated financial statements referred to in
our report dated March 29, 2000 included in the prospectus as of December
31, 1998 and 1999 and for each of the three years in the period ended
December 31, 1999, of Personify, Inc. also included an audit of the
financial statement schedules listed in Item 16(b) of this Form S-1. In
our opinion, these financial statement schedules present fairly, in all
material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements."
San Francisco, California
March 29, 2000
II-4
<PAGE>
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Balance at
the Beginning End of the
of the Year Additions Write-offs Year
------------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for revenue reserve:
Year ended December 31, 1997... $ -- $ -- $ -- $ --
Year ended December 31, 1998... -- -- -- --
Year ended December 31, 1999... -- 133 -- 133
Valuation allowance for deferred
tax assets:
Year ended December 31, 1997... 153 421 -- 574
Year ended December 31, 1998... 574 1,158 -- 1,732
Year ended December 31, 1999... 1,732 3,109 -- 4,841
</TABLE>
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Personify has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of San
Francisco, State of California, on May 24, 2000.
PERSONIFY INCORPORATED
/s/ Love Goel
By: _________________________________
Love Goel
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints LOVE GOEL and RICHARD VINCHESI and each
of them, his attorneys-in-fact, each with the power of substitution, for him
and in his name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, and to sign any registration statement for the same Offering covered
by this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, and all post-
effective amendments thereto, and to file the same, with all exhibits thereto
in all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this S-1 Registration Statement has been signed by the following persons in the
capacities set forth below on May 24, 2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<C> <S>
/s/ Love Goel Chief Executive Officer and Director
______________________________________
Love Goel
/s/ Richard Vinchesi Chief Financial Officer
______________________________________
Richard Vinchesi
/s/ Steven Krause Chief Technology Officer and Director
______________________________________
Steven Krause
/s/ Lucio L. Lanza Chairman of the Board of Directors
______________________________________
Lucio L. Lanza
/s/ Jerry Reitman Director
______________________________________
</TABLE> Jerry Reitman
II-6
<PAGE>
<TABLE>
<CAPTION>
Signature Title
--------- -----
<C> <S>
/s/ W. Ferrell Sanders Director
______________________________________
W. Ferrell Sanders
/s/ Philip Black Director
______________________________________
Philip Black
/s/ Andrew V. Johnson Director
______________________________________
Andrew V. Johnson
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ----------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Certificate of Incorporation
3.2* Form of Amended and Restated Certificate of Incorporation
3.3* Bylaws
4.1 Amended and Restated Investor Rights Agreement, dated March 24, 2000
4.2 Registration Rights Agreement by and between the Registrant and Love
Goel, dated February 29, 2000
4.3 Registration Rights Agreement between the Registrant and Silicon
Valley Bank, dated October 8, 1998
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
10.1 Amended and Restated Office Building Lease between the Registrant and
CEP-Sansome Investors LLC, dated November 12, 1999
10.2 2000 Equity Incentive Plan
10.3 2000 Employee Stock Purchase Plan
10.4 Form of Director and Officer Indemnification Agreement
10.5 Employment Agreement by and between the Registrant and Love Goel,
dated January 6, 2000
10.6 Employment Agreement by and between the Registrant and Richard
Vinchesi, dated June 30, 1999
10.7 Promissory Note between the Registrant and Love Goel, dated February
29, 2000
10.8 Separation Agreement between the Registrant and Eileen Gittins, dated
January 7, 2000
10.9 Loan and Security Agreement between the Registrant and Transamerica
Business Credit Corporation, dated March 31, 2000
10.10 Revolving Credit Note between the Registrant and Transamerica Business
Credit Corporation
10.11 Corporate Resolution to Borrow
10.12 Streamlined Facility Agreement between the Registrant and Transamerica
Business Credit Corporation, dated March 31, 2000
10.13 Form of Promissory Note between the Registrant and Transamerica
Business Credit Corporation
10.14 Month to Month Rental Agreement between the Registrant and BTW III
Inc. dated February 28, 2000
10.15 Letter of Intent to Sublease between the Registrant and Team 7
International dated October 7, 1999
10.16 Sublease between the Registrant and Richard E. Brown, Steven A. Fabro,
Randall H. Scarlett and the Law Firm of Brown, Fabro & Scarlett dated
February 1, 2000
10.17* Sublease between the Registrant and Sage IT Partners, dated December
15, 1998.
10.18 Employment Agreement by and between the Registrant and Barry Wright,
dated March 27, 2000
21.1 List of Subsidiaries
23.1* Consent of PricewaterhouseCoopers LLP
23.2 Consent of PricewaterhouseCoopers LLP
24.1 Power of Attorney (see page II-5)
27.1 Financial Data Schedule
</TABLE>
- --------
*To be filed by amendment.
<PAGE>
EXHIBIT 4.1
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
This AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (this "Agreement") is
made as of March 24, 2000, by and among Personify Incorporated, a California
corporation (the "Company"), and the persons listed on the attached Exhibit A
who become signatories to this Agreement (collectively, the "Investors").
RECITALS
A. On May 9, 1996, the Company issued 1,400,000 shares of the Company's
Series A Preferred Stock (the "Series A Preferred Shares") to certain of the
Investors pursuant to that certain Series A Preferred Stock Purchase Agreement
by and among the Company and the Investors identified therein (the "Series A
Purchase Agreement"). As a condition to the consummation of the purchase of the
Series A Preferred Shares pursuant to the Series A Purchase Agreement, the
Company agreed to enter into that certain Investor Rights Agreement dated as of
May 9, 1996, with the Investors (the "Original Rights Agreement").
B. On August 25, 1997, the Company issued 2,011,172 shares of the
Company's Series B Preferred Stock (the "Series B Preferred Shares") to certain
of the Investors pursuant to that certain Series B Preferred Stock Purchase
Agreement by and among the Company and the Investors identified therein (the
"Series B Purchase Agreement"). As a condition to the consummation of the
purchase of the Series B Preferred Shares pursuant to the Series B Purchase
Agreement, the Company agreed to enter into the Omnibus Amendment to Investor
Rights Agreement, Rights of First Refusal Agreement and Co-Sale Agreement, dated
as of August 25, 1997, with certain of the Investors (the "Omnibus Amendment").
C. On May 27, 1998, the Company issued 6,282,722 shares of the Company's
Series C Preferred Stock (the "Series C Preferred Shares") to certain of the
Investors pursuant to that certain Series C Preferred Stock Purchase Agreement
by and among the Company and the Investors identified therein (the "Series C
Purchase Agreement"). As a condition to the consummation of the purchase of the
Series C Preferred Shares pursuant to the Series C Purchase Agreement, the
Company agreed to enter into the Amended and Restated Investor Rights Agreement
dated as of May 27, 1998, with certain of the Investors (the "Prior Rights
Agreement (Series C Closing)") which amended and restated the Original Rights
Agreement (including without limitation, the Omnibus Amendment with respect
those provisions which amended the Original Rights Agreement) in its entirety.
D. On August 12, 1999, the Company issued 4,285,716 shares of the
Company's Series D Preferred Stock (the "Series D Preferred Shares") to certain
of the Investors pursuant to that certain Series D Preferred Stock Purchase
Agreement by and among the Company and the Investors identified therein (the
"Series D Purchase Agreement"). As a condition to the consummation of the
purchase of the Series D Preferred Shares pursuant to the Series D Purchase
Agreement, the Company agreed to enter into the Amended and Restated Investor
Rights Agreement dated as of August 12, 1999, with certain of the Investors (the
"Prior Rights Agreement (Series D Closing)") which amended and restated the
Original Rights Agreement (and the Prior Rights Agreement (Series C Closing)) in
its entirety.
E. In connection with the Company's acquisition of Anubis Solutions
Incorporated and as a condition to the consummation of such acquisition, the
parties to the Prior Rights Agreement (Series D Closing) amended the Prior
Rights Agreement (Series D Closing) on September 22, 1999 ("Amendment No. 1") to
grant certain piggyback and Form S-3 registration rights to certain shareholders
of Anubis Solutions Incorporated.
1
<PAGE>
F. On March 15, 2000, the Company issued 119,626 shares of the Company's
Series E Preferred Stock (the "Series E Preferred Shares") to certain of the
Investors pursuant to that certain Series E Preferred Stock Purchase Agreement
by and among the Company and the Investors identified therein (the "First Series
E Purchase Agreement"). As a condition to the consummation of the purchase of
the Series E Preferred Shares pursuant to the First Series E Purchase Agreement,
the Company agreed to enter into the Amended and Restated Investor Rights
Agreement dated as of March 15, 2000 with certain of the Investors (the "Prior
Rights Agreement (First Series E Closing)") which amended and restated the
Original Rights Agreement (and the Prior Rights Agreement (Series D Closing)) in
its entirety.
G. Concurrent with the execution of this Agreement, the Company is issuing
up to an additional 50,237 shares of the Company's Series E Preferred Stock to
certain investors pursuant to that certain Series E Preferred Stock Purchase
Agreement by and among the Company and the Investors identified therein (the
"Second Series E Purchase Agreement"). As a condition to the consummation of
the purchase of the Series E Preferred Shares pursuant to the Second Series E
Purchase Agreement, the Company agreed to enter into this Agreement, which
amends and restates the Prior Rights Agreement (First Series E Closing)
(including without limitation, Amendment No. 1) in its entirety.
THE PARTIES AGREE AS FOLLOWS:
1. Certain Definitions.
-------------------
As used in this Agreement, the following terms shall have the following
respective meanings:
(a) "Commission" shall mean the Securities and Exchange
----------
Commission or any other federal agency at the time administering the Securities
Act.
(b) "Convertible Securities" shall mean securities of the
----------------------
Company convertible into or exchangeable for Common Stock of the Company or into
other securities that are convertible into or exchangeable for Common Stock.
(c) "Form S-3" shall mean Form S-3 promulgated by the Commission
--------
or any substantially similar form then in effect.
(d) "Holder" shall mean any holder of outstanding Registrable
------
Securities which have not been sold to the public, but only if such holder is
one of the Investors or an assignee or transferee of Registration rights as
permitted by Section 15.
(e) "Initiating Holders" shall mean Holders who in the aggregate
------------------
hold at least forty percent (40%) of the Registrable Securities.
(f) "Major Investor" shall mean an Investor who owns at least 5%
----------------------
of the outstanding Convertible Securities and/or Registrable Securities.
(g) "Material Adverse Event" shall mean an occurrence having a
----------------------
consequence that either (a) is materially adverse to the business, properties,
prospects, or financial condition of the Company or (b) is reasonably
foreseeable, has a reasonable likelihood of occurring, and if it were to occur
would materially adversely affect the business, properties, prospects, or
financial condition of the Company.
2
<PAGE>
(h) "Preferred Stock" shall mean the Series A Preferred Stock,
---------------
the Series B Preferred Stock, the Series C Preferred Stock, the Series D
Preferred Stock and the Series E Preferred Stock of the Company.
(i) "Qualified IPO" shall mean a firm commitment underwritten
-------------
public offering of the Company's Common Stock registered under the Securities
Act with a total offering price of $15,000,000 or more at a price of not less
than $7.00 per share (as appropriately adjusted for stock splits,
recapitalizations, combinations and the like).
(j) The terms "Register," "Registered," and "Registration" refer
-------- ---------- ------------
to a registration effected by preparing and filing a registration statement on
Form S-l, SB-1 or S-3 (or any successor form to such Forms) in compliance with
the Securities Act ("Registration Statement"), and the declaration or ordering
of the effectiveness of such Registration Statement.
(k) "Registrable Securities" shall mean all Common Stock not
----------------------
previously sold to the public and issued or issuable upon conversion or exercise
of any of the Company's Convertible Securities purchased by or issued to the
Investors, including Common Stock issued pursuant to stock splits, stock
dividends and similar distributions, and any securities of the Company granted
registration rights pursuant to Section 14 of this Agreement. For purposes of
Sections 7.3 and 8, "Registrable Securities" shall also mean all Common Stock
issued by the Company to Adeeb Shana'a and Amit Desai in connection with the
acquisition of Anubis Solutions Incorporated pursuant to that certain Agreement
and Plan of Merger and Reorganization dated as of September 30, 1999 by and
among the parties thereto.
(l) "Registration Expenses" shall mean all expenses incurred by
---------------------
the Company in complying with Sections 7 or 8 of this Agreement, including,
without limitation, all federal and state registration, qualification, and
filing fees, printing expenses, fees and disbursements of counsel for the
Company and one special counsel for all Holders (if different from the Company),
blue sky fees and expenses, and the expense of any special audits incident to or
required by any such registration.
(m) "Securities Act" shall mean the Securities Act of 1933, as
--------------
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
(n) "Selling Expenses" shall mean all underwriting discounts and
----------------
selling commissions applicable to the sale of Registrable Securities pursuant to
this Agreement.
2. Financial Statements and Reports to Shareholders.
------------------------------------------------
The Company shall deliver to each Investor:
(a) As soon as practicable after the end of each fiscal year of
the Company, and in any event within 90 days thereafter, an audited balance
sheet of the Company as of the end of such year and audited statements of
income, shareholders' equity and cash flow for such year, which year-end
financial reports shall be in reasonable detail and shall be prepared in
accordance with generally accepted accounting principles and accompanied by the
opinion of independent public accountants of nationally recognized standing
selected by the Company;
(b) As soon as practicable after the end of each month and each
quarter, and in any event within 30 days thereafter, consolidated balance sheets
of the Company and its subsidiaries, if any, as of the end of such period, and
consolidated statements of income and cash flow for such period
3
<PAGE>
and for the current fiscal year to date, prepared in accordance with generally
accepted accounting principles (other than the accompanying notes) and signed by
the Chief Financial Officer or President of the Company certifying that they
fairly and accurately present the financial condition and results of operation
of the Company, subject to changes resulting from ordinary year-end audit
adjustment;
(c) Contemporaneously with delivery to holders of Common Stock,
a copy of each report of the Company delivered to holders of Common Stock; and
(d) An annual capitalization summary.
3. Additional Information and Inspection Rights.
--------------------------------------------
The Company will deliver to each Major Investor and holder of Series E
Preferred Stock:
(a) As soon as practicable following submission to and approval
by the Board of Directors of the Company, but in no event later than 30 days
before the end of each fiscal year, an operating budget and plan (the "Plan")
respecting the next fiscal year and a summary of such Plan together with any
update of the Plan as such update is prepared and approved by the Board of
Directors.
(b) The Company shall permit each Major Investor and holder of
Series E Preferred Stock, 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 each such Investor; provided, however,
that the Company shall not be obligated pursuant to this Section 3(b) to provide
any information which it reasonably considers to be a trade secret or
confidential information. Subject to Section 15, the rights of an Investor under
this Section 3(b) may not be assigned as part of such Investor's sale of any of
the Registrable Securities or Convertible Securities except with the consent of
the Company, which consent shall not be unreasonably withheld.
4. Other Covenants.
---------------
(a) Unless otherwise determined by the unanimous vote of its
Board of Directors, the Company shall require all future officers, directors,
and employees of, and consultants to, the Company and its Subsidiaries to
execute and deliver Proprietary Information and Inventions Agreements in
substantially the form heretofore made available to the Investors.
(b) Company shall cause all employees, directors and consultants
who purchase, or who are granted options to purchase, shares of the Company's
Common Stock to execute and deliver Stock Restriction Agreements (or Stock
Option Agreements), in a form approved by the Company, but providing for a right
of repurchase in favor of the Company at the lower of cost or fair market value
on unvested shares, a prohibition on the transfer of unvested shares, a lockup
or market standoff commitment of up to 180 days, and a right of first refusal in
favor of the Company on vested shares terminating upon the Company's initial
public offering of Securities. To the extent the Company does not exercise such
right, the Company shall assign such right to the Investors.
(c) The Company may sell shares of stock and grant options to
employees, advisors, officers, and directors of, and consultants to, the Company
and its Subsidiaries only pursuant to a stock option plan or such other
arrangements, contracts, or plans as are recommended by management and approved
by the Board of Directors; provided that, except as may otherwise be determined
by the Board of Directors in any particular instance, options shall be subject
to a four-year vesting schedule (25% after one year and monthly or quarterly
thereafter).
4
<PAGE>
5. Right of First Refusal.
----------------------
5.1 The Company hereby grants to each Investor holding shares of
Series A Preferred Shares, Series B Preferred Shares, Series C Preferred Shares
or Series D Preferred Shares (or holding shares of Common Stock issuable upon
conversion of such shares) the right of first refusal to purchase up to its Pro
Rata Share of the New Securities (as defined below) which the Company may, from
time to time, propose to sell and issue. Such Investors may purchase said New
Securities on the same terms and at the same price at which the Company proposes
to sell the New Securities. The "Pro Rata Share" of each such Investor, for
purposes of this right of first refusal, is the ratio of (i) the total number of
shares of Common Stock held by such Investor (including any shares of Common
Stock into which shares of the Convertible Securities held by such Investor are
convertible) to (ii) the total number of shares of Common Stock and Common Stock
warrants, rights or options outstanding immediately prior to the issuance of the
New Securities (including any shares of Common Stock into which outstanding
Convertible Securities are convertible).
5.2 "New Securities" shall mean any capital stock of the Company,
whether authorized or not, and any rights, options, or warrants to purchase said
capital stock, and securities of any type whatsoever that are, or may become,
convertible into said capital stock; provided that "New Securities" does not
include (i) the Preferred Stock or the Common Stock issuable upon conversion of
the Preferred Stock, (ii) securities offered in a Qualified IPO, (iii)
securities issued pursuant to the acquisition of another corporation by the
Company by merger, purchase of substantially all of the assets, or other
reorganization, if approved by the Company's Board of Directors, (iv) shares
issued or issuable either directly or upon exercise of options or warrants to
employees, directors, consultants, advisers and others performing services for
the Company or its subsidiaries pursuant to a plan or arrangement approved by
the Company's Board of Directors (except to the extent the total outstanding and
reserved option level exceeds 8,018,910 shares of Common Stock without the
approval of Investors holding a majority of the Registrable Securities), (v)
shares issued without consideration pursuant to a stock dividend, stock split,
or similar transaction, and (vi) shares issued either directly or upon exercise
of warrants in connection with equipment leasing transactions or other similar
commercial financing arrangements approved by the Company's Board of Directors
but not to exceed an aggregate of 100,000 shares.
5.3 In the event the Company proposes to undertake an issuance of New
Securities, it shall give to each Investor holding such rights of first refusal
written notice (the "Notice") of its intention, describing the type of New
Securities, the price, the terms upon which the Company proposes to issue the
same, the number of shares which Investor is entitled to purchase pursuant to
Section 5.1, and a statement that each Investor shall have twenty (20) business
days to respond to such Notice. Each such Investor shall have twenty (20)
business days from the date of receipt of the Notice to agree to purchase any or
all of its Pro Rata Share of the New Securities for the price and upon the terms
specified in the Notice by giving written notice to the Company and stating
therein the quantity of New Securities to be purchased and forwarding payment
for such New Securities to the Company if immediate payment is required by such
terms. If not all of the Investors holding such rights elect to purchase their
pro rata share of the New Securities, then the Company shall promptly notify in
writing the Investors who do so elect and shall offer such Investors the right
to acquire such unsubscribed shares. Each such Investor shall have five (5) days
after receipt of such notice to notify the Company of its election to purchase
all or a portion thereof of the unsubscribed shares.
5.4 In the event an Investor fails to exercise in full its right of
first refusal within said twenty (20) business day period, the Company shall
have ninety (90) days thereafter to sell or enter into an agreement (pursuant to
which the sale of New Securities covered thereby shall be closed, if at all,
within sixty (60) days from date of said agreement) to sell the New Securities
respecting which such Investor's rights were not exercised, at a price and upon
general terms no more favorable to the purchaser
5
<PAGE>
thereof than specified in the Notice. In the event the Company has not sold the
New Securities within said ninety (90) day period (or sold and issued New
Securities in accordance with the foregoing within sixty (60) days from the date
of said agreement), the Company shall not thereafter issue or sell any New
Securities without first offering such securities to such Investor in the manner
provided above.
5.5 The right of first refusal granted under this Section 5 is
assignable by the Investors holding such rights of first refusal to any
transferee of a minimum of Seventy Thousand (70,000) shares of Common Stock
(including any shares of Common Stock into which shares of Convertible
Securities then held by it are convertible).
6. Termination of Covenants.
------------------------
The covenants of the Company set forth in Sections 2, 3, 4, and 5
shall be terminated and be of no further force or effect immediately prior to
the closing of a Qualified IPO. The covenants of the Company set forth in
Sections 2, 3 and 5 shall be terminated and of no further force and effect with
respect to an Investor on the date such Investor no longer holds any shares of
the capital stock of the Company.
7. Demand Registration.
-------------------
7.1 Request for Registration on Form Other Than Form S-3.
----------------------------------------------------
Subject to the terms of this Agreement, in the event that the Company
shall receive from the Initiating Holders at any time after the earlier of (a)
December 31, 2000 or (b) six (6) months after the effective date of the
Company's initial public offering of shares of Common Stock under a Registration
Statement, a written request that the Company effect any Registration with
respect to all or a part of the Registrable Securities on a Form other than Form
S-3, the Company shall (i) promptly give written notice of the proposed
Registration to all other Holders and shall (ii) as soon as practicable, use its
best efforts to effect within ninety (90) days Registration of the Registrable
Securities specified in such request, together with any Registrable Securities
of any Holder joining in such request as are specified in a written request
given within 20 days after written notice from the Company. In the case of the
Company's initial public offering, the demand must be for an offering of at
least 20% of the then outstanding Registrable Securities (or any lesser percent
if the reasonably anticipated aggregate offering price to the public, net of
Selling Expenses, would exceed $10,000,000). The Company shall not be obligated
to take any action to effect any such registration pursuant to this Section 7.1
during the period starting with the date sixty (60) days prior to the Company's
estimated date of filing, and ending on the date six (6) months immediately
following the effective date of a Registration 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 employing
all reasonable efforts in good faith to cause such Registration to become
effective.
7.2 Right of Deferral of Registration on Form Other Than Form S-3.
-------------------------------------------------------------
If the Company shall furnish to all such Holders who joined in the
request a certificate signed by the President of the Company stating that, in
the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company for any Registration to be effected as
requested under Section 7.1, the Company shall have the right, exercisable not
more than once in any twelve-month period, to defer the filing of a Registration
Statement with respect to such offering for a period of not more than 90 days
from delivery of the request of the Initiating Holders.
7.3 Request for Registration on Form S-3.
------------------------------------
6
<PAGE>
(a) If a Holder or Holders of the outstanding Registrable
Securities request that the Company file a Registration Statement on Form S-3
(or any successor form to Form S-3) for a public offering of shares of
Registrable Securities the reasonably anticipated aggregate price to the public
of which, net of Selling Expenses, would not be less than $500,000, and the
Company is a registrant entitled to use Form S-3 to register the Registrable
Securities for such an offering, the Company shall use all reasonable 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; provided, however, that the
Company shall not be required to effect more than two Registrations pursuant to
this Section 7.3 in any twelve (12) month period. The substantive provisions of
Section 7.5 shall be applicable to each registration initiated under this
Section 7.3.
(b) Notwithstanding the foregoing, the Company shall not be
obligated to file a registration statement pursuant to this Section 7.3:
(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) if the Company, within ten (10) days of the receipt of
the request of the initiating Holders, gives notice of its bona fide intention
to effect the filing of a Registration Statement with the Commission within
sixty (60) days of receipt of such request, provided that the Company is
actively employing in good faith all reasonable efforts to cause such
Registration Statement to become effective;
(iii) within six months immediately following the effective
date of any public offering of the Company's Common Stock; or
(iv) if the Company shall furnish to such Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its shareholders for a Registration Statement to be filed in the
near future, then the Company's obligation to use its best efforts to file a
Registration Statement shall be deferred for a period not to exceed 90 days from
the receipt of the request to file such registration by such Holder provided
that the Company shall not exercise the right contained in this paragraph (iv)
more than once in any twelve (12) month period.
7.4 Registration of Other Securities in Demand Registration.
-------------------------------------------------------
Any Registration Statement filed pursuant to the request of the
Initiating Holders under this Section 7 may, subject to the provisions of
Section 7.5, include securities of the Company other than Registrable
Securities.
7.5 Underwriting in Demand Registration.
-----------------------------------
7.5.1 Notice of Underwriting.
----------------------
If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section 7,
and the Company shall include such information in the written notice referred to
in Section 7.1 or 7.3. The right of any Holder to Registration pursuant to
Section 7 shall be
7
<PAGE>
conditioned upon such Holder's agreement to participate in such underwriting and
the inclusion of such Holder's Registrable Securities in the underwriting.
7.5.2 Inclusion of Other Holders in Demand Registration.
-------------------------------------------------
If the Company, officers or directors of the Company holding Common
Stock other than Registrable Securities, or holders of securities other than
Registrable Securities, request inclusion in such Registration, the Initiating
Holders, to the extent they deem advisable and consistent with the goals of such
Registration, may, in their sole discretion, on behalf of all Holders, offer to
any or all of the Company, such officers or directors, and such holders of
securities other than Registrable Securities that such securities other than
Registrable Securities be included in the underwriting and may condition such
offer on the acceptance by such persons of the terms of this Section 7.5. In
the event, however, that the number of shares so included exceeds the number of
shares of Registrable Securities included by all Holders, all holders of
securities other than Registrable Securities shall be excluded prior to limiting
the sale of Registrable Securities.
7.5.3 Selection of Underwriter in Demand Registration.
-----------------------------------------------
If requested by the representative of the underwriter (the
"Underwriters' Representative"), the Company shall (together with all Holders
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement with the Underwriters' Representative. The
Underwriters' Representative shall be selected by the Holders of a majority of
the Registrable Securities being registered by the Initiating Holders and
reasonably acceptable to the Company.
7.5.4 Marketing Limitation in Demand Registration.
-------------------------------------------
In the event the Underwriters' Representative advises the Initiating
Holders in writing that market factors (including, without limitation, the
aggregate number of shares of Common Stock requested to be Registered, the
general condition of the market, and the status of the persons proposing to sell
securities pursuant to the Registration) require a limitation of the number of
shares to be underwritten, then (i) first the Common Stock (other than
Registrable Securities) held by officers or directors of the Company, (ii) next
the securities other than Registrable Securities, and (iii) last the securities
requested to be registered by the Company, shall be excluded from such
Registration to the extent required by such limitation. If a limitation of the
number of shares is still required, the Initiating Holders shall so advise all
Holders and the number of shares of Registrable Securities that may be included
in the Registration and underwriting shall be allocated among all Holders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities entitled to inclusion in such Registration held by such Holders at
the time of filing the Registration Statement. No Registrable Securities or
other securities excluded from the underwriting by reason of this Section 7.5.4
shall be included in such Registration Statement.
7.5.5 Right of Withdrawal in Demand Registration.
------------------------------------------
If any Holder of Registrable Securities, or a holder of other
securities entitled (upon request) to be included in such Registration,
disapproves of the terms of the underwriting, such person may elect to withdraw
therefrom by written notice to the Company, the Underwriters' Representative and
the Initiating Holders delivered at least seven days prior to the effective date
of the Registration Statement. The securities so withdrawn shall also be
withdrawn from the Registration Statement.
7.6 Blue Sky in Demand Registration.
-------------------------------
8
<PAGE>
In the event of any Registration pursuant to this Section 7, the
Company will exercise its best efforts to Register and qualify the securities
covered by the Registration Statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably appropriate for the
distribution of such securities; provided, however, that (i) the Company shall
not be required to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act, and (ii) notwithstanding anything in this Agreement to the
contrary, in the event any jurisdiction in which the securities shall be
qualified imposes a non-waivable requirement that expenses incurred in
connection with the qualification of the securities be borne by selling
shareholders, such expenses shall be payable pro rata by selling shareholders.
8. Piggyback Registration.
----------------------
8.1 Notice of Piggyback Registration and Inclusion of Registrable
-------------------------------------------------------------
Securities.
- ----------
Subject to the terms of this Agreement, in the event the Company
decides to Register any of its Common Stock (either for (i) its own account,
(ii) the account of a security holder or (iii) the account of holders exercising
their respective demand registration rights) on a form that would be suitable
for a registration involving solely Registrable Securities, the Company will:
(i) promptly give each Holder written notice thereof (which shall include a list
of the jurisdictions in which the Company intends to attempt to qualify such
securities under the applicable Blue Sky or other state securities laws) 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 delivered to the Company
by any Holder within 20 days after delivery of such written notice from the
Company.
8.2 Underwriting in Piggyback Registration.
--------------------------------------
8.2.1 Notice of Underwriting in Piggyback Registration.
------------------------------------------------
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
8.1. In such event, the right of any Holder to Registration shall be
conditioned upon such underwriting and the inclusion of such Holder's
Registrable Securities in such underwriting to the extent provided in this
Section 8. All Holders proposing to distribute their securities through such
underwriting shall (together with the Company and the other holders distributing
their securities through such underwriting) enter into an underwriting agreement
with the Underwriters' Representative for such offering. The Holders shall have
no right to participate in the selection of the underwriters for an offering
pursuant to this Section 8.
8.2.2 Marketing Limitation in Piggyback Registration.
----------------------------------------------
In the event the Underwriters' Representative advises the
Holders seeking registration of Registrable Securities pursuant to this Section
8 in writing that market factors (including, without limitation, the aggregate
number of shares of Common Stock requested to be Registered, the general
condition of the market, and the status of the persons proposing to sell
securities pursuant to the Registration) require a limitation of the number of
shares to be underwritten, the Underwriters' Representative (subject to the
allocation priority set forth in Section 8.2.3) may limit the number of shares
of Registrable Securities to be included in such Registration and underwriting
to not less than twenty-five percent (25%) of the securities included in such
Registration (based on aggregate market values); provided, however, if such
offering is the Company's initial Qualified IPO and such Registration does not
include shares of any other selling shareholders, any or all of the Registrable
Securities of the Holders
9
<PAGE>
may be excluded. In no event will shares of any other selling shareholder be
included in such registration which would reduce the number of shares which may
be included by Holders without the written consent of Holders of not less than
sixty-six and two-thirds percent (662/3%) of the Registrable Securities proposed
to be sold in the offering.
8.2.3 Allocation of Shares in Piggyback Registration.
----------------------------------------------
In the event that the Underwriters' Representative limits the number
of shares to be included in a Registration pursuant to Section 8.2.2, the number
of shares to be included in such Registration shall be allocated (subject to
Section 8.2.2) in the following manner: The number of shares that may be
included in the Registration and underwriting by selling shareholders shall be
allocated among all Holders thereof and other holders of securities (other than
Registrable Securities) requesting and legally entitled to include such
securities in such Registration, in proportion, as nearly as practicable, to the
respective amounts of securities (including Registrable Securities) which such
Holders and such other holders would otherwise be entitled to include in such
Registration. Subject to the 25% limitation set forth in Section 8.2.2 hereof,
no Registrable Securities or other securities excluded from the underwriting by
reason of this Section 8.2.3 shall be included in the Registration Statement.
8.2.4 Withdrawal in Piggyback Registration.
------------------------------------
If any Holder disapproves of the terms of any such underwriting, such
person may elect to withdraw therefrom by written notice to the Company and the
Underwriters' Representative delivered at least seven days prior to the
effective date of the Registration Statement. Any Registrable Securities or
other securities excluded or withdrawn from such underwriting shall be withdrawn
from such Registration.
8.3 Blue Sky in Piggyback Registration.
----------------------------------
In the event of any Registration of Registrable Securities pursuant
to this Section 8, the Company will exercise its best efforts to Register and
qualify the securities covered by the Registration Statement under such other
securities or Blue Sky laws of such jurisdictions (not exceeding 20 unless
otherwise agreed to by the Company) as shall be reasonably appropriate for the
distribution of such securities; provided, however, that (i) the Company shall
not be required to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions, and (ii) notwithstanding
anything in this Agreement to the contrary, in the event any jurisdiction in
which the securities shall be qualified imposes a non-waivable requirement that
expenses incurred in connection with the qualification of the securities be
borne by selling shareholders, such expenses shall be payable pro rata by
selling shareholders.
9. Expenses of Registration.
------------------------
All Registration Expenses incurred in connection with any Registrations
pursuant to Section 7.3 and two registrations pursuant to each of Section 8 and
Section 7 (excluding Section 7.3), shall be borne by the Company. All
Registration Expenses incurred in connection with any other Registration,
qualification, or compliance, shall be apportioned among the Holders and other
holders of the securities so registered on the basis of the number of shares so
registered. Notwithstanding the above, the Company shall not be required to pay
for any expenses of any registration proceeding begun pursuant to Section 7 if
the registration request is subsequently withdrawn at the request of the Holders
of a majority of the Registrable Securities to be registered (which Holders
shall bear such expenses), unless the Holders of a majority of the Registrable
Securities agree to forfeit their right to one demand registration pursuant to
Section 7; provided further, however, that if at the time of such withdrawal,
the Holders have learned of a
10
<PAGE>
Material Adverse Event with respect to the condition, business, or prospects of
the Company not known to the Holders at the time of their request, then the
Holders shall not be required to pay any of such expenses and shall retain their
rights pursuant to Section 7. All Selling Expenses shall be borne by the holders
of the securities Registered pro rata on the basis of the number of shares
Registered, as shall any fees and expenses of any counsel for the Holders beyond
the one special counsel for the Holders included within the Registration
Expenses provided in the first sentence of this Section 9.
10. Termination of Registration Rights.
----------------------------------
The rights to cause the Company to register securities granted under
Sections 7 and 8 of this Agreement shall terminate, with respect to each Holder,
on the earlier of (i) the date five years after the closing date of the
Company's initial Qualified IPO and (ii) upon such Holder holding less than 1%
of the outstanding Registrable Securities.
11. Registration Procedures and Obligations.
---------------------------------------
Whenever required under this Agreement to effect the registration of any
Registrable Securities, the Company shall, as expeditiously as reasonably
possible:
(a) Prepare and file with the Commission a Registration
Statement with respect to such Registrable Securities and use its best efforts
to cause such Registration Statement to become effective, and, upon the request
of the Holders of a majority of the Registrable Securities registered
thereunder, keep such Registration Statement effective for up to one hundred
twenty (120) days.
(b) 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.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by
such Registration Statement at any time when a prospectus relating thereto is
required to be delivered under the 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 a material fact or omits to
state a
11
<PAGE>
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant to such Registration Statement and a CUSIP number
for all such Registrable Securities, in each case not later than the closing
date of such registration.
(h) Furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to this Agreement, on the date
that such Registrable Securities are delivered for sale in connection with a
registration pursuant to this Agreement, (i) an opinion, dated such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering, and (ii) a letter dated such date, from the independent certified
public accountants of the Company, in form and substance as is customarily given
by independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters.
(i) Use its best efforts to have such Registrable Securities
listed on the New York or American Stock Exchange or the Nasdaq National Market.
12. Information Furnished by Holder.
-------------------------------
It shall be a condition precedent to the Company's obligations under this
Agreement that each Holder of Registrable Securities included in any
Registration furnish to the Company such information regarding such Holder and
the distribution proposed by such Holder or Holders as the Company may
reasonably request.
12
<PAGE>
13. Indemnification.
---------------
13.1 Company's Indemnification of Holders.
------------------------------------
To the extent permitted by law, the Company will indemnify each
Holder, each of its officers, directors, and constituent partners, legal counsel
for the Holders, and each person controlling such Holder, with respect to which
Registration, qualification, or compliance of Registrable Securities has been
effected pursuant to this Agreement, and each underwriter, if any, and each
person who controls any underwriter against all claims, losses, damages, or
liabilities (or actions in respect thereof) to the extent such claims, losses,
damages, or liabilities arise out of or are based upon any untrue statement (or
alleged untrue statement) of a material fact contained in any prospectus or
other document (including any related Registration Statement) incident to any
such Registration, qualification, or compliance, or are based on any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or any
violation by the Company of any rule or regulation promulgated under the
Securities Act applicable to the Company and relating to action or inaction
required of the Company in connection with any such Registration, qualification,
or compliance; and the Company will reimburse each such Holder, each such
underwriter, and each person who controls any such Holder or underwriter, for
any legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability, or action;
provided, however, that the indemnity contained in this Section 13.1 shall not
apply to amounts paid in settlement of any such claim, loss, damage, liability,
or action if settlement is effected without the consent of the Company (which
consent shall not unreasonably be withheld); and provided, further, 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 upon any untrue
statement or omission based upon written information furnished to the Company by
such Holder, underwriter, or controlling person and specifically stated in
writing to be for use in connection with the offering of securities of the
Company.
13.2 Holder's Indemnification of Company.
-----------------------------------
To the extent permitted by law, 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 pursuant to this
Agreement, indemnify the Company, each of its directors and officers, each legal
counsel and independent accountant of the Company, each underwriter, if any, of
the Company's securities covered by such a Registration Statement, each person
who controls the Company or such underwriter within the meaning of the
Securities Act, and each other such Holder, each of its officers, directors, and
constituent partners, and each person controlling such other Holder, against all
claims, losses, damages, and liabilities (or actions in respect thereof) arising
out of or based upon 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, or any violation by such Holder of any rule
or regulation promulgated under the Securities Act applicable to such Holder and
relating to action or inaction required of such Holder in connection with any
such Registration, qualification, or compliance, and will reimburse the Company,
such Holders, such directors, officers, partners, persons, law and accounting
firms, underwriters or control persons for any legal and 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 in
each case only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such Registration
Statement, prospectus, offering circular, or other document in reliance upon and
in conformity with written information furnished to the Company by such Holder
and specifically stated in writing to be specifically for use in connection with
the offering of securities of the Company, provided, however, that the indemnity
contained in this Section 13.2 shall not apply to amounts paid in settlement
13
<PAGE>
of any such claim, loss, damage, liability or action if settlement is effected
without the consent of such Holder (which consent shall not be unreasonably
withheld) and provided, further, that each Holder's liability under this Section
13.2 shall not exceed such Holder's net proceeds from the offering of securities
made in connection with such Registration.
13.3 Indemnification Procedure.
-------------------------
Promptly after receipt by an indemnified party under this Section 13
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section 13, notify the indemnifying party in writing of the commencement thereof
and generally summarize such action. The indemnifying party shall have the
right to participate in and to assume the defense of such claim; provided,
however, that the indemnifying party shall be entitled to select counsel for the
.defense of such claim with the approval of any parties entitled to
indemnification, which approval shall not be unreasonably withheld; provided
further, however, that if either party reasonably determines that there may be a
conflict between the position of the Company and the Investors in conducting the
defense of such action, suit, or proceeding by reason of recognized claims for
indemnity under this Section 13, then counsel for such party shall be entitled
to conduct the defense to the extent reasonably determined by such counsel to be
necessary to protect the interest of such party. The failure to notify an
indemnifying party promptly of the commencement of any such action, if
prejudicial to the ability of the indemnifying party to defend such action,
shall relieve such indemnifying party, to the extent so prejudiced, of any
liability to the indemnified party under this Section 13, but the omission so to
notify the indemnifying party will not relieve such party of any liability that
such party may have to any indemnified party otherwise other than under this
Section 13.
13.4 Contribution.
------------
If the indemnification provided for in this Section 13 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.
14. Limitations on Registration Rights Granted to Other Securities.
--------------------------------------------------------------
From and after the date of this Agreement, the Company shall not enter into
any agreement with any holder or prospective holder of any securities of the
Company providing for the granting to such holder of any Registration rights,
except that, with the consent of the Holders of a majority of the aggregate of
the Registrable Securities then outstanding, additional holders may be added as
parties to this Agreement with regard to any or all securities of the Company
held by them. Any such additional parties shall execute a counterpart of this
Agreement, and upon execution by such additional parties and by the Company,
shall be considered an Investor for all purposes of this Agreement. The
additional parties and the additional Registrable Securities shall be identified
in an amendment to Schedule A hereto.
14
<PAGE>
15. Transfer of Rights.
------------------
The rights to information under Sections 2, 3, and 4 and the right to cause
the Company to Register securities granted by the Company to the Investors under
this Agreement may be assigned by any Holder to a transferee or assignee of any
Registrable Securities not sold to the public acquiring at least twenty percent
(20%) of such Holder's Registrable Securities (equitably adjusted for any stock
splits, subdivisions, stock dividends, changes, combinations or the like);
provided, however, that (i) the Company must receive written notice prior to the
time of said transfer, stating the name and address of said transferee or
assignee and identifying the securities with respect to which such information
and Registration rights are being assigned, and (ii) the transferee or assignee
of such rights must not be a person deemed by the Board of Directors of the
Company, in its best judgment, to be a competitor or potential competitor of the
Company. Notwithstanding the limitation set forth in the foregoing sentence
respecting the minimum number of shares which must be transferred, (i) any
Holder which is a partnership or limited liability company treated as a
partnership for tax purposes may transfer such Holder's Registration rights to
such Holder's constituent partners or members without restriction as to the
number or percentage of shares acquired by any such constituent partner or
member and (ii) any Holder may transfer all or part of such Holder's Registrable
Securities to any family member or trust for the benefit of any individual
holder.
16. Market Stand-off.
----------------
Each Holder hereby agrees that, if so requested by the Company and the
Underwriters' Representative (if any) in connection with the Company's initial
Qualified IPO, such Holder shall not sell, make any short sale of, loan, grant
any option for the purchase of, or otherwise transfer or dispose of any
Registrable Securities or other securities of the Company without the prior
written consent of the Company and the Underwriters' Representative for such
period of time not to exceed 180 days following the effective date of a
Registration Statement of the Company filed under the Securities Act as may be
requested by the Underwriters' Representative. The obligations of Holders under
this Section 16 shall be conditioned upon similar agreements being in effect
with each other shareholder who is an officer, director, or 5% shareholder of
the Company.
17. No-Action Letter or Opinion of Counsel in Lieu of Registration;
--------------------------------------------------------------
Conversion of Preferred Stock.
- -----------------------------
Notwithstanding anything else in this Agreement, if the Company shall have
obtained from the Commission a "no-action" letter in which the Commission has
indicated that it will take no action if, without Registration under the
Securities Act, any Holder disposes of Registrable Securities covered by any
request for Registration made under this Section in the specific manner in which
such Holder proposes to dispose of the Registrable Securities included in such
request (such as, without limitation to, inclusion of such Registrable
Securities in an underwriting initiated by either the Company or the holders)
and that such Registrable Securities may be sold to the public without
Registration, or if in the opinion of counsel for the Company concurred in by
counsel for such Holder, which concurrence shall not be unreasonably withheld,
no Registration under the Securities Act is required in connection with such
disposition and that such Registrable Securities may be sold to the public
without Registration, the Registrable Securities included in such request shall
not be eligible for Registration under this Agreement; provided, however, that
any Registrable Securities not so disposed of shall be eligible for Registration
in accordance with the terms of this Agreement with respect to other proposed
dispositions to which this Section 17 does not apply. The Registration rights
of the Holders of the Registrable Securities set forth in this Agreement are
conditioned upon the conversion of the Registrable Securities with respect to
which registration is sought into Common Stock prior to the effective date of
the Registration Statement.
15
<PAGE>
18. Reports Under Securities Exchange Act of 1934. With a view to making
---------------------------------------------
available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the Commission that may at
any time permit a Holder to sell securities of the Company to the public without
Registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144, at all times after ninety (90) days
after the effective date of the first Registration Statement filed by the
Company for the offering of its securities to the general public;
(b) take such action, including the voluntary registration of
its Common Stock under Section 12 of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), as is necessary to enable the Holders to utilize Form
S-3 for the sale of their Registrable Securities, such action to be taken as
soon as practicable after the end of the fiscal year in which the first
Registration Statement filed by the Company for the offering of its securities
to the general public is declared effective;
(c) file with the Commission in a timely manner all reports
and other documents required of the Company under the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144 (at any
time after ninety (90) days after the effective date of the first Registration
Statement filed by the Company), the Securities Act, and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the Commission which permits
the selling of any such securities without Registration or pursuant to such
form.
19. Miscellaneous.
-------------
19.1 Entire Agreement; Successors and Assigns.
----------------------------------------
This Agreement constitutes the entire contract between the Company and
the Investors relative to the subject matter hereof. Any previous agreement
between the Company and any Investor concerning Registration rights is
superseded by this Agreement. Subject to the exceptions specifically set forth
in this Agreement, the terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective executors, administrators, heirs,
successor, and assigns of the parties.
19.2 Governing Law.
-------------
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of California excluding those laws that direct the
application of the laws of another jurisdiction.
19.3 Counterparts.
------------
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
16
<PAGE>
19.4 Headings.
--------
The headings of the Sections of this Agreement are for convenience and
shall not by themselves determine the interpretation of this Agreement.
19.5 Notices.
-------
Any notice required or permitted hereunder shall be given in writing
and shall be conclusively deemed effectively given upon personal delivery, or
five days after deposit in the United States mail, by certified mail, postage
prepaid, addressed (i) if to the Company, as set forth below the Company's name
on the signature page of this Agreement, and (ii) if to an Investor, at such
Investor's address as set forth on Schedule A, or at such other address as the
Company or such Investor may designate by ten (10) days' advance written notice
to the Investors and the Company, respectively.
19.6 Amendment of Agreement.
----------------------
Any provision of this Agreement may be amended only by a written
instrument signed by the Company and by persons holding a majority of the
Registrable Securities as defined in Section 1 of this Agreement.
19.7 Severability.
------------
In case any provision of this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
19.8 Regulatory Matters.
------------------
19.8.1 Cooperation of Other Investors.
-------------------------------
Each Investor agrees to cooperate with the Company in all reasonable
respects in complying with the terms and provisions of the letter agreement
between the Company and Investor, a copy of which is attached hereto as Exhibit
B regarding small business matters (the "Small Business Side Letter"), including
without limitation, voting to approve amending the Company's Articles of
Incorporation, the Company's by-laws or this Agreement in a manner reasonably
acceptable to the Investors and any Regulated Holder (as defined in the Small
Business Side Letter) entitled to make such request pursuant to the Small
Business Side Letter in order to remedy a Regulatory Problem (as defined in the
Small Business Side Letter). Anything contained in this Section 19.8 to the
contrary notwithstanding, no Investor shall be required under this Section 19.8
to take any action that would adversely affect in any material respect such
Investor's rights under this Agreement or as a stockholder of the Company.
19.8.2 Covenant Not to Amend.
----------------------
The Company and each Investor agree not to amend or waive the voting
or other provisions of the Company's Articles of Incorporation, the Company's
By-Laws or this Agreement if such amendment or waiver would cause any Regulated
Holder to have a Regulatory Problem (as defined in the Small Business Side
Letter). The Investor agrees to notify the Company as to whether or not it
would have a Regulatory Problem promptly after the Investor has notice of such
amendment or waiver.
19.9 Audit Conflict/Covenant to Repurchase.
-------------------------------------
17
<PAGE>
19.9.1 If, prior to the Company's initial public offering, the
Company proposes to issue or sell any equity securities, or securities
convertible into or exchangeable or exercisable for, equity securities, to any
party other than a natural person, the Company shall give written notice to
Deloitte Consulting LLC ("Deloitte") and Ernst & Young U.S. LLP ("Ernst &
Young") setting forth the identities of the parties to the contemplated issuance
or sale (a "Transaction Notice") not less than ten (10) days prior to such
issuance or the closing of such sale.
19.9.2 Each of Deloitte and Ernst & Young shall determine, in
its reasonable discretion, whether or not the participation of any of the
parties to the proposed issuance or sale would give rise to a violation by the
respective party or any of its affiliates of any applicable regulation of the
Commission or applicable regulation or standard of any professional body,
governing the relationships of accounting and tax practices to their clients (an
"Audit Conflict"). The Company shall cooperate with Deloitte and Ernst & Young,
as applicable, in all reasonable respects in connection with such parties'
making such determination, including without limitation, by promptly providing
any additional information reasonably requested by Deloitte or Ernst & Young, as
applicable, in connection with such determination and available to the Company.
Deloitte and Ernst & Young, as applicable, shall give the Company written notice
of such determination (an "Audit Conflict Determination Notice") promptly upon
its being made, but in no event later than five (5) business days after its
receipt of the related Transaction Notice. Any Audit Conflict Determination
Notice reflecting an Audit Conflict shall list the party or parties whose
participation gives rise to such Audit Conflict (such listed party being a
"Conflicted Party"). If the Company consummates the issuance or sale to a
Conflicted Party, the Company shall repurchase the Series E Preferred Stock held
by Deloitte or Ernst & Young or their affiliates, as applicable, simultaneously
with such issuance or sale at a price equal to the original issue price of the
Series E Preferred Stock.
20. Limited Grant of Form S-3 and Piggyback Registration Rights.
------------------------------------------------------------
20.1 Upon the respective execution of the signature page to the
Agreement, Adeeb Shana'a and Amit Desai (the "ASI Founders") shall each become a
party to the Investors' Rights Agreement; provided, however, that the ASI
Founders shall each be deemed an "Investor" and a "Holder" (and a Holder of
Registrable Securities) thereunder only to the extent necessary to grant the ASI
Founders (i) Form S-3 registration rights set forth in Section 7.3, (ii)
piggyback registration rights set forth in Section 8, and (iii) the rights and
obligations generally applicable to such limited registration rights (pursuant
to subsections 20.1(i) and 20.1(ii)), including without limitation, the
indemnification provisions set forth in Section 13. The Investors (excluding
the ASI Founders) hereby consent to the grant of such registration rights to the
ASI Founders in accordance with Section 14 of the Agreement.
20.2 The consent of the ASI Founders shall not be necessary (and
the amount of Registrable Securities held by the ASI Founders shall not be taken
into account in determining whether the requisite consent has been obtained):
(a) for the granting of any Registration rights to any third party in accordance
with Sections 14, and (b) for the amendment of the Agreement pursuant to Section
19.6. The ASI Founders shall not be entitled to any rights of the Investors,
including without limitation, the rights set forth in Sections 2, 3, 4, 5, 6,
7.1 and 7.2, other than as contemplated by Section 20.1.
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Investor Rights Agreement as of the day and year first above written.
Company: PERSONIFY INCORPORATED,
a California corporation
By: /s/ STEVEN KRAUSE
___________________________________
Steven Krause, President
Address: 425 Battery Street, Suite 450B
San Francisco, CA 94111
<PAGE>
THE INVESTORS: ABS Ventures PSY L.L.C.
By: Calvers Capital II L.L.C.
Its: Managing Member
By: /s/ PHILIP D. BLACK
_______________________
Name: Philip D. Black
Title: Managing Member
Address: c/o Susan Adams
ABS Ventures
One South Street
Suite 2150
Baltimore, MD 21202
DUNLAP-BLACK INVESTMENTS LLC
By:______________________________
Name:
Title:
Address: c/o John E. Depke
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, NY 10103-3198
JIN BYUN
_________________________________
Address: c/o John E. Depke
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, NY 10103-3198
JOHN BURKE
_________________________________
Address: c/o John E. Depke
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, NY 10103-3198
<PAGE>
U.S. VENTURE PARTNERS IV, L.P.
SECOND VENTURES II, L.P.
USVP ENTREPRENEUR PARTNERS II, L.P.
By: Presidio Management Group IV, L.L.C.
Its General Partner
By: /s/ MICHAEL P. MAHER
______________________________
Michael P. Maher
Attorney-In-Fact
Address: 2180 Sand Hill Road, Suite 300
Menlo Park, CA 94025
2180 ASSOCIATES FUND, L.P.
By: /s/ MICHAEL P. MAHER
______________________________
Michael P. Maher
Attorney-In-Fact
Address: 2180 Sand Hill Road, Suite 300
Menlo Park, CA 94025
PHILIP S. SCHLEIN
_________________________________
Address: 2180 Sand Hill Road, Suite 300
Menlo Park, CA 94025
ALPINE TECHNOLOGY VENTURES, L.P.
ALPINE TECHNOLOGY VENTURES II, L.P.
By: Alpine Management, L.P.
Its General Partner
By:_____________________________
General Partner
Address: 20300 Stevens Creek Blvd., Suite 495
Cupertino, CA 95014
<PAGE>
THE JUPITER TRUST
By:____________________________
Catherine Chiu, Trustee
Address: 2800 Wakefield Drive
Belmont, CA 94002
ROSS GARBER
_______________________________
Address: 67 Susanna Drive
Brewster, MA 02631
ASSET MANAGEMENT ASSOCIATES 1996, L.P.
By: AMC Partners 96, L.P.
Its General Partner
By: /s/ ILLEGIBLE
___________________________
General Partner
Address: c/o Alloy Ventures, Inc.
480 Cowper Street
Palo Alto, CA 94301
AMA98 PARTNERS, L.P.
AMA98 VENTURES, L.P.
AMA98 CORPORATE., L.P.
AMA98 INVESTORS, L.P.
By: Alloy Ventures 1998, LLC
Its General Partner
By: /s/ ILLEGIBLE
___________________________
General Partner
Address: c/o Alloy Ventures, Inc.
480 Cowper Street
Palo Alto, CA 94301
<PAGE>
STANFORD UNIVERSITY
By:____________________________
Carol Gilmer
Title:_________________________
Address: 2770 Sand Hill Road
Menlo Park, CA 94025
MARK PLATSHON
_______________________________
Address: 3125 Barney Avenue
Menlo Park, CA 94025
THE PIDWELL FAMILY LIVING TRUST
DATED 6/25/87
By:____________________________
David W. Pidwell, Trustee
Address: 20628 Vickery Lane
Saratoga, CA 94070
DANIEL I. RUBIN
_______________________________
Address: 212 Selby Lane
Atherton, CA 94027
<PAGE>
AXA U.S. GROWTH FUND LLC
By:_____________________________
Its:____________________________
By:_____________________________
Name:
Title:
Address: 50 California Street, Suite 3200
San Francisco, CA 94111
DOUBLE BLACK DIAMOND II LLC
By:_____________________________
Its:____________________________
By:_____________________________
Name:
Title:
Address: 50 California Street, Suite 3200
San Francisco, CA 94111
45TH PARALLEL LLC
By:______________________________
Its:_____________________________
By:______________________________
Name:
Title:
Address: 50 California Street, Suite 3200
San Francisco, CA 94111
<PAGE>
PARALLEL CAPITAL I LLC
By:___________________________
Its:__________________________
By:___________________________
Name:
Title:
Address: 50 California Street, Suite 3200
San Francisco, CA 94111
PARALLEL CAPITAL II LLC
By:___________________________
Its:__________________________
By:___________________________
Name:
Title:
Address: 50 California Street, Suite 3200
San Francisco, CA 94111
______________________________
ADEEB SHANA'A
Address 116 Orr Road
Alameda, CA 94502
______________________________
AMIT DESAI
Address: 16 Duarte Court
Alameda, CA 94502
<PAGE>
DELOITTE CONSULTING LLC
By:___________________________
Its:__________________________
By:___________________________
Name:
Title:
Address:______________________
______________________________
______________________________
ERNST & YOUNG U.S. LLP
By:___________________________
Its:__________________________
By:___________________________
Name:
Title:
Address:______________________
______________________________
______________________________
<PAGE>
Exhibit A
Schedule of Investors
Name of Investor
---------------------------------------
Pyramid Ventures, Inc.
c/o John E. Depke
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, NY 10103-3198
Dunlap-Black Investments LLC
c/o John E. Depke
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, NY 10103-3198
Jin Byun
c/o John E. Depke
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, NY 10103-3198
John Burke
c/o John E. Depke
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, NY 10103-3198
Axa U.S. Growth Fund LLC
Double Black Diamond II LLC
45th Parallel LLC
Parallel Capital I LLC
Parallel Capital II LLC
50 California Street, Suite 3200
San Francisco, CA 94111
Ross Garber
67 Susanna Drive
Brewster, MA 02631
GC&H Investments
c/o Cooley Godward LLP
One Maritime Plaza
San Francisco, CA 94111
<PAGE>
Name of Investor
---------------------------------------
U.S. Venture Partners IV, L.P.
U.S.V.P. Entrepreneur Partners II, L.P.
Second Ventures II, L.P.
2180 Associates Fund, L.P.
2180 Sand Hill Road, Suite 300
Menlo Park, CA 94025
Philip S. Schlein
2180 Sand Hill Road, Suite 300
Menlo Park, CA 94025
Alpine Technology Ventures, L.P.
Alpine Technology Ventures II, L.P.
20300 Stevens Creek Blvd., Suite 495
Cupertino, CA 95014
Asset Management Associates 1996, L.P.
c/o Alloy Ventures, Inc.
480 Cowper Street
Palo Alto, CA 94301
Daniel I. Rubin
212 Selby Lane
Atherton, CA 94027
Stanford University
c/o Carol Gilmer Stanford Management Co.
2770 Sand Hill Road
Menlo Park, CA 94025
The Pidwell Family Living Trust Dated 6/25/87
c/o David Pidwell, Trustee
20628 Vickery Lane
Saratoga, CA 94070
Mark C. Platshon
3125 Barney Avenue
Menlo Park, CA 94025
The Jupiter Trust
c/o Catherine Chiu
2800 Wakefield Drive
Belmont, CA 94002
Adeeb Shana'a *
116 Orr Road
Alameda, CA 94502
<PAGE>
Name of Investor
---------------------------------------
Amit Desai *
16 Duarte Court
Alameda, CA 94502
Deloitte Consulting LLC
_______________________
_______________________
_______________________
Ernst & Young U.S. LLP
_______________________
_______________________
_______________________
* The indicated person(s) or entity(ies) shall not be entitled to any rights
under this Agreement other than Form S-3 and piggyback registration rights in
accordance with Sections 7.3 and 8 (and other provisions generally applicable
to such registration rights) of the Agreement.
<PAGE>
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of February
29, 2000 (the "Signing Date"), is made by and between Personify, Incorporated, a
California corporation (together with any successor entity, the "Company"), and
Love Goel, an individual (the "Unit Holder"). The Company and the Unit Holder
are sometimes together referred to as the "Parties," and individually referred
to as a "Party."
PRELIMINARY STATEMENTS
A. The Company and Unit Holder are parties to that certain Restricted
Stock Purchase Agreement dated as of the date hereof (the "Purchase Agreement")
and that certain Employment Agreement dated as of January 6, 2000 (the
"Employment Agreement"); and
B. Pursuant to the Purchase Agreement, on the date hereof, the Unit Holder
received one million six hundred ninety-one thousand (1,691,000) shares of
common stock of the Company (the "Shares").
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual agreements,
covenants, representations and warranties set forth in this Agreement and for
other good, valid and binding consideration, the receipt and sufficiency of
which are hereby acknowledged, the Parties, intending to be legally bound,
hereby agree as follows:
ARTICLE I.
DEFINITIONS AND INTERPRETATION
Section 1.1 Definitions. As used in this Agreement, the following terms
will have the meanings ascribed below :
(a) "1933 Act" will mean the Securities Act of 1933, as amended.
(b) "Affiliate" means with respect to a Holder, any other Person that
directly or indirectly controls, is controlled by, or is under common control
with such Holder. For the purposes of this definition, control means the power
to direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract, or otherwise.
Control will be presumed by an individual that is a director, executive officer,
general partner, manager or similar functionary of a Person, or a Person that
beneficially owns more than 10% of any class of securities of such Person having
general voting rights.
<PAGE>
(c) "Commission" will mean the Securities and Exchange Commission and
any successor agency.
(d) "Holder" will mean the Unit Holder, his successors and assigns.
(e) "Person" will mean any association, bank, business trust,
corporation, estate, general partnership, governmental authority, individual,
joint stock Company, joint venture, labor union, limited liability Company,
limited partnership, nonprofit corporation, professional association,
professional corporation, trust or any other organization or entity.
(f) "Register," "registered" and "registration" will refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the 1933 Act (as herein defined) and the
declaration or ordering of effectiveness of such registration statement or
document.
(g) "Registrable Stock" will mean any shares of Stock issued to and
held by a Holder. For purposes of this Agreement, any Registrable Stock will
cease to be Registrable Stock when (i) a registration statement covering such
Registrable Stock has been declared effective and such Registrable Stock has
been disposed of pursuant to such effective registration statement, (ii) such
Registrable Stock is sold pursuant to Rule 144 (or any similar provision then in
force) under the 1933 Act, (iii) such Registrable Stock is eligible to be sold
pursuant to Rule 144(k) under the 1933 Act, (iv) such Registrable Stock has been
otherwise transferred, no stop transfer order affecting such stock is in effect
and the Company has delivered new certificates or other evidences of ownership
for such Registrable Stock not bearing any legend indicating that such shares
have not been registered under the 1933 Act, or (v) such Registrable Stock is
sold by a Person in a transaction in which the rights under the provisions of
this Agreement are not assigned.
(h) "Requesting Holders" will mean a Holder or Holders of, in the
aggregate, at least a majority of the Registrable Stock.
(i) "Stock" will mean the common stock of the Company.
Section 1.2 References. References in this Agreement to any rules,
----------
regulations or forms promulgated by the Commission will include rules,
regulations and forms succeeding to the functions thereof, whether or not
bearing the same designation.
ARTICLE II.
PIGGYBANK REGISTRATION RIGHTS
Section 2.1 Piggybank Registration. At any time after the Signing Date,
if the Company determines that it will file a registration statement under the
1933 Act (other than a registration statement on a Form S-4 or S-8 or filed in
connection with an exchange offer or an offering of securities solely to the
Company's existing securities holders) on any form that would also permit the
registration of the Registrable Stock and such filing is to be on its behalf
and/or on behalf of selling holders of its securities for the general
registration of its securities to be sold for cash, at such
-2-
<PAGE>
time the Company will within forty-five (45) days following such determination,
give each Holder written notice by registered mail of such determination setting
forth the date on which the Company proposes to file such registration
statement, which date will be no earlier than thirty (30) days from the date of
such notice, and advising each Holder of its right to have Registrable Stock
included in such registration. Upon the written request of any Holder received
by the Company no later than thirty (30) days after the date of the Company's
notice, the Company will use all reasonable efforts to cause to be registered
under the 1933 Act all of the Registrable Stock that each such Holder has so
requested to be registered. If, in the written opinion of the managing
underwriter or underwriters (or, in the case of a nonunderwritten offering, in
the written opinion of the placement agent, or if there is none, the Company),
the total amount of such securities to be so registered, including such
Registrable Stock, will exceed the maximum amount of the Company's securities
which can be marketed (i) at a price reasonably related to the then current
value of such securities, or (ii) without otherwise materially and adversely
affecting the entire offering, then the amount of Registrable Stock to be
offered for the accounts of Holders will be reduced pro rata to the extent
necessary to reduce the total amount of securities to be included in such
offering to the recommended amount; provided, that if securities are being
offered for the account of other Persons as well as the Company, such reduction
will not represent a greater fraction of the number of securities intended to be
offered by Holders than the fraction of similar reductions imposed on such other
Persons other than the Company over the amount of securities they intended to
offer.
ARTICLE III.
CERTAIN RESTRICTIONS
Section 3.1 Holdback Agreement - Restrictions on Public Sale by Holders.
-----------------------------------------------------------
To the extent not inconsistent with applicable law, each Holder whose
Registrable Stock is included in a registration statement agrees not to effect
any public sale or distribution of the issue being registered or a similar
security of the Company, or securities convertible into or exchangeable or
exercisable for such securities, including a sale pursuant to Rule 144 under the
1933 Act, during the ninety (90) days prior to, and during the one hundred
eighty (180) day period beginning on, the effective date of such registration
statement (except as part of the registration), if and to the extent requested
by the Company in the case of a nonunderwritten public offering or if and to the
extent requested by the managing underwriter or underwriters in the case of an
underwritten public offering.
Section 3.2 Restrictions on Public Sale by the Company and Others. The
-----------------------------------------------------
Company agrees (i) not to effect any public sale or distribution of any
securities similar to those being registered, or any securities convertible into
or exchangeable or exercisable for such securities, during the fourteen (14)
days prior to, and during the thirty (30) day period beginning on, the effective
date of any registration statement in which Holders are participating (except as
part of such registration), if and to the extent requested by the Holders in the
case of a nonunderwritten public offering or if and to the extent requested by
the managing underwriter or underwriters in the case of an underwritten public
offering; and (ii) that any agreement entered into after the Signing Date
pursuant to which the Company issues or agrees to issue any securities
convertible into or exchangeable or exercisable for such securities (other than
pursuant to an effective registration statement) will contain a provision under
which holders of such securities agree not to effect any
-3-
<PAGE>
public sale or distribution of any such securities during the periods described
in (i) above, in each case including a sale pursuant to Rule 144 under the 1933
Act.
ARTICLE IV.
EXPENSES
Section 4.1 Expenses of Registration. The Company will bear all expenses
------------------------
incurred in connection with each registration pursuant to Section 2.1 of this
Agreement, excluding underwriters' discounts and commissions, but including,
without limitation, all registration, filing and qualification fees, word
processing, duplicating, printers' and accounting fees (including the expenses
of any special audits or "cold comfort" letters required by or incident to such
performance and compliance), exchange listing fees or National Association of
Securities Dealers' fees, messenger and delivery expenses, all fees and expenses
of complying with securities or blue sky laws, and fees and disbursements of
counsel for the Company. The selling Holders will bear and pay the underwriting
commissions and discounts applicable to the Registrable Stock offered for their
account and fees and disbursements of counsel to the selling Holders in
connection with any registrations, filings and qualifications made pursuant to
this Agreement.
ARTICLE V.
INDEMNIFICATION
Section 5.1 Indemnification by the Company. The Company agrees to
------------------------------
indemnify, to the fullest extent permitted by law, each Holder, its officers,
directors and agents and each Person who controls such Holder (within the
meaning of the 1933 Act) against all losses, claims, damages, liabilities and
expenses caused by any untrue or allegedly untrue statement of material fact
contained in any registration statement, prospectus or preliminary prospectus or
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statement therein (in the light of the
circumstances under which they were made) not misleading. The Company will not
indemnify any Holder against losses, claims, damages, liabilities and expenses
caused by any untrue statement of material fact contained in any registration
statement that was provided by Holder pursuant to Section 5.2.
Section 5.2 Disclosure and Indemnification by Holders. In connection with
-----------------------------------------
any registration statement in which a Holder is participating, each such Holder
will furnish to the Company in writing such information with respect to such
Holder as the Company reasonably requests for use in connection with any such
registration statement or prospectus and agrees to indemnify, to the fullest
extent permitted by law, the Company, its directors and officers and each Person
who controls the Company (within the meaning of the 1933 Act) against any
losses, claims, damages, liabilities and expenses resulting from any untrue or
alleged untrue statement of a material fact or any omission or alleged omission
of a material fact required to be stated in the registration statement,
prospectus or preliminary prospectus or any amendment thereof or supplement
thereto or necessary to make the statements therein (in light of the
circumstances under which they were made) not misleading, to the extent that
such untrue statement or omission is contained in any information furnished to
the Company by such Holder.
-4-
<PAGE>
Section 5.3 Conduct of Indemnification Proceedings. Any Person entitled
--------------------------------------
to indemnification hereunder agrees to give prompt written notice to the
indemnifying party after the receipt by such Person of any written notice of the
commencement of any action, suit, proceeding or investigation or threat thereof
made in writing for which such Person will claim indemnification or contribution
pursuant to this Agreement and, unless in the reasonable judgment of such
indemnified party, a conflict of interest may exist between such indemnified
party and the indemnifying party with respect to such claim, permit the
indemnifying party to assume the defense of such claims with counsel reasonably
satisfactory to such indemnified party. Whether or not such defense is assumed
by the indemnifying party, the indemnifying party will not be subject to any
liability for any settlement made without its consent (but such consent will not
be unreasonably withheld). Failure by such Person to provide said notice to the
indemnifying party will itself not create liability except to the extent of any
injury caused thereby. No indemnifying party will 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 of such claim or litigation. If the
indemnifying party is not entitled to, or elects not to, assume the defense of a
claim, it will not be obligated to pay the fees and expenses of more than one
(1) counsel with respect to such claim, unless in the reasonable judgment of any
indemnified party a conflict of interest may exist between such indemnified
party and any other such indemnified parties with respect to such claim, in
which event the indemnifying party will be obligated to pay the fees and
expenses of such additional counsel or counsels.
Section 5.4 Contribution. If for any reason the indemnity provided for in
------------
this Article V is unavailable to, or is insufficient to hold harmless, an
indemnified party, then the indemnifying party will contribute to the amount
paid or payable by the indemnified party as a result of such losses, claims,
damages, liabilities or expenses in such proportion as is appropriate to reflect
not only the relative benefits received by the indemnifying party on the one
hand and the indemnified party on the other, but also the relative fault of the
indemnifying party and the indemnified party as well as any other relevant
equitable considerations. The relative fault of such indemnifying party and
indemnified parties will be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
indemnified parties and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities
and expenses referred to above will be deemed to include, subject to Section
5.3, any legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding.
The Parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5.4 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) will be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
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<PAGE>
If indemnification is available under this Article V, the indemnifying
parties will indemnify each indemnified party to the full extent provided in
Sections 5.1 and 5.2, without regard to the relative fault of said indemnifying
party or indemnified party or any other equitable consideration provided for in
this Article V.
ARTICLE VI.
PARTICIPATION
Section 6.1 Participation in Underwritten Registrations. No Holder may
-------------------------------------------
participate in any underwritten registration hereunder unless such Holder (a)
agrees to register and/or sell such Holder's securities on the basis provided in
any underwriting arrangements approved by the Holders entitled hereunder to
approve such arrangements, and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements.
ARTICLE VII.
MISCELLANEOUS
Section 7.1 Amendment. No amendment of this Agreement will be effective
---------
unless in a writing signed by the Parties.
Section 7.2 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be deemed to be an original agreement, but all
of which will constitute one and the same agreement.
Section 7.3 Entire Agreement. This Agreement, together with the Purchase
----------------
Agreement (including all exhibits thereto) and the Employment Agreement,
constitutes the entire agreement and understanding between the Parties and
supersedes all other prior agreements and understandings, both written and oral,
with respect to the subject matter of this Agreement.
Section 7.4 Governing Law; Venue. This Agreement shall be governed by and
--------------------
construed in accordance with the laws of the State of California. The parties
agrees that any action brought by either party to interpret or enforce any
provision of this Agreement shall be brought in, and each party agrees to, and
does hereby, submit to the jurisdiction and venue of, the appropriate state or
federal court for the district encompassing the Company's principal place of
business.
Section 7.5 No Assignment. No Party may assign its benefits or delegate
-------------
its duties under this Agreement without the prior written consent of the other
Party. Any attempted assignment or delegation without such prior consent will be
void.
Section 7.6 No Third Party Beneficiaries. This Agreement is solely for
----------------------------
the benefit of the Parties and no other Person will have any right, interest or
claim under this Agreement.
Section 7.7 Notices. All claims, consents, designations, notices, waivers
-------
and other communications in connection with this Agreement will be in writing.
Such claims, consents, desig-
-6-
<PAGE>
nations, notices, waivers and other communications will be considered received
(a) on the day of actual transmittal when transmitted by facsimile with written
confirmation of such transmittal, (b) on the next business day following actual
transmittal when transmitted by a nationally recognized overnight courier, or
(c) on the third business day following actual transmittal when transmitted by
certified mail, postage prepaid, return receipt requested; in each case, when
transmitted to a Holder at the address set forth below (or to such other address
to which such Party has notified the other Party in accordance with this Section
7.7):
Company: Personify, Incorporated
425 Battery Street
Suite 450B
San Francisco, CA 94111
Unit Holder: Mr. Love Goel
333 Bush Street
Apt. 4103
San Francisco, CA 94104
Section 7.8 Severability. Any provision of this Agreement that is
------------
prohibited or unenforceable in any jurisdiction will not invalidate the
remaining provisions of this Agreement or affect the validity or enforceability
of such provision in any other jurisdiction. In addition, any such prohibited or
unenforceable provision will be given effect to the extent possible in the
jurisdiction where such provision is prohibited or unenforceable.
Section 7.9 Successors. This Agreement will be binding upon and will
----------
inure to the benefit of each Party and its heirs, legal representatives,
permitted assigns, and successors, provided that this Section will not permit
the assignment or other transfer of this Agreement, whether by operation of law
or otherwise, if such assignment or other transfer is not otherwise permitted
under this Agreement.
Section 7.10 Time of the Essence. Time is of the essence in the
-------------------
performance of this Agreement and all dates and periods specified in this
Agreement.
Section 7.11 Waiver. No provision of this Agreement will be considered
------
waived unless such waiver is in writing and signed by the Party that benefits
from the enforcement of such provision. No waiver of any provision in this
Agreement, however, will be deemed a waiver of a subsequent breach of such
provision or a waiver of a similar provision. In addition, a waiver of any
breach or a failure to enforce any term or condition of this Agreement will not
in any way affect, limit, or waive a Party's rights under this Agreement at any
time to enforce strict compliance thereafter with every term and condition of
this Agreement.
(SIGNATURE PAGE FOLLOWS)
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<PAGE>
IN WITNESS WHEREOF, each Party has executed or caused a duly authorized
officer to execute, this Agreement as of the Signing Date.
PERSONIFY, INCORPORATED
By: /s/ Richard Vinchesi
------------------------------------
Richard Vinchesi
Chief Financial Officer
/s/ Love Goel
----------------------------------------
LOVE GOEL
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<PAGE>
EXHIBIT 4.3
SILICON VALLEY BANK
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is entered into as of October 8, 1998,
by and between Silicon Valley Bank ("Purchaser") and the Company whose name
appears on the last page of this Agreement.
RECITALS
--------
A. Concurrently with the execution of this Agreement, the Purchaser is
purchasing from the Company a Warrant to Purchase Stock (the "Warrant") pursuant
to which Purchaser has the right to acquire from the Company the Shares (as
defined in the Warrant).
B. By this Agreement, the Purchaser and the Company desire to set forth
the registration rights of the Shares all as provided herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth, the parties hereto mutually agree as follows:
1. Registration Rights. The Company covenants and agrees as follows:
-------------------
1.1 Definitions. For purposes of this Section 1:
-----------
(a) The term "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Securities Act"), and the declaration or ordering of effectiveness of such
registration statement or document;
(b) The term "Registrable Securities" means (i) the Shares (if
Common Stock) or all shares of Common Stock of the Company issuable or issued
upon conversion of the Shares and (ii) any Common Stock of the Company 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, any stock referred to in (i).
(c) The terms "Holder" or "Holders" means the Purchaser or
qualifying transferees under subsection 1.8 hereof who hold Registrable
Securities.
(d) The term "SEC" means the Securities and Exchange Commission.
1.2 Company Registration.
--------------------
(a) Registration. If at any time or from time to time, the
------------
Company shall determine to register any of its securities, for its own account
or the account of any of its shareholders, other than a registration on Form S-1
or S-8 relating solely to employee stock option or purchase plans, or a
registration on Form S-4 relating solely to an SEC Rule 145 transaction, or a
registration on any other form (other than Form S-1, S-2, S-3 or S-18, or their
successor forms) or
-1-
<PAGE>
any successor to such forms, which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of Registrable Securities, the Company will:
(i) promptly give to each Holder written notice thereof
(which shall include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or other state
securities laws); and
(ii) include in such registration (and compliance), and
in any underwriting involved therein, all the Registrable Securities specified
in a written request or requests, made within 30 days after receipt of such
written notice from the Company, by any Holder or Holders, except as set forth
in subsection 1.2(b) below.
(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 subsection 1.2(a)(i). In such event the right of any Holder to
registration pursuant to this subsection 1.2 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and the other shareholders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Company.
1.3 Expenses of Registration. All expenses incurred in connection
------------------------
with any registration, qualification or compliance pursuant to this Section 1
including without limitation, all registration, filing and qualification fees,
printing expenses, fees and disbursements of counsel for the Company and
expenses of any special audits incidental to or required by such registration,
shall be borne by the Company except the Company shall not be required to pay
underwriters' fees, discounts or commissions relating to Registrable Securities.
All expenses of any registered offering not otherwise borne by the Company shall
be borne pro rata among the Holders participating in the offering and the
Company.
1.4 Registration Procedures. In the case of each registration,
-----------------------
qualification or compliance effected by the Company pursuant to this
Registration Rights Agreement, the Company will keep each Holder participating
therein advised in writing as to the initiation of each registration,
qualification and compliance and as to the completion thereof. Except as
otherwise provided in subsection 1.3, at its expense the Company will:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to 120 days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as
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<PAGE>
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.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act or the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
1.5 Indemnification.
---------------
(a) The Company will indemnify each Holder of Registrable
Securities and each of its officers, directors and partners, and each person
controlling such Holder, with respect to which such registration, qualification
or compliance has been effected pursuant to this Rights Agreement, and each
underwriter, if any, and each person who controls any underwriter of the
Registrable Securities held by or issuable to such Holder, against all claims,
losses, expenses, damages and liabilities (or actions in respect thereto)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any prospectus, offering circular or other document
(including any related registration statement, notification or the like)
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statement therein not misleading, or any
violation or alleged violation by the Company of the Securities Act, the
Securities Exchange Act of 1934, as amended, ("Exchange Act") or any state
securities law applicable to the Company or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any such state law and relating to
action or inaction required of the Company in connection with any such
registration, qualification of compliance, and 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,
within a reasonable amount of time after incurred for any reasonable legal and
any other expenses incurred in connection with investigating, defending
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<PAGE>
or settling any such claim, loss, damage, liability or action; provided,
however, that the indemnity agreement contained in this subsection 1.5(a) shall
not apply to amounts paid in settlement of any such claim, loss, damage,
liability, or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld); and provided
further, that the Company will not be liable in any such case to the extent that
any such claim, loss, damage or liability arises out of or is based on any
untrue statement or omission based upon written information furnished to the
Company by an instrument duly executed by such Holder or underwriter
specifically for use therein.
(b) Each Holder will, if Registrable Securities held by or
issuable to 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 and officers, each underwriter, if any, of the
Company's securities covered by such a registration statement, each person who
controls the Company within the meaning of the Securities Act, and each other
such Holder, each of its officers, directors and partners and each person
controlling such Holder, against all claims, losses, expenses, 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, partners, persons or underwriters for any reasonable legal or any
other expenses incurred in connection with investigating, defending or settling
any such claim, loss, damage, liability or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder specifically for use therein; provided, however,
that the indemnity agreement contained in this subsection 1.5(b) shall not apply
to amounts paid in settlement of any such claim, loss, damage, liability or
action if such settlement is effected without the consent of the Holder, (which
consent shall not be unreasonably withheld); and provided further, that the
total amount for which any Holder shall be liable under this subsection 1.5(b)
shall not in any event exceed the aggregate proceeds received by such Holder
from the sale of Registrable Securities held by such Holder in such
registration.
(c) Each party entitled to indemnification under this subsection
1.5 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld), and the Indemnified Party may participate in such defense at such
party's expense; and provided further, that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations hereunder, unless such failure resulted in prejudice to the
Indemnifying Party; and provided further, that an Indemnified Party (together
with all other Indemnified Parties which may be represented without conflict by
one counsel) shall have the right to retain one separate counsel, with the fees
and expenses to be paid by the Indemnifying Party, if representation of such
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<PAGE>
Indemnified Party by the counsel retained by the Indemnifying Party would be
inappropriate due to actual or potential differing interests between such
Indemnified Party and any other party represented by such counsel in such
proceeding. 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.
1.6 Information by Holder. Any Holder or Holders of Registrable
---------------------
Securities included in any registration shall promptly furnish to the Company
such information regarding such Holder or Holders and the distribution proposed
by such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to herein.
1.7 Rule 144 Reporting. With a view to making available to Holders
------------------
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees at all times to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, after 90 days after the effective
date of the first registration filed by the Company for an offering of its
securities to the general public;
(b) file with the SEC 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); and
(c) so long as a Holder owns any Registrable Securities, to
furnish to such Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time after 90 days after the effective date of the first registration statement
filed by the Company for an offering of its securities to the general public),
and of the Securities Act and the Exchange Act (at any time after it has become
subject to such reporting requirements), a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents so filed
by the Company as the Holder may reasonably request in complying with any rule
or regulation of the SEC allowing the Holder to sell any such securities without
registration.
1.8 Transfer of Registration Rights. Holders' rights to cause the
-------------------------------
Company to register their securities and keep information available, granted to
them by the Company under subsections 1.2 and 1.7 may be assigned to a
transferee or assignee of a Holder's Registrable Securities not sold to the
public, provided, that the Company is given written notice by such Holder at the
time of or within a reasonable time after said transfer, stating the name and
address of said transferee or assignee and identifying the securities with
respect to which such registration rights are being assigned. The Company may
prohibit the transfer of any Holders' rights under this subsection 1.8 to any
proposed transferee or assignee who the Company reasonably believes is a
competitor of the Company.
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<PAGE>
2. General.
-------
2.1 Waivers and Amendments. With the written consent of the record
----------------------
or beneficial holders of at least a majority of the Registrable Securities, the
obligations of the Company and the rights of the Holders of the Registrable
Securities under this agreement may be waived (either generally or in a
particular instance, either retroactively or prospectively, and either for a
specified period of time or indefinitely), and with the same consent the
Company, when authorized by resolution of its Board of Directors, may enter into
a supplementary agreement for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement;
provided, however, that no such modification, amendment or waiver shall reduce
the aforesaid percentage of Registrable Securities without the consent of all of
the Holders of the Registrable Securities. Upon the effectuation of each such
waiver, consent, agreement of amendment or modification, the Company shall
promptly give written notice thereof to the record holders of the Registrable
Securities who have not previously consented thereto in writing. This Agreement
or any provision hereof may be changed, waived, discharged or terminated only by
a statement in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought, except to the extent
provided in this subsection 2.1.
2.2 Governing Law. This Agreement shall be governed in all
-------------
respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and to be performed
entirely within California.
2.3 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
2.4 Entire Agreement. Except as set forth below, this Agreement
----------------
and the other documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof.
2.5 Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be mailed by first class mail,
postage prepaid, certified or registered mail, return receipt requested,
addressed (a) if to Holder, at such Holder's address as set forth below, or at
such other address as such Holder shall have furnished to the Company in
writing, or (b) if to the Company, at the Company's address set forth below, or
at such other address as the Company shall have furnished to the Holder in
writing.
2.6 Severability. In case any provision of this Agreement shall be
------------
invalid, illegal, or unenforceable, the validity, legality and enforceability of
the remaining provisions of this Agreement or any provision of the other
Agreements shall not in any way be affected or impaired thereby.
2.7 Titles and Subtitles. The titles of the sections and
--------------------
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
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<PAGE>
2.8 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
2.9 Termination. The rights granted hereunder shall terminate
-----------
when the Holder can sell all its registrable securities in any three-month
period pursuant to Note 144 or Rule 144(k).
PURCHASER COMPANY
SILICON VALLEY BANK ANUBIS SOLUTIONS
INCORPORATED
By: By:
------------------------------ ------------------------------
Name: Name:
---------------------------- -----------------------------
Title: Title:
--------------------------- ----------------------------
By:
------------------------------
Name:
-----------------------------
Title:
----------------------------
Address: Address:
1731 Embarcadero, Ste. 220 1420 Harbor Bay Parkway #195
Palo Alto, CA 94303 Alameda, CA 94502
-7-
<PAGE>
EXHIBIT 10.1
TEMPORARY OCCUPANCY AGREEMENT
THIS TEMPORARY OCCUPANCY AGREEMENT (the "Agreement"), made as of December
3, 1999, by and between CEP-SANSOME INVESTORS LLC, a Delaware limited liability
company ("Landlord"), and PERSONIFY, INC., a California corporation ("Tenant").
RECITALS
A. On or about September 15, 1999, Landlord and Tenant entered into that
certain Office Building Lease (the "Lease") for certain premises located at 114
Sansome Street, San Francisco, California (the "Leased Premises"), with a term
commencement date of April 15, 2000, or if the Tenant Improvements for the 2nd
and 3rd floors are not Substantially Complete by April 15, 2000, ten (10) days
after the date the Tenant Improvements for the 2nd and 3rd floors are
Substantially Complete and the Leased Premises are delivered to Tenant. Except
as provided in Paragraph 1 below, any capitalized term used but not defined
herein shall have the meaning given to it in the Lease.
B. Tenant has requested that Landlord provide Tenant temporary space for
occupancy by Tenant and Landlord wishes to grant such request. The purpose of
this Agreement is to implement Landlord's leasing to Tenant the Temporary
Premises (as hereinafter defined) on the terms and conditions set forth herein.
AGREEMENT
1. Definitions. The following definitions are incorporated herein from
Article 1 of the Lease: 1.02 ("Additional Rent"); 1.07 ("Building"); 1.09
("Common Areas"); 1.12 ("Landlord's Broker"); 1.15 ("Leased Premises"); 1.16
('"Permitted Use"); 1.17 ("Project"); 1.18 ("Rent"); 1.24 ("Tenant's Broker");
1.27 ("Term"); 1.28 ("Term Commencement Date"); 1.29 ("Term Expiration Date");
and 1.30 ("Other Terms"). Notwithstanding the foregoing, any reference in any of
the foregoing definitions to (i) the "Basic Lease Information sheet" shall mean
to the Basic Information sheet attached to this Agreement, (ii) "Exhibit A"
shall mean to Exhibit A to this Agreement; and (iii) the "Leased Premises" shall
mean the "Temporary Premises" as defined in this Agreement.
2. Lease. Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord the Temporary Premises upon all of the terms, covenants and conditions
set forth in this Agreement.
3. Acceptance of Temporary Premises. Tenant acknowledges that: (a) it
has been advised by Landlord and Landlord's broker that Landlord is in the
process of renovating the Building and that Tenant should therefore satisfy
itself with respect to the condition of the Temporary Premises (including,
without limitation, the heating, ventilation, electrical, plumbing
1
<PAGE>
and other mechanical installations (and the availability of services from such
installations), fire sprinkler systems, security, environmental aspects, and
compliance with applicable laws, ordinances, rules and regulations) and the
present and future suitability of the Temporary Premises for Tenant's intended
use; (b) Tenant has made such inspection and investigation as it deems necessary
with reference to such matters and assumes all responsibility therefor as the
same relate to Tenant's occupancy of the Temporary Premises and the term of this
Lease; and (c) none of Landlord, Landlord's Broker or Landlord's agents
(collectively, "Landlord's Related Parties") has made any oral or written
representations or warranties with respect to the condition, suitability or
fitness of the Temporary Premises other than as may be specifically set forth in
this Agreement. Except as otherwise specifically set forth in this Agreement,
Tenant accepts the Temporary Premises in its AS IS condition existing on the
date Tenant executes this Agreement, subject to all matters of record and
applicable laws, ordinances, rules and regulations. Tenant acknowledges that
none of Landlord's Related Parties has agreed to undertake any improvement,
alterations or additions or to perform any maintenance or repair of the
Temporary Premises except for the routine maintenance and janitorial work
specified herein.
4. Term. Except as otherwise provided in this Lease, the term of Tenant's
occupancy of the Temporary Premises shall commence upon the Term Commencement
Date and shall continue until the Term Expiration Date.
5. Gross Rent. Tenant shall pay the Gross Rent in accordance with the
Basic Information sheet and in the manner described below. Tenant shall pay the
Gross Rent for the first month of the Term upon execution of this Agreement.
Commencing with the first day of the second calendar month of the Term, Tenant
shall pay the Gross Rent in monthly installments on or before the first day of
each calendar month during the Term and any extensions, in advance without
demand and without any reduction, abatement, counterclaim or setoff, in lawful
money of the United States at Landlord's address specified on the Basic
Information sheet or at such other address as may be designated by Landlord in
the manner provided for giving notice under Section 9.11 of the Lease. If the
Term commences on other than the first day of a month, then the Gross Rent
provided for such partial month shall be prorated based upon a thirty (30)-day
month and the prorated installment shall be paid on the first day of the
calendar month next succeeding the Term Commencement Date together with the
other amounts payable on that day. If the Term terminates on other than the last
day of a calendar month, then the Gross Rent provided for such partial month
shall be prorated based upon a thirty (30)-day month and the prorated
installment shall be paid on the first day of the calendar month in which the
date of termination occurs.
6. Services. Tenant acknowledges that Landlord is in the process of
renovating the Building and that Landlord makes no representations or warranties
with respect to the provision of services to the Building. Prior to entering
into this Agreement, Tenant has had the opportunity to review the nature and
level of services being provided to ongoing tenants of the Building and to
satisfy itself that such level of services is adequate for Tenant's needs during
its occupancy of the Temporary Premises pursuant to the terms of this Agreement.
2
<PAGE>
7. Right To Relocate Temporary Premises.
(a) Landlord shall have the right to relocate the Temporary Premises
to other space (the "Relocated Premises") within the Building at any time during
the Term. The right of relocation may be exercised only if the Relocated
Premises designated by Landlord are similar in area and in appropriateness for
Tenant's purposes as the original Temporary Premises. Tenant shall pay all costs
(including costs of moving Tenant, its property and equipment to the relocated
premises) in connection with or resulting from such relocation, except in the
event that Landlord requires Tenant to move prior to May 1, 2000, in which case
Landlord shall pay for said costs of move. Tenant shall complete its relocation
by the date specified by Landlord, which date shall not be less than fifteen
(15) days after Landlord notified Tenant of the relocation. All of the other
terms, covenants and conditions of this Agreement shall remain unchanged and in
full force and effect, except that the Basic Information sheet shall be revised
as of the date the relocation is effective (i) to identify the location of the
Relocated Premises; (ii) to reflect any change to the Gross Rent (if the
Relocated Premises are smaller, Gross Rent shall be reduced proportionately);
and (iii) to state as the Rentable Area the square footage of the relocated
temporary premises (as computed pursuant to Section 1.20 of the Lease), as
determined by Landlord's architect, which determination shall be final and
binding. In addition, Exhibit A shall be replaced with a revised diagram of the
Relocated Premises.
8. Incorporation of Terms by Reference. The following sections and
articles, except to the extent modified by the terms of this Agreement, are
hereby incorporated by referenced as if set forth herein in full: Section 2.04
("Reservation of Rights"); Section 3.02 ("Use"); Section 4.01 ("Basic
Services"); Section 4.02 ("Extra Services"); Section 4.03 ("Window Coverings");
Section 4.06 ("Repair Obligation"); Section 4.07 ("Peaceful Enjoyment"); Section
5.01 ("Payments by Tenant"); Section 5.03 ("Taxes on Personal Property");
Section 5.04 ("Repairs by Tenant"); Section 5.05 ("Waste"); Section 5.06(a)-(h)
("Assignment or Sublease"); Section 5.07 ("Alterations, Additions and
Improvements"); Section 5.08 ("Compliance with Laws and Insurance Standards");
Section 5.09 ("No Nuisance; No"); Section 5.11 ("Entry by Landlord"); Section
5.12 ("Nondisturbance and Attornment"); Section 5.13 ("Estoppel Certificate");
Section 5.15 ("Surrender"); Section 5.16 ("Tenant's Remedies"); Section 5.17
("Rules and Regulations"); Article 6 ("Environmental Matters"); Article 7
("Insurance, Indemnity, Condemnation, Damage and Default"); Article 9
("Miscellaneous," except that Section 9.22 ("Exhibits; Addenda") is not
included); Exhibit D ("Building Rules and Regulations").
3
<PAGE>
9. Various Expenses. All moving, telecommunication, data and other
related occupancy expenses (including moving expenses) for occupancy of the
Temporary Premises or the Leased Premises shall be paid for by Tenant.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
day and year first written above.
"LANDLORD":
CEP-SANSOME INVESTORS LLC,
a Delaware limited liability company
By: CEP Investors IX LLC,
a Delaware limited liability company,
as Manager and Member
By: EPI Investors IX LLC,
a California limited liability
company, its Manager
By: Ellis Partners, Inc.,
a California corporation,
its Manager
By: /s/ James F. Ellis
---------------------
Name: James F. Ellis
-------------------
Title: Vice President
------------------
"TENANT":
PERSONIFY, INC.,
a California corporation
By: /s/ Richard Vinchesi
-----------------------------------
Typed Name: Richard Vinchesi
----------------------------
Title: CFO-COO
---------------------------------
4
<PAGE>
EXHIBIT A
FLOOR PLAN
OF THE
LEASED PREMISES
1
EXHIBIT A
<PAGE>
* 114 SANSOME STREET *
* AMENDED AND RESTATED OFFICE BUILDING LEASE *
This Amended and Restated Office Building Lease completely replaces and
supercedes the Office Building Lease dated September 15, 1999 between Landlord
and Tenant.
BASIC LEASE INFORMATION
Date of Lease: November 12, 1999
Landlord: CEP-SANSOME INVESTORS LLC
Landlord's Address: c/o Ellis Partners, Inc.
433 California Street, Suite 610
San Francisco, California 94104
Attn.: Mr. James F. Ellis
Tenant: PERSONIFY, INC.
Tenant's Address: 114 Sansome Street
San Francisco, CA 94104
Attn: Mr. Richard Vanchesi
Building: 114 Sansome Street, San Francisco, California
Leased Premises: Approximately 45,197 square feet consisting of:
the 2nd floor of the Building (approximately
13,915 rentable square feet), the 3rd floor of the
Building (approximately 15,674 rentable square
feet), and the 4th floor of the Building
(approximately 15,608 rentable square feet)
Rentable Area: Approximately 45,197 rentable square feet
Term Commencement Date: April 15, 2000, or if the Landlord Improvements
for the 2nd and 3rd floors are not Substantially
Complete by April 15, 2000, ten (10) days after
the date the Landlord Improvements for the 2nd and
3rd floors are Substantially Complete and the 2nd
and 3rd floors are delivered to Tenant. The
commencement date for the 4th floor shall be the
later of (i) August 1, 2000, or (ii) the date the
Landlord Improvements for 4th floor are
Substantially Complete.
<PAGE>
Term Expiration Date: The last day of the sixtieth (60th) calendar month
after commencement date of the 4th floor.
Option to Expand: None.
Option to Extend:
Number of Extension Periods: None
Years per Extension Period: N/A
Base Rent: For the 3rd and 4th floors:
---------------------------
Months 1 to 24 = $35.50 per rentable square foot
--------------
of Rentable Area per annum.
Months 25 to 36 = $36.00 per rentable square foot
---------------
of Rentable Area per annum.
Months 37 to the Term Expiration Date = $37.00 per
-------------------------------------
rentable square foot of Rentable Area per annum.
Notwithstanding the foregoing, Base Rent for the
4th floor shall not commence until the later of
(i) August 1, 2000, or (ii) the date the Tenant
Improvements for 4th floor are Substantially
Complete.
For the 2nd floor:
------------------
Months 1 to 24 = $35.00 per rentable square foot
--------------
of Rentable Area per annum.
Months 25 to 36 = $35.50 per rentable square foot
---------------
of Rentable Area per annum.
Months 37 to the Term Expiration Date = $36.50 per
-------------------------------------
rentable square foot of Rentable Area per annum.
Base Year: 2000
Tenant's Proportionate
Share (Building): 27.79%
Security Deposit: $1,785,281.50
Guarantor: None
ii
<PAGE>
Landlord's Broker: Grubb & Ellis
Tenant's Broker: Triton Commercial Real Estate
The foregoing BASIC LEASE INFORMATION is incorporated herein and made a
part of the LEASE to which it is attached. If there is any conflict between the
BASIC LEASE INFORMATION and the LEASE, the BASIC LEASE INFORMATION shall
control.
"LANDLORD":
CEP-SANSOME INVESTORS LLC,
a Delaware limited liability company
By: CEP Investors IX LLC,
a Delaware limited liability company,
as Manager and Member
By: EPI Investors IX LLC,
a California limited liability
company, its Manager
By: Ellis Partners, Inc.,
a California corporation,
its Manager
By: /s/ James F. Ellis
-------------------------
Name: James F. Ellis
-----------------------
Title: Vice President
----------------------
"TENANT":
PERSONIFY, INC.,
a California corporation
By: /s/ Richard Vinchesi
-------------------------------------
Typed Name: Richard Vinchesi
-----------------------------
Title: CFO
----------------------------------
iii
<PAGE>
OFFICE BUILDING LEASE
THIS LEASE, made as of the date specified in the BASIC LEASE INFORMATION
sheet, by and between the landlord specified in the BASIC LEASE INFORMATION
sheet ("Landlord") and the tenant specified in the BASIC LEASE INFORMATION sheet
("Tenant").
Article 1.
Definitions
1.01. Definitions: Terms used herein shall have the following meanings:
1.02. "Additional Rent" shall mean all monetary obligations of Tenant
under this Lease other than the obligation for payment of Gross Rent.
1.03. "Base Expenses" [Intentionally deleted]
1.04. "Base Rent" shall mean the sums due from time to time as rental for
the Leased Premises.
1.05. "Base Year" shall mean the calendar year specified on the Basic
Lease Information sheet.
1.06. "Basic Operating Cost" shall have the meaning given in Section 3.05.
1.07. "Building" shall mean the building and other improvements associated
therewith identified on the Basic Lease Information sheet.
1.08. "Building Standard Improvements" shall mean the standard materials
ordinarily used by Landlord in the improvement of the Leased Premises.
1.09. "Common Areas" shall mean (a) the areas on individual floors of the
Building devoted to non-exclusive uses such as common corridors, lobbies, fire
vestibules, elevator foyers, stairways, elevators, electric and telephone
closets, restrooms, mechanical closets, janitor closets and other similar
facilities for the benefit of all tenants (and invitees) on the particular floor
and other floors and (b) other areas of the Project available for the use and
benefit of all tenants (and invitees).
1.10. "Computation Year" shall mean a fiscal year consisting of the
calendar year commencing January 1st of each year during the Term, commencing in
the year 2000 and continuing through the Term with a short or stub fiscal year
in (i) the year 2000 for the period between the Term Commencement Date and
December 31 of such year and (ii) any partial fiscal year in which the Lease
expires or is terminated for the period between January 1 of such year and the
date of lease termination or expiration.
1.11. "Gross Rent" shall mean the total of Base Rent and Tenant's
Proportionate Share of Increased Basic Operating Cost.
1.12. "Landlord's Broker" shall mean the individual or corporate broker
identified on the Basic Lease Information sheet as the broker for Landlord.
1.13. "Landlord's Contribution" shall have the meaning given in Exhibit B.
---------
1
<PAGE>
1.14. "Landlord's Improvements" shall have the meaning given in Exhibit B.
---------
1.15. "Leased Premises" shall mean the floor area more particularly shown
on the floor plan attached hereto as Exhibit A, containing the Rentable Area (as
---------
such term is defined in Section 1.20 below) specified on the Basic Lease
Information sheet.
1.16. "Permitted Use" shall mean general office, and any other related
lawful use; provided, however, that Permitted Use shall not include (a) offices
or agencies of any foreign government or political subdivision thereof; (b)
offices of any agency or bureau of any state, county or city government; (c)
offices of any health care professionals; (d) schools or other training
facilities which are not ancillary to corporate, executive or professional
office use; or (e) retail or restaurant uses.
1.17. "Project" shall mean the Building and common areas affiliated
therewith, and the real property on which the Building and common areas are
located.
1.18. "Rent" shall mean Gross Rent plus Additional Rent.
1.19. "Rentable Area" shall mean the area or areas of space in the
Building determined in accordance with the Standard Method for Measuring Floor
Area in Office Buildings published by the Building Owners and Managers
Association International (ANSI-Z65.1-1996) and including a proportionate
allocation of the square footage of the Building's elevator and mechanical
equipment areas, telephone and electrical rooms, loading dock, janitorial
service areas, public lobbies and corridors, which measurement shall be subject
to remeasurement by Landlord.
1.20. "Security Deposit" shall mean the amount specified on the Basic
Lease Information sheet to be paid by Tenant to Landlord and held and applied
pursuant to Section 5.14.
1.21. "Substantial Completion" shall mean (and the Leased Premises shall
be deemed "Substantially Complete") when (i) installation of the Tenant
Improvements and the Landlord's Improvements (as defined in Exhibit B) by the
---------
Contractor (as defined in Exhibit B) has occurred; (ii) Tenant has direct access
---------
from the street to the elevator lobby on the floor (or floors) where the Leased
Premises are located; (iii) basic services (as described in Section 4.01) are
available to the Leased Premises; (iv) the Architect (as defined in Exhibit B)
---------
has issued a certificate of Substantial Completion with respect to the Leased
Premises; and (v) a certificate of occupancy or its equivalent for the Leased
Premises has been issued by appropriate governmental authorities. Substantial
Completion shall be deemed to have occurred notwithstanding a requirement to
complete "punchlist" items or similar corrective work.
1.22. [Intentionally deleted.]
1.23. "Tenant Improvements" shall have the meaning given in Exhibit B.
---------
1.24. "Tenant's Broker" shall mean the individual or corporate broker
identified on the Basic Lease Information sheet as the broker for Tenant.
1.25. "Tenant's Physical Possession Date" shall mean ten (10) days prior
to the Term Commencement Date for the 2nd and 3rd floors.
1.26. "Tenant's Proportionate Share" is specified on the Basic Lease
Information sheet and is based on the percentage which the Rentable Area of the
Leased Premises bears to the total Rentable Area of
2
<PAGE>
the Project, subject to adjustment in the event of the remeasurement of the
Building or the Project as permitted under Section 1.20 above.
1.27. "Term" shall mean the period commencing with the Term Commencement
Date and ending at midnight on the Term Expiration Date.
1.28. "Term Commencement Date" shall be the date set forth on the Basic
Lease Information sheet.
1.29. "Term Expiration Date" shall be the date set forth on the Basic
Lease Information sheet, unless sooner terminated pursuant to the terms of this
Lease or unless extended pursuant to the provisions of Section 8.01.
1.30. Other Terms. Other terms used in this Lease and on the Basic Lease
Information sheet shall have the meanings given to them herein and thereon.
Article 2.
Leased Premises
2.01. Lease. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord the Leased Premises upon all of the terms, covenants and
conditions set forth in this Lease.
2.02. Acceptance of Leased Premises. Tenant acknowledges that: (a) it has
been advised by Landlord, Landlord's Broker and Tenant's Broker, if any, to
satisfy itself with respect to the condition of the Leased Premises (including,
without limitation, the heating, ventilation, electrical, plumbing and other
mechanical installations, fire sprinkler systems, security, environmental
aspects, and compliance with applicable laws, ordinances, rules and regulations)
and the present and future suitability of the Leased Premises for Tenant's
intended use; (b) Tenant has made such inspection and investigation as it deems
necessary with reference to such matters and assumes all responsibility therefor
as the same relate to Tenant's occupancy of the Leased Premises and the term of
this Lease; and (c) neither Landlord nor Landlord's Broker nor any of Landlord's
agents has made any oral or written representations or warranties with respect
to the condition, suitability or fitness of the Leased Premises other than as
may be specifically set forth in this Lease. Except as otherwise specifically
set forth in this Lease, Tenant accepts the Leased Premises in its AS IS
condition existing on the date Tenant executes this Lease, subject to all
matters of record and applicable laws, ordinances, rules and regulations. Tenant
acknowledges that neither Landlord nor Landlord's Broker nor any of Landlord's
agents has agreed to undertake any alterations or additions or to perform any
maintenance or repair of the Leased Premises except for the routine maintenance
and janitorial work specified herein and except as may be expressly set forth in
Exhibit B.
- ---------
2.03. Right To Relocate Leased Premises. [Intentionally deleted].
2.04. Reservation of Rights. Landlord reserves the right from time to
time, so long as reasonable access and basic services to and Tenant's use of the
Leased Premises remain available, to install, use, maintain, repair, relocate
and/or replace pipes, conduits, wires and equipment within and around the
Building and to do and perform such other acts and make such other changes in,
to or with respect to the Building or the Project (including without limitation
with respect to the driveways, parking areas (if any), walkways and entrances to
the Project) as Landlord may, in the exercise of sound business judgment, deem
to be appropriate. In connection therewith, Landlord shall have the right to
close temporarily any of the Common Areas so long as reasonable access to and
use of the Leased Premises remains available.
3
<PAGE>
Article 3.
Term, Use and Rent
3.01. Term. Except as otherwise provided in this Lease, the Term shall
commence upon the Term Commencement Date, and shall continue in full force for
the Term. Tenant shall be given access to the Leased Premises starting on the
Tenant's Physical Possession Date in order for Tenant and other consultants
and/or Tenant's contractors to install, if any, furniture, telephone networks
and computer networks as long as such work does not interfere with the
construction of the Tenant Improvements and the Landlord's Improvements.
Notwithstanding any other provision of this Lease to the contrary, if the
Landlord Improvements for the 2nd and 3rd floors of the Leased Premises are not
Substantially Complete within ninety (90) days of April 15, 2000, excluding from
such tally (x) each day of Tenant Delay (as defined in Exhibit B), and (y) each
---------
day of delay caused by factors entirely beyond the reasonable control of
Landlord, then Tenant, as its sole remedy, may, at its option, by notice in
writing to Landlord within thirty (30) days thereafter, cancel this Lease in
which event Landlord shall return all sums paid or deposited to Landlord, and
neither Landlord nor Tenant shall have any further obligations hereunder. If
written notice of cancellation is not received by Landlord within such thirty
(30)-day period, Tenant's right to cancel this Lease shall terminate and be of
no further force or effect. From the date Tenant has access to the Leased
Premises through the Term Commencement Date, Tenant shall be subject to all of
the covenants in this Lease, except that Tenant's obligation to pay Rent shall
commence in accordance with Section 3.03 below. When the Term Commencement Date
and the Term Expiration Date have been ascertained, the parties shall promptly
execute a Confirmation of Term of Lease substantially in the form attached as
Exhibit C.
- ---------
3.02. Use. Tenant shall use the Leased Premises solely for the Permitted
Use and for no other use or purpose, except as permitted by Landlord pursuant to
Landlord's written consent, which consent will not be unreasonably withheld. It
shall not be deemed unreasonable for Landlord to withhold its consent to a
proposed change of use if the proposed use is one set forth in Section 1.16(a)
through (e).
3.03. Base Rent.
(a) Tenant shall pay the Base Rent to Landlord in accordance with
the schedule set forth on the Basic Lease Information sheet and in the manner
described below. Tenant shall pay the Base Rent for the first month of the Term
upon execution of this Lease. Commencing with the first day of the second
calendar month of the Term, Tenant shall pay the Gross Rent (consisting of Base
Rent plus, when applicable in accordance with Section 3.04 below, Tenant's
Proportionate Share of Increased Basic Operating Cost and/or Tenant's
Proportionate Share of Increased Property Taxes) in monthly installments on or
before the first day of each calendar month during the Term and any extensions
or renewals thereof, in advance without demand and without any reduction,
abatement, counterclaim or setoff, in lawful money of the United States at
Landlord's address specified on the Basic Lease Information sheet or at such
other address as may be designated by Landlord in the manner provided for giving
notice under Section 9.11 hereof.
(b) If the Term commences on other than the first day of a month,
then the Base Rent provided for such partial month shall be prorated based upon
a thirty (30)-day month and the prorated installment shall be paid on the first
day of the calendar month next succeeding the Term Commencement Date together
with the other amounts payable on that day. If the Term terminates on other than
the last day of a calendar month, then the Gross Rent provided for such partial
month shall be prorated based upon a thirty (30)-day month and the prorated
installment shall be paid on the first day of the calendar month in which the
date of termination occurs.
4
<PAGE>
3.04. Tenant's Proportionate Share of Increased Basic Operating Cost.
(a) Commencing in the 2001 Computation Year and continuing through
the remainder of the Term, Tenant shall pay to Landlord (i) Tenant's
Proportionate Share of the total dollar increase, if any, in Basic Operating
Cost attributable to each Computation Year over Basic Operating Costs
attributable to the Base Year ("Tenant's Proportionate Share of Increased Basic
Operating Cost"), and (ii) Tenant's Proportionate Share of the total dollar
increase, if any, in Property Taxes attributable to each Computation Year over
Base Year Property Taxes ("Tenant's Proportionate Share of Increased Property
Taxes").
(b) During the 2001 Computation Year, on or before the first day of
each month during such Computation Year, Tenant shall pay to Landlord one-
twelfth (1/12th) of Landlord's estimate of the amounts payable by Tenant under
Section 3.04(a) for Tenant's Proportionate Share of Increased Basic Operating
Cost and for Tenant's Proportionate Share of Increased Property Taxes, as set
forth in Landlord's written notice to Tenant delivered on or before the Term
Commencement Date. Commencing in the 2000 Computation Year and continuing
thereafter through the remainder of the Term, during the last month of each
Computation Year (or as soon thereafter as practicable), Landlord shall give
Tenant notice of Landlord's estimate of the amounts payable by Tenant under
Section 3.04(a) for Tenant's Proportionate Share of Increased Basic Operating
Cost and for Tenant's Proportionate Share of Increased Property Taxes for the
following Computation Year. On or before the first day of each month during the
following Computation Year, Tenant shall pay to Landlord one-twelfth (1/12th) of
each of such estimated amounts, provided that if Landlord fails to give such
notice in the last month of the prior year, then Tenant shall continue to pay on
the basis of the prior year's estimate until the first day of the calendar month
next succeeding the date such notice is given by Landlord; and from the first
day of the calendar month following the date such notice is given, Tenant's
payments shall be adjusted so that the estimated amount for that Computation
Year will be fully paid by the end of that Computation Year. If at any time or
times Landlord determines that the amount or amounts payable under Section
3.04(a) for Tenant's Proportionate Share of Increased Basic Operating Cost
and/or for Tenant's Proportionate Share of Increased Property Taxes for the
current Computation Year will vary from the respective estimate thereof given to
Tenant, Landlord, by not less than ten (10) business days' notice to Tenant, may
revise such estimate for such Computation Year, and subsequent payments by
Tenant for such Computation Year shall be based upon such revised estimate.
(c) Following the end of each Computation Year (beginning with the
2001 Computation Year), Landlord shall deliver to Tenant a statement of amounts
payable under Section 3.04(a) for such Computation Year prepared by Landlord's
agent. If such statement shows an amount or amounts owing by Tenant with respect
to Basic Operating Cost or Property Taxes that is less than the payments for
such Computation Year previously made by Tenant therefor, respectively, and if
no event of default (as defined below) is outstanding at the time such statement
is delivered, Landlord shall credit such amount to the next payment(s) of Gross
Rent falling due under this Lease. If such statement shows an amount owing by
Tenant with respect to Basic Operating Cost or Property Taxes that is more than
the estimated payments for such Computation Year previously made by Tenant
therefor, respectively, Tenant shall pay the deficiency to Landlord within ten
(10) business days after delivery of such statement. If, within ninety (90) days
of Tenant's receipt of Landlord's statement, Tenant notifies Landlord that
Tenant desires to audit or review Landlord's statement, Landlord shall cooperate
with Tenant to permit such audit or review during normal business hours.
Landlord shall make available in the San Francisco Bay Area at Landlord's, or at
Landlord's election at Landlord's property manager's, place of business, such
books and records as are reasonably necessary for Tenant to conduct and complete
such audit. Tenant shall have the right to make copies of such books and records
at Tenant's sole cost and expense. Tenant shall bear all other costs and
expenses associated with Tenant's audit (including fees of Tenant's auditor).
Within five (5) business days of completion of the audit, if Tenant desires to
challenge Landlord's statement, then Tenant shall provide Landlord with a copy
of Tenant's
5
<PAGE>
auditor's report. Within thirty (30) days of Landlord's receipt of Tenant's
auditor's report, Landlord shall notify Tenant as to whether Landlord agrees or
disagrees with the conclusions reached in Tenant's auditor's report. Landlord's
failure to respond shall be deemed to constitute a disagreement with the
Tenant's auditor's report. After Landlord's notice, Landlord and Tenant shall
endeavor to resolve any disagreements regarding Tenant's auditor's report. In
the event such audit reveals a discrepancy in Tenant's favor, and Landlord
agrees with the conclusions of Tenant's auditor, then Landlord shall credit the
amount of such discrepancy to the next payment(s) of Gross Rent falling due
under this Lease. In the event such audit reveals a discrepancy in Landlord's
favor, Tenant shall pay the amount of the discrepancy to Landlord within ten
(10) business days of completion of the audit. Any such audit may only be
conducted by an independent nationally recognized accounting firm or a
nationally recognized real estate management or consulting firm that is not
being compensated by Tenant on a contingency fee basis. The failure of Tenant to
notify Landlord that Tenant desires an audit within ninety (90) days of Tenant's
receipt of Landlord's statement under this Section 3.04(c) shall constitute an
acceptance by Tenant of Landlord's statement and a waiver by Tenant of its right
to audit for such Computation Year. If Tenant commences an audit in accordance
with this Section 3.04(c), then such audit and the Tenant's auditor's report
must be completed within thirty (30) days of Landlord's delivery of reasonable
access to its books and records. Failure of Tenant to complete the audit within
such thirty (30) day period shall constitute an acceptance by Tenant of
Landlord's statement for such Computation Year. The respective obligations of
Landlord and Tenant under this Section 3.04(c) shall survive the Term Expiration
Date, and, if the Term Expiration Date is a day other than the last day of a
Computation Year, the adjustments in Tenant's Proportionate Share of Increased
Basic Operating Cost and in Tenant's Proportionate Share of Increased Property
Taxes pursuant to this Section 3.04(c) for the Computation Year in which the
Term Expiration Date occurs shall be prorated in the proportion that the number
of days in such Computation Year preceding the Term Expiration Date bears to
three hundred sixty-five (365).
(d) Landlord shall have the same remedies for a default in the
payment of Tenant's Proportionate Share of Increased Basic Operating Cost or for
a default in the payment of Tenant's Proportionate Share of Increased Property
Taxes as for a default in the payment of Base Rent.
(e) If the parties cannot agree on the results of Tenant's audit
within sixty (60) days following delivery of Tenant's auditor's report to
Landlord, then either party may commence arbitration with respect to the matters
disputed in Tenant's audit by notice to the other party ("Arbitration Notice").
The failure of Tenant to provide an Arbitration Notice within one hundred twenty
(120) days of Tenant's delivery of the Tenant's auditor's report to Landlord
shall constitute a waiver by Tenant of its right to arbitrate hereunder, and
except for such adjustments as have been agreed to by Landlord, Landlord's
statement provided under Section 3.04(c) shall be conclusive and binding to
Tenant. Within thirty (30) days of the Arbitration Notice, Landlord and Tenant
shall jointly select an arbitrator, who shall be unaffiliated in any manner with
either Landlord or Tenant and shall have been active over the five (5) year
period ending on the date of such appointment in the leasing of comparable
commercial properties in the vicinity of the Building. Neither Landlord nor
Tenant shall consult with such arbitrator as to his or her opinion as to the
disputed matters prior to the appointment. The determination of the arbitrator
shall be limited solely to issues raised by Tenant's auditor's report or by
Landlord's response to Tenant's auditor's report. Such arbitrator may hold
hearings and require such briefs as the arbitrator, in his or her sole
discretion, determines is necessary. In addition, Landlord or Tenant may submit
to the arbitrator with a copy to the other party within five (5) business days
after the appointment of the arbitrator any data and additional information that
such party deems relevant to the determination by the arbitrator and the other
party may submit a reply in writing within five (5) business days after receipt
of such data and additional information. The arbitrator shall conduct such
evidentiary hearings as the arbitrator deems necessary or appropriate.
6
<PAGE>
(1) The arbitrator shall, within thirty (30) days of his or her
appointment, reach a decision as to the disputed matters in Tenant's auditor's
report, and shall notify Landlord and Tenant of such determination.
(2) The decision of the arbitrator shall be binding upon
Landlord and Tenant.
(3) If Landlord and Tenant fall to agree upon and appoint such
arbitrator, then the appointment of the arbitrator shall be made by the American
Arbitration Association.
(4) If Landlord and Tenant fail to agree upon other matters
relating to the arbitration, then the rules of the American Arbitration
Association shall govern such arbitration.
(5) The cost of arbitration shall be paid by the substantially
unsuccessful party.
(6) The arbitration proceeding and all evidence given or
discovered pursuant thereto shall be maintained in confidence by all parties.
(7) Judgment upon the award rendered by the arbitrator may be
entered by either party into any court having jurisdiction, or application may
be made to such court for a judicial recognition of the award or an order of
enforcement thereof, as the case may be.
3.05. Basic Operating Cost.
(a) Basic Operating Cost shall mean all expenses and costs (but not
specific costs which are separately billed to and paid by particular tenants of
the Building) of every kind and nature which Landlord shall pay or become
obligated to pay because of or in connection with the management, ownership,
maintenance, repair, preservation and operation of the Project and its
supporting facilities directly servicing the Project (determined in accordance
with generally accepted accounting principles, consistently applied) including,
but not limited to, the following:
(1) Wages, salaries and related expenses and benefits of all
on-site and off-site employees and personnel engaged in the operation,
maintenance, repair and security of the Project, to the extent such charges are
directly allocable to services rendered by the employees and personnel for the
benefit of the Project.
(2) Costs of Landlord's office (including the property
management office) in the Project and office operation in the Project, as well
as the costs of operation of a room for delivery and distribution of mail to
tenants of the Building.
(3) All supplies, materials, equipment and equipment rental
used in the operation, maintenance, repair and preservation of the Project.
(4) Utilities, including water, sewer and power, telephone,
communication and cable television facilities, lighting, heating, and
ventilating the entire Project.
(5) All maintenance, janitorial and service agreements for the
Project and the equipment therein, including, without limitation, alarm and/or
security service, window cleaning, elevator maintenance, sidewalks, landscaping,
Building exterior and service areas.
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(6) A management cost recovery in an amount not to exceed five
percent (5%) of all Rent (excluding such management cost recovery) derived from
the Building; provided, however, such property management fee shall not exceed
the current "market" rate during a particular Computation Year.
(7) Legal and accounting services for the Project, including
the costs of audits by certified public accountants; provided, however, that
legal expenses shall not include the cost of lease negotiations, termination of
leases, extension of leases or legal costs incurred in proceedings by or against
any specific tenant.
(8) All insurance costs, including, but not limited to, the
cost of all risk property and liability coverage and rental income and
earthquake insurance applicable to the Project and Landlord's personal property
used in connection therewith, as well as commercially reasonable deductible
amounts applicable to such insurance (not to exceed $10,000 allocated to
Tenant); provided, however, that Landlord may, but shall not be obligated to,
carry earthquake insurance.
(9) Repairs, replacements and general maintenance (except for
repairs paid by proceeds of insurance or by Tenant or other tenants of the
Building or third parties, and alterations attributable solely to tenants of the
Project other than Tenant).
(10) Amortization (together with reasonable financing charges)
of capital improvements made to the Project which are designed to improve the
operating efficiency of the Project, or which may be required by governmental
authorities, including those improvements required for energy conservation and
for the benefit of individuals with disabilities ("ADA Improvements").
(b) In the event any of the Basic Operating Costs are not allocable
solely to the Building or are not provided on a uniform basis, Landlord shall
make an appropriate and equitable adjustment, in Landlord's reasonable
discretion, to the relevant cost allocations to the Building and Tenant shall
pay its proportionate share of such Basic Operating Costs allocable solely to
the Building and 100% of such Basic Operating Costs allocable solely to the
Leased Premises.
(c) Notwithstanding any other provision of this Lease to the
contrary, in the event that the Project is not fully occupied during any year of
the Term, an adjustment shall be made in computing Basic Operating Cost for such
year (including the Base Year) so that Basic Operating Cost shall be computed as
though the Building had been 95% occupied during such year.
(d) The following items shall be excluded from Basic Operating
Costs:
(1) The cost of any service sold to any tenant (including
Tenant) or other occupant for which Landlord is entitled to be reimbursed as an
additional charge or rental over and above the basic rent and escalations
payable under the lease with that tenant.
(2) Any depreciation on the Building or Property.
(3) Expenses in connection with services or other benefits of a
type that are not provided to Tenant but which are provided another tenant or
occupant of the Building or Property.
(4) Costs incurred due to Landlord's violation of any terms or
conditions of this Lease or any other lease relating to the Building or
Property.
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(5) Overhead profit increments paid to Landlord's subsidiaries
or affiliates for management or other services on or to the Building or for
supplies or other materials to the extent that the cost of the services,
supplies, or materials exceeds the cost that would have been paid had the
services, supplies, or materials been provided by unaffiliated parties on a
competitive basis.
(6) All interest, loan fees, and other carrying costs related
to any mortgage or deed of trust or related to any capital item, and all rental
and other payable due under any ground or underlying lease.
(7) Any compensation paid to clerks, attendants, or other
persons in commercial concessions operated by Landlord.
(8) Costs of repairs and other work caused by fire, windstorm,
or other casualty to the extent Landlord receives insurance proceeds.
(9) Any costs, fines, or penalties incurred due to violations
by Landlord of any governmental rule or authority, this Lease or any other lease
in the Property, or due to Landlord's gross negligence or willful misconduct.
(10) Wages, salaries, or other compensation paid to any
executive employees above the grade of building manager.
(11) The cost of correcting any building code or other
violations which were violations prior to the Term Commencement Date.
(12) The cost of containing, removing, or otherwise remediating
any contamination of the Property (including the underlying land and ground
water) by any toxic or hazardous materials (including, without limitation,
asbestos and "PCB's") where such contamination was not caused by Tenant or
Tenant's agents, employees, contractors, invitees or licensees.
(13) Leasing commissions, attorneys' fees, costs, disbursements,
and other expenses incurred in connection with negotiations or disputes with
tenants, or in connection with leasing, renovating, or improving space for
tenants or other occupants or prospective tenants or other occupants of the
Building.
(14) Any capital costs (including improvements or equipment)
except for any capital expenditures expressly included in Section 3.05(a)(11);
the cost of decorating, improving for tenant occupancy, painting or redecorating
portions of the Building to be demised to tenants (including Tenant).
3.06. Property Taxes.
(a) "Property Taxes" shall mean all real estate or personal property
taxes, possessory interest taxes, business or license taxes or fees, service
payments in lieu of such taxes or fees, annual or periodic license or use fees,
excises, transit charges, housing fund assessments, open space charges,
assessments, bonds, levies, fees or charges, general and special, ordinary and
extraordinary, unforeseen as well as foreseen, of any kind which are assessed,
levied, charged, confirmed or imposed by any public authority upon the Project
(or any portion or component thereof), its operations, this Lease, or the Rent
due hereunder (or any portion or component thereof), except: (i) inheritance or
estate taxes imposed upon or assessed against the Project, or any part thereof
or interest therein, and (ii) Landlord's personal or corporate income, gift or
franchise taxes.
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(b) In the event any of the Property Taxes are not allocable between
the Leased Premises, the Building and other improvements in the Project on a
uniform basis, Landlord shall make an appropriate and equitable adjustment, in
Landlord's reasonable discretion, to the relevant allocations of Property Taxes
to the Leased Premises or the Building and Tenant shall pay its proportionate
share of such Property Taxes allocable to the Building and 100% of such Property
Taxes allocable solely to the Leased Premises.
(c) Notwithstanding any other provision of this Lease to the
contrary, in the event that the Project is not fully occupied during any year of
the Term, an adjustment shall be made in computing Property Taxes for such year
(including the Base Year) so that Property Taxes shall be computed as though the
Building had been 95% occupied during such year.
Article 4.
Landlord's Covenants
4.01. Basic Services. Landlord shall operate the Project to a standard of
quality consistent with that of other similar-class office projects in the
immediate geographical area, and shall:
(a) Administer improvement of the Leased Premises in accordance with
Exhibit B (if any).
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(b) Furnish Tenant during Tenant's occupancy of the Leased Premises
the following basic services:
(i) Hot and cold water at those points of supply provided
for general use of other tenants in the Project; steam heating and
ventilating during the Building hours of operation specified in the rules
and regulations for the Project adopted pursuant to Section 5.17 and at
such temperatures, during such seasons, and in such amounts as are standard
for the comfortable use and occupancy of the Leased Premises or, in all
events, as may be permitted or controlled by applicable laws, ordinances,
rules and regulations. Notwithstanding the foregoing, the Building does not
have central air conditioning; however, Landlord shall provide a chilled
water riser which can be accessed by Tenant for specialized cooling or air
conditioning needs (e.g., for a computer room) on each of the floors of the
Leased Premises; provided, however, Tenant, at its sole cost, shall be
responsible for the installation, operation and maintenance of such cooling
or air conditioning systems, if needed, from the point of departure from
such chilled water riser, and, provided further, that the total Rentable
Area receiving the benefit of such specialized cooling or air conditioning
shall not exceed 400 square feet.
(ii) Structural and exterior maintenance (including exterior
glass and glazing) and routine maintenance, repairs and electric lighting
service for all public areas and service areas of the Project in the manner
and to the extent deemed by Landlord to be standard.
(iii) Janitorial service on a five (5) day per week basis,
excluding holidays.
(iv) Electric lighting service throughout the Leased Premises
and electrical facilities to provide sufficient power for typewriters,
standard size personal computers and other standard office machines of
similar low electrical consumption, but not including electricity required
for electronic data processing equipment, special lighting in excess of
Building Standard Improvements, and any other item of electrical equipment
which consumes electricity in amounts in
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excess of standard office equipment; Landlord shall provide an average of 5
watts per usable square foot of the Leased Premises, peak demand load
(including lighting).
(v) Building Standard lamps, bulbs, starters and ballasts
used in the Leased Premises.
(vi) Public elevator service serving the floors on which the
Leased Premises are situated, including freight elevator service when
prearranged with Landlord, subject to such rules and regulations as
Landlord shall promulgate from time to time.
(c) Landlord shall not be liable for damages to either person or
property, nor shall Landlord be deemed to have evicted Tenant, nor shall there
be any abatement of Rent, nor shall Tenant be relieved from performance of any
covenant on its part to be performed under this Lease by reason of any (i)
deficiency in the provision of basic services; (ii) breakdown of equipment or
machinery utilized in supplying services; or (iii) curtailment or cessation of
services due to causes or circumstances beyond the reasonable control of
Landlord or by the making of the necessary repairs or improvements, unless such
deficiency, breakdown, curtailment or cessation is due to the active gross
negligence or willful misconduct of Landlord. Landlord shall use reasonable
diligence to make such repairs as may be required to machinery or equipment
within the Project to provide restoration of services and, where the cessation
or interruption of service has occurred due to circumstances or conditions
beyond Project boundaries, to cause the same to be restored, by diligent
application or request to the provider thereof. In no event shall any mortgagee
or the beneficiary under any deed of trust referred to in Section 5.12 be or
become liable for any default of Landlord under this Section 4.01(c).
4.02. Extra Services. Landlord shall provide to Tenant at Tenant's sole
cost and expense (and subject to the limitations hereinafter set forth) the
following extra services:
(a) Such extra cleaning and janitorial services if requested by
Tenant;
(b) [Intentionally deleted].
(c) Heating, ventilation, or extra electrical service, provided by
Landlord to Tenant (i) during hours other than the Building hours of operation
specified in the rules and regulations for the Project adopted pursuant to
Section 5.17, which shall provide for Building hours of operation of 7:00 A.M.
to 6:00 P.M., Monday through Friday (excluding holidays), or (ii) on Saturdays,
Sundays, or holidays, all said heating, ventilation or extra electrical service
to be furnished solely upon the prior written request of Tenant submitted during
business hours to Landlord at least 24 hours in advance of the time such service
is needed, or pursuant to such other procedures as may be established from time
to time by Landlord for the Building or the Project (such after-hour heating,
ventilation and lighting charge shall be billed at Landlord's actual cost basis
prorated with the similar use of other tenants of the Building);
(d) Maintaining and replacing non-Building Standard lamps, bulbs,
starters and ballasts (whether or not the light fixtures were installed by
Landlord as part of the Tenant Improvements);
(e) Repair and maintenance service which is the obligation of Tenant
under this Lease which Tenant fails to timely perform;
(f) Repair, maintenance or janitorial service to the Leased Premises
or the Common Areas which is required as a result of the acts or omissions of
Tenant, its agents, employees, contractors, invitees or licensees; and
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(g) Any basic service in amounts reasonably determined by Landlord
to exceed the amounts required to be provided under Section 4.01(b), but only if
Landlord elects to provide such additional or excess service.
For the purposes of this Section 4.02, if, in Landlord's reasonable
opinion, Tenant's use of electrical and/or water service at the Leased Premises
is excessive, Landlord may install a separate meter(s) at the Leased Premises to
measure the amount of electricity and/or water consumed by Tenant therein. The
cost of such installation and of such excess electricity and/or water (at the
rates charged for such services by the local public utility) shall be paid by
Tenant to Landlord upon receipt by Tenant of a bill therefor.
The cost chargeable to Tenant for all extra services shall constitute
Additional Rent and shall include a management fee payable to Landlord of
fifteen percent (15%). Additional Rent shall be paid monthly by Tenant to
Landlord concurrently with the payment of Base Rent.
4.03. Window Coverings. All window coverings for the Leased Premises shall
be those approved by Landlord. Tenant shall not place or maintain any window
coverings, blinds, curtains or drapes other than those supplied by Landlord on
any exterior window without Landlord's prior written approval, which Landlord
shall have the right to grant or withhold in its absolute and sole discretion.
4.04. Graphics and Signage. Landlord shall provide identification of
Tenant's name and suite numerals (i) on a building directory in the Building
lobby and (ii) at the main entrance door to the Leased Premises. Landlord
reserves the right to exclude any other names from the building directory. All
signs, notices, advertisements and graphics of every kind or character, visible
in or from the Common Areas or the exterior of the Leased Premises shall be
subject to Landlord's prior written approval, which Landlord shall have the
right to withhold in its absolute and sole discretion. Landlord may remove,
without notice to and at the expense of Tenant, any sign, notice, advertisement
or graphic of any kind inscribed, displayed or affixed in violation of the
foregoing requirement. All approved signs, notices, advertisements or graphics
shall be printed, affixed or inscribed at Tenant's expense by a person selected
by Landlord. Landlord shall be entitled to revise the Project graphics and
signage standards at any time.
4.05. [Intentionally deleted]
4.06. Repair Obligation. Landlord's obligation with respect to maintenance
and repair shall be limited to (i) the structural portions of the Building; (ii)
the exterior walls of the Building, including exterior glass and glazing; (iii)
the roof structure and membrane; (iv) mechanical, electrical, plumbing and life
safety systems; (v) the Common Areas; and (vi) the landscaped areas. However,
Landlord shall not have any obligation to repair damage caused by Tenant, its
agents, employees, contractors, invitees or licensees. Landlord shall have the
right, but not the obligation, to undertake work of repair which Tenant is
required to perform under this Lease and which Tenant fails or refuses to
perform in a timely and efficient manner. Tenant shall reimburse Landlord upon
demand, as Additional Rent, for all costs incurred by Landlord in performing any
such repair for the account of Tenant, together with an amount equal to fifteen
percent (15%) of such costs to reimburse Landlord for its administration and
managerial effort. Except as specifically set forth in this Lease, Landlord
shall have no obligation whatsoever to maintain or repair the Leased Premises or
the Project. The parties intend that the terms of this Lease govern their
respective maintenance and repair obligations. Tenant expressly waives the
benefit of any statute now or hereafter in effect to the extent it is
inconsistent with the terms of this Lease with respect to such obligations or
which affords Tenant the right to make repairs at the expense of Landlord or
terminate this Lease by reason of the condition of the Leased Premises or any
needed repairs.
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4.07. Peaceful Enjoyment. Landlord covenants with Tenant that upon Tenant
paying the Rent and all other charges required under this Lease and performing
all of Tenant's covenants and agreements herein contained, Tenant shall
peacefully have, hold and enjoy the Leased Premises subject to all of the terms
of this Lease and to any deed of trust, mortgage, ground lease or other
agreement to which this Lease may be subordinate. This covenant and the other
covenants of Landlord contained in this Lease shall be binding upon Landlord and
its successors only with respect to breaches occurring during its or their
respective ownerships of Landlord's interest hereunder. Notwithstanding the
foregoing, Tenant is aware that beginning on January 1, 2000, the Building will
undergo substantial renovation, including, but not limited to (i) the structural
portions of the Building; (ii) mechanical, electrical, plumbing and life safety
systems; and (iii) the Common Areas (including the main lobby). Tenant has also
been informed that, as part of the Building renovation, a sprinkler system may
be installed by Landlord above the second (2nd) , third (3rd), and fourth (4th)
floor ceiling. With respect to any of the foregoing construction, Landlord shall
use its best efforts to minimize interference with Tenant's business operations
in the Leased Premises.
Article 5.
Tenant's Covenants
5.01. Payments by Tenant. Tenant shall pay Rent at the times and in the
manner provided in this Lease. All obligations of Tenant hereunder to make
payments to Landlord shall constitute Rent and failure to pay the same when due
shall give rise to the rights and remedies provided for in Section 7.08. If
there is more than one Tenant, the obligations imposed under this Lease upon
Tenant shall be joint and several.
5.02. Tenant Improvements. The Tenant Improvements shall be installed and
constructed pursuant to Exhibit B. All Tenant Improvements shall become the
---------
property of Landlord upon installation and shall be surrendered to Landlord
without compensation to Tenant upon termination of this Lease by lapse of time
or otherwise.
5.03. Taxes on Personal Property. In addition to, and wholly apart from
its obligation to pay Tenant's Proportionate Share of Increased Property Taxes,
Tenant shall be responsible for, and shall pay prior to delinquency, all taxes
or governmental service fees, possessory interest taxes, fees or charges in lieu
of any such taxes, capital levies, and any other charges imposed upon, levied
with respect to, or assessed against Tenant's personal property and on its
interest pursuant to this Lease. To the extent that any such taxes are not
separately assessed or billed to Tenant, Tenant shall pay the amount thereof as
invoiced to Tenant by Landlord.
5.04. Repairs by Tenant. Tenant shall be obligated to maintain and repair
the Leased Premises, to keep the same at all times in good order, condition and
repair, and, upon expiration of the Term, to surrender the same to Landlord in
the same condition as on the Term Commencement Date, reasonable wear and tear,
taking by condemnation, casualty, and damage that is Landlord's responsibility
under Section 7.07 not caused by Tenant, its agents, employees, contractors,
invitees and licensees excepted. Tenant's obligations shall include, without
limitation, the obligation to maintain and repair all walls, floors, ceilings
and fixtures and to repair all damage caused by Tenant, its agents, employees,
contractors, invitees and others using the Leased Premises with Tenant's
expressed or implied permission. At the request of Tenant, Landlord shall
perform the work of maintenance and repair constituting Tenant's obligation
under this Section 5.04 at Tenant's sole cost and expense and as an extra
service to be rendered pursuant to Section 4.02(e). Any work of repair and
maintenance performed by or for the account of Tenant by persons other than
Landlord shall be performed by contractors approved by Landlord and in
accordance with procedures Landlord shall from time to time establish. Tenant
shall give Landlord prompt notice of any damage to or defective condition in any
part of the Building's mechanical, electrical, plumbing, life safety or other
system servicing, located in or passing through the Leased Premises.
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5.05. Waste. Tenant shall not commit or allow any waste or damage to be
committed in any portion of the Leased Premises or the Project.
5.06. Assignment or Sublease.
(a) Tenant shall not voluntarily or by operation of law assign,
transfer or encumber (collectively "Assign") or sublet all or any part of
Tenant's interest in this Lease or in the Leased Premises without Landlord's
prior written consent given under and subject to the terms of this Section 5.06.
Notwithstanding anything to the contrary contained in this Lease, Landlord and
Tenant agree as follows, Tenant may assign this Lease or sublet the Leased
Premises, or any portion thereof, without Landlord's consent: (i) to any entity
which controls, is controlled by, or is under common control with Tenant; (ii)
to any entity which results from a merger of, reorganization of, or
consolidation with Tenant; or (iii) to any entity which acquires substantially
all of the stock or assets of Tenant, as a going concern, with respect to the
business that is being conducted in the Leased Premises (hereinafter each a
"Permitted Transfer"). In addition, a sale or transfer of the capital stock of
Tenant shall be deemed a Permitted Transfer if (1) such sale or transfer occurs
in connection with any bona fide financing or capitalization for the benefit of
Tenant, or (2) Tenant is or becomes a publicly traded corporation. Landlord
shall have no right to terminate the Lease in connection with, and shall have no
right to any sums or other economic consideration resulting from any Permitted
Transfer.
(b) If Tenant desires to Assign this Lease or any interest herein or
sublet the Leased Premises or any part thereof, Tenant shall give Landlord
written notice of such intent. Tenant's notice shall specify the date the
proposed assignment or sublease would be effective and be accompanied by
information pertinent to Landlord's determination as to the financial and
operational responsibility and appropriateness of the proposed assignee or
subtenant, including, without limitation, its name, business and financial
condition, financial details of the proposed transfer, the intended use
(including any modification) of the Leased Premises, and exact copies of all of
the proposed agreement(s) between Tenant and the proposed assignee or subtenant.
Tenant shall promptly provide Landlord with (i) such other or additional
information or documents reasonably requested (within ten (10) days after
receiving Tenant's notice) by Landlord, and (ii) an opportunity to meet and
interview the proposed assignee or subtenant, if requested by Landlord.
(c) Landlord shall have a period of twenty (20) days following such
interview and receipt of such additional information (or thirty (30) days from
the date of Tenant's original notice if Landlord does not request additional
information or an interview) within which to notify Tenant in writing that
Landlord elects either (i) to terminate this Lease as to the space so affected
as of the effective date specified by Tenant, in which event Tenant will be
relieved of all further obligations hereunder as to such space, or (ii) to
permit Tenant to Assign this Lease or sublet such space, subject, however, to
prior written approval of the proposed assignee or sublessee by Landlord, such
consent not to be unreasonably withheld so long as the use of the Leased
Premises by such proposed assignee or sublessee would be a Permitted Use, the
proposed assignee or sublessee is of sound financial condition as determined by
Landlord in its reasonable discretion, the proposed assignee or sublessee
executes such reasonable assumption documentation as Landlord shall require, and
the proposed assignee or sublessee is not (x) already a tenant in the Building
or (y) a party with whom Landlord has been discussing the leasing of space in
the Building. If Landlord fails to notify Tenant in writing of such election
within said period, Landlord shall be deemed to have waived option (i) above,
but written approval by Landlord of the proposed assignee or sublessee shall
still be required. Failure by Landlord to approve a proposed subtenant or
assignee shall not cause a termination of this Lease.
(d) In the event Tenant shall request the consent of Landlord to any
assignment or subletting hereunder, Tenant shall pay Landlord a processing fee
of $250.00 and shall reimburse Landlord for
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Landlord's reasonable attorneys' fees incurred in connection therewith. All such
fees shall be deemed Additional Rent under this Lease.
(e) Any rent or other consideration realized by Tenant under any
such sublease or assignment in excess of (i) the Rent payable hereunder, (ii)
any reasonable tenant improvement allowance or other economic concession (e.g.,
space planning allowance, moving expenses, free or reduced rent periods, etc.),
(iii) any advertising costs and brokerage commissions associated with such
assignment or sublease, and (iv) any reasonable legal fees associated with such
assignment or sublease ("Profit"), shall be divided and paid as follows: forty
percent (40%) to Tenant and sixty percent (60%) to Landlord; provided, however,
that if Tenant is in default hereunder beyond any applicable cure period,
Landlord shall be entitled to all such excess rent.
(f) In any subletting undertaken by Tenant, Tenant shall diligently
seek to obtain not less than fair market rent for the space to sublet. In any
assignment of this Lease in whole or in part, Tenant shall seek to obtain from
the assignee consideration reflecting a value of not less than fair market rent
for the space subject to such assignment.
(g) The consent of Landlord to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by Tenant or
to any subsequent or successive assignment or subletting by the assignee or
subtenant. However, Landlord may consent to subsequent assignments and
sublettings of the Lease or sublease or amendments or modifications thereto,
without notifying Tenant or any other party liable on the Lease or sublease and
without obtaining their consent. Such action shall not relieve Tenant or any
such other party from liability under this Lease or a sublease.
(h) No assignment or subletting by Tenant shall relieve Tenant of
any obligation under this Lease. In the event of default by an assignee or
subtenant of Tenant or any successor of Tenant in the performance of any of the
terms hereof, Landlord may proceed directly against Tenant without the necessity
of exhausting remedies against such assignee, subtenant or successor. Any
assignment or subletting which conflicts with the provisions hereof shall be
void and, at Landlord's option, shall constitute a default under this Lease.
(i) Notwithstanding anything to the contrary contained within this
Section 5.06, Landlord acknowledges that, although Tenant anticipates that its
space needs will encompass the total of the Leased Premises at some point in the
near future, a portion of the space which Tenant is currently accepting and
leasing may be initially determined to be in excess of Tenant's current short
term space planning needs. As a result, should Tenant submit a request to
Landlord for Landlord's consent to Tenant's sublease of a portion of the Leased
Premises, which sublease term will expire within the first thirty (30) months of
the Term and such sublease along with all other current subleases and
assignments, in the aggregate, do not exceed 15,674 rentable square feet, such
request shall not be subject to Landlord's right of recapture pursuant to
Section 5.06(c) above.
5.07. Alterations, Additions and Improvements.
(a) Tenant shall not make or allow to be made any alterations or
additions in or to the Leased Premises without first obtaining the written
consent of Landlord unless such alteration or addition has a cost of less than
$5,000.00. Landlord's consent will not be unreasonably withheld with respect to
proposed alterations and additions which (i) comply with all applicable laws,
ordinances, rules and regulations; (ii) are compatible with and does not
adversely affect the Building and its mechanical, telecommunication, electrical,
heating, ventilation and life safety systems; (iii) will not affect the
structural portions of the Building; (iv) will not interfere with the use and
occupancy of any other portion of the Building by any other tenant, its
employees
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or invitees; and (v) will not trigger any additional costs to Landlord.
Specifically, but without limiting the generality of the foregoing, Landlord's
right of consent shall encompass plans and specifications for the proposed
alterations or additions, construction means and methods, the identity of any
contractor or subcontractor to be employed on the work of alterations or
additions, and the time for performance of such work. Tenant shall supply to
Landlord any additional documents and information requested by Landlord in
connection with Tenant's request for consent hereunder.
(b) Any consent given by Landlord under this Section 5.07 shall be
deemed conditioned upon: (i) Tenant's acquiring all applicable permits required
by governmental authorities; (ii) Tenant's furnishing to Landlord copies of such
permits, together with copies of the approved plans and specifications, prior to
commencement of the work thereon; and (iii) the compliance by Tenant with the
conditions of all applicable permits and approvals in a prompt and expeditious
manner.
(c) Tenant shall provide Landlord with not less than fifteen (15)
days prior written notice of commencement of the work so as to enable Landlord
to post and record appropriate notices of non-responsibility. All alterations
and additions permitted hereunder shall be made and performed by Tenant without
cost or expense to Landlord. Tenant shall pay the contractors and suppliers all
amounts due to them when due and keep the Leased Premises and the Project free
from any and all mechanics', materialmen's and other liens and claims arising
out of any work performed, materials furnished or obligations incurred by or for
Tenant. Landlord may require, at its sole option, that Tenant provide to
Landlord, at Tenant's expense, a lien and completion bond in an amount equal to
the total estimated cost of any alterations, additions or improvements to be
made in or to the Leased Premises, to protect Landlord against any liability for
mechanics', materialmen's and other liens and claims, and to ensure timely
completion of the work. In the event any alterations or additions to the Leased
Premises are performed by Landlord hereunder, whether by prearrangement or
otherwise, Landlord shall be entitled to charge Tenant a ten percent (10%)
administration fee in addition to the actual costs of labor and materials
provided. Such costs and fees shall be deemed Additional Rent under this Lease,
and may be charged and payable prior to commencement of the work.
(d) Any and all alterations, additions or improvements made to the
Leased Premises by Tenant shall become the property of Landlord upon
installation and shall be surrendered to Landlord without compensation to Tenant
upon the termination of this Lease by lapse of time or otherwise unless (i)
Landlord conditioned its approval of such alterations, additions or improvements
on Tenant's agreement to remove them, or (ii) if Tenant did not provide a
Removal Determination Request (as defined below), Landlord notifies Tenant prior
to (or promptly after) the Term Expiration Date that the alterations, additions
and/or improvements must be removed, in which case Tenant shall, by the Term
Expiration Date (or promptly thereafter), remove such alterations, additions and
improvements, repair any damage resulting from such removal and restore the
Leased Premises to their condition existing prior to the date of installation of
such alterations, additions and improvements, normal wear, tear and damage by
casualty excepted. Prior to making any alterations, additions or improvements to
the Leased Premises, Tenant may make a written request that Landlord determine
in advance whether or not Tenant must remove such alterations, additions or
improvements on the Term Expiration Date ("Removal Request Determination").
Notwithstanding anything to the contrary set forth above, this clause shall not
apply to movable equipment or furniture owned by Tenant.
(e) All alterations, additions and improvements permitted under this
Section 5.07 shall be constructed diligently, in a good and workmanlike manner
with new, good and sufficient materials and in compliance with all applicable
laws, ordinances, rules and regulations (including, without limitation, building
codes and those related to accessibility and use by individuals with
disabilities). Tenant shall, promptly upon completion of the work, furnish
Landlord with "as built" drawings for any alterations, additions or improvements
performed under this Section 5.07.
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5.08. Compliance With Laws and Insurance Standards. Tenant shall not
occupy or use, or permit any portion of the Leased Premises to be occupied or
used in a manner that violates any applicable law, ordinance, rule, regulation,
order, permit, covenant, easement or restriction of record, or the
recommendations of Landlord's engineers or consultants, relating in any manner
to the Project, or for any business or purpose which is disreputable,
objectionable or productive of fire hazard. Tenant shall not do or permit
anything to be done which would result in the cancellation, or in any way
increase the cost, of the all risk property insurance coverage on the Project
and/or its contents. If Tenant does or permits anything to be done which
increases the cost of any insurance covering or affecting the Project, then
Tenant shall reimburse Landlord, upon demand, as Additional Rent, for such
additional costs. Landlord shall deliver to Tenant a written statement setting
forth the amount of any such insurance cost increase and showing in reasonable
detail the manner in which it has been computed. Tenant shall, at Tenant's sole
cost and expense, comply with all laws, ordinances, rules, regulations and
orders (state, federal, municipal or promulgated by other agencies or bodies
having or claiming jurisdiction) related specifically to the use or occupancy of
the Leased Premises by Tenant, which are now in effect or which may hereafter
come into effect including, but not limited to, (a) accessibility and use by
individuals with disabilities, and (b) environmental conditions in, on or about
the Leased Premises. If anything done by Tenant in its use or occupancy of the
Leased Premises shall create, require or cause imposition of any requirement by
any public authority for structural or other upgrading of or alteration or
improvement to the Project, Tenant shall, at Landlord's option, either perform
the upgrade, alteration or improvement at Tenant's sole cost and expense or
reimburse Landlord upon demand, as Additional Rent, for the cost to Landlord of
performing such work. The judgment of any court of competent jurisdiction or the
admission by Tenant in any action against Tenant, whether Landlord is a party
thereto or not, that Tenant has violated any law, ordinance, rule, regulation,
order, permit, covenant, easement or restriction shall be conclusive of that
fact as between Landlord and Tenant.
5.09. No Nuisance; No Overloading. Tenant shall use and occupy the Leased
Premises, and control its agents, employees, contractors, invitees and visitors
in such manner so as not to create any nuisance, or interfere with, annoy or
disturb (whether by noise, odor, vibration or otherwise) any other tenant or
occupant of the Project or Landlord in its operation of the Project. Tenant
shall not place or permit to be placed any loads upon the floors, walls or
ceilings in excess of the maximum designed load specified by Landlord or which
might damage the Leased Premises, the Building, or any portion thereof.
5.10. Furnishing of Financial Statements; Tenant's Representations. In
order to induce Landlord to enter into this Lease, Tenant agrees that it shall
promptly furnish Landlord, from time to time, within ten (10) business days of
receipt of Landlord's written request therefor, with financial statements in
form and substance reasonably satisfactory to Landlord reflecting Tenant's
current financial condition. Tenant represents and warrants that all financial
statements, records and information furnished by Tenant to Landlord in
connection with this Lease are true, correct and complete in all material
respects. Landlord shall not request financial statements from Tenant more than
four (4) times per calendar year and Landlord or Landlord's lender shall keep
the information contained therein in confidence. Furthermore, Tenant's
obligations with respect to financial statements shall be limited to Tenant's
financial statements existing as of the time of the request.
5.11. Entry by Landlord. Landlord, its employees, agents and consultants,
shall have the right to enter the Leased Premises at any time, in cases of an
emergency, and otherwise at reasonable times (upon twenty-four (24) hours
notice) to inspect the same, to clean, to perform such work as may be permitted
or required under this Lease, to make repairs to or alterations of the Leased
Premises or other portions of the Project or other tenant spaces therein, to
deal with emergencies, to post such notices as may be permitted or required by
law to prevent the perfection of liens against Landlord's interest in the
Project or to show the Leased Premises to prospective tenants, purchasers,
encumbrances or others, or for any other purpose as Landlord may deem necessary
or desirable; provided, however, that Landlord shall use its best efforts to
minimize interference with Tenant's business operations in the Leased Premises.
Tenant shall not be entitled
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to any abatement of Rent or damages by reason of the exercise of any such right
of entry. In the event of any entry by Landlord onto the Leased Premises,
Landlord shall use its best efforts not to interfere with the conduct of
Tenant's business.
5.12. Nondisturbance and Attornment.
(a) This Lease and the rights of Tenant hereunder shall be subject
and subordinate to the lien of any deed of trust, mortgage or other
hypothecation or security instrument (collectively, "Security Device") now or
hereafter placed upon, affecting or encumbering the Project or any part thereof
or interest therein, and to any and all advances made thereunder, interest
thereon or costs incurred and any modifications, renewals, supplements,
consolidations, replacements and extensions thereof. With respect to any
Security Device entered into by Landlord after execution of this Lease, such
subordination is conditioned on Landlord obtaining assurance in a commercially
reasonable form (a "nondisturbance agreement") from the holder of or beneficiary
under such encumbrance that Tenant's possession of the Leased Premises will not
be disturbed so long as Tenant is not in default under this Lease and attorns to
the record owner of the Leased Premises. Without the consent of Tenant, the
holder of any such Security Device or the beneficiary thereunder shall have the
night to elect to be subject and subordinate to this Lease, such subordination
to be effective upon such terms and conditions as such holder or beneficiary may
direct which are not inconsistent with the provisions hereof. Tenant agrees to
attorn to and recognize as the Landlord under this Lease the holder or
beneficiary under a Security Device or any other party that acquires ownership
of the Leased Premises by reason of a foreclosure or sale under any Security
Device (or deed in lieu thereof). The new owner following such foreclosure, sale
or deed shall not be (i) liable for any act or omission of any prior landlord or
with respect to events occurring prior to acquisition of ownership; (ii) subject
to any offsets or defenses which Tenant might have against any prior landlord;
(iii) bound by prepayment of more than one (1) month's Rent; or (iv) liable to
Tenant for any security deposit not actually received by such new owner.
(b) Tenant shall not unreasonably withhold its consent to changes or
amendments to this Lease requested by the holder of a Security Device so long as
these changes do not alter the basic business terms of this Lease or otherwise
materially diminish any rights or materially increase any obligations of Tenant
hereunder. If, within ten (10) business days after notice from Landlord, Tenant
fails or refuses to execute with Landlord the amendment(s) to this Lease
accomplishing the change(s) or amendment(s) which are requested by such holder,
Landlord, at its sole option, shall have the right to execute any instrument for
or on behalf of Tenant as its attorney-in-fact.
5.13. Estoppel Certificate. Within ten (10) days following either party's
request, the other party shall execute, acknowledge and deliver written estoppel
certificates addressed to the persons or parties identified in such request, on
a form specified by such requesting party, certifying as to such facts (if true)
and agreeing to such notice provisions and other matters as such mortgagee(s) or
purchaser(s) may reasonably require, including, without limitation, the
following: (a) that this Lease is unmodified and in full force and effect (or in
full force and effect as modified, and stating the modifications); (b) the
amount of, and date to which Rent and other charges have been paid in advance;
(c) the amount of any Security Deposit; and (d) acknowledging that neither party
is in default under this Lease (or, if a party is claimed to be in default,
stating the nature of the alleged default). However, in no event shall any such
estoppel certificate require an amendment of the provisions of this Lease or
otherwise affect or abridge a party's rights hereunder. Any such estoppel
certificate may be relied upon by any such person or party designated in such
request. Failure by a party to execute and deliver any such estoppel certificate
within the time requested shall be conclusive upon such party that (1) this
Lease is in full force and effect and has not been modified except as
represented by the requesting party; (2) not more than one month's Rent has been
paid in advance; and (3) neither party is in default under this Lease.
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5.14. Security Deposit.
(a) Concurrently with the execution hereof, Tenant shall pay to
Landlord the agreed upon Security Deposit as security for the full and faithful
performance of Tenant's obligations under this Lease. If at any time during the
Term, Tenant shall be in default in the payment of Rent or in default for any
other reason, Landlord may use, apply or retain all or part of the Security
Deposit for payment of any amount due Landlord or to cure such default or to
reimburse or compensate Landlord for any liability, loss, cost, expense or
damage (including attorneys' fees) which Landlord may suffer or incur by reason
of Tenant's defaults. If Landlord uses or applies all or any part of the
Security Deposit, Tenant shall, on demand, pay to Landlord a sum sufficient to
restore the Security Deposit to the full amount required by this Lease. Upon
expiration of the Term or earlier termination of this Lease and after Tenant has
vacated the Leased Premises, Landlord shall return the Security Deposit to
Tenant, reduced by such amounts as may be required by Landlord to remedy
defaults on the part of Tenant in the payment of Rent, to repair damages to the
Leased Premises caused by Tenant and to clean the Leased Premises. The portion
of the deposit not so required shall be paid over to Tenant (or, at Landlord's
option, to the last assignee of Tenant's interest in this Lease) within thirty
(30) days after expiration of the Term or earlier termination hereof. Landlord
shall hold the Security Deposit for the foregoing purposes; provided, however,
that Landlord shall have no obligation to segregate the Security Deposit from
its general funds or to pay interest in respect thereof. No part of the Security
Deposit shall be considered to be held in trust, or to be prepayment of any
monies to be paid by Tenant under this Lease.
(b) In lieu of a cash deposit, Tenant may deliver the Security
Deposit to Landlord in the form of a clean and irrevocable letter of credit (the
"Letter of Credit") issued by and drawable upon (said issuer being referred to
as the "Issuing Bank") a financial institution which is approved by Landlord in
its sole discretion, provided that Landlord shall not unreasonably withhold its
consent to an Issuing Bank which has outstanding unsecured, uninsured and
unguaranteed indebtedness, or shall have issued a letter of credit or other
credit facility that constitutes the primary security for any outstanding
indebtedness (which is otherwise uninsured and unguaranteed), that is then
rated, without regard to qualification of such rating by symbols such as "+" or
"-" or numerical notation, "Aa" or better by Moody's Investors Service and "AA"
or better by Standard & Poor's Rating Service, and has combined capital, surplus
and undivided profits of not less than $100,000,000. Such Letter of Credit shall
(a) name Landlord as beneficiary, (b) be in the amount of the Security Deposit,
(c) have a term of not less than one year, (d) permit multiple drawings, (e) be
fully transferable by Landlord, and (f) otherwise be in form and content
reasonably satisfactory to Landlord. If upon any transfer of the Letter of
Credit, any fees or charges shall be so imposed, then such fees or charges for
the first (1st) transfer only shall be payable solely by Tenant. The Letter of
Credit shall provide that it shall be deemed automatically renewed, without
amendment, for consecutive periods of one year each thereafter during the Term
unless the Issuing Bank sends a notice (the "Non-Renewal Notice") to Landlord by
certified mail, return receipt requested, not less than 45 days next preceding
the then expiration date of the Letter of Credit stating that the Issuing Bank
has elected not to renew the Letter of Credit. Landlord shall have the right,
upon receipt of the Non-Renewal Notice, to draw the full amount of the Letter of
Credit, by sight draft on the Issuing Bank, and shall thereafter hold or apply
the cash proceeds of the Letter of Credit pursuant to the terms of this Article.
The Issuing Bank shall agree with all drawers, endorsers and bona fide holders
that drafts drawn under and in compliance with the terms of the Letter of Credit
will be duly honored upon presentation to the Issuing Bank at an office location
in San Francisco. The Letter of Credit shall be subject in all respects to the
Uniform Customs and Practice for Documentary Credits (1993 revision),
International Chamber of Commerce Publication No. 500. Notwithstanding the
foregoing, Landlord approves Silicon Valley Bank as an Issuing bank.
(c) If at any time during the first twenty-four (24) months of the
Term Tenant shall become a publicly traded company and Tenant has achieved an
audited net worth (as defined by GAAP) of $55,000,000, the Security Deposit
shall be reduced by fifty percent (50%). If the Security Deposit is reduced
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by fifty percent (50%) as provided for in the previous sentence and during the
first twenty-four (24) months of the Term Tenant's audited net worth (as defined
by GAAP) falls below $35,000,000, the amount of the Security Deposit shall be
increased to the amount prior to the fifty percent (50%) reduction.
(d) Notwithstanding anything in this Section 5.14 to the contrary,
the amount of the Security Deposit shall be reduced by thirty-three percent
(33%) on the last day of the twenty-fourth (24th), thirty-sixth (36th) and
forty-eighth (48th) months of the Term; however, in no event shall the Security
Deposit be less than two (2) months of Base Rent payable for the Leased Premises
during month sixty (60) of the Term.
5.15. Surrender. Subject to the provisions of Section 5.07 hereof, on the
Term Expiration Date (or earlier termination of this Lease), Tenant shall quit
and surrender possession of the Leased Premises to Landlord in as good order and
condition as they were in on the Term Commencement Date, reasonable wear and
tear, taking by condemnation, casualty and repairs which are Landlord's
responsibility excepted. Reasonable wear and tear shall not include any damage
or deterioration that would have been prevented by good maintenance practice or
by Tenant performing all of its obligations under this Lease. Tenant shall,
without cost to Landlord, remove all furniture, equipment, trade fixtures,
debris and articles of personal property owned by Tenant in the Leased Premises,
and shall repair any damage to the Project resulting from such removal. Any such
property not removed by Tenant following Tenant's vacation and the Term
Expiration Date (or earlier termination of this Lease) shall be considered
abandoned, and Landlord may remove any or all of such items and dispose of same
in any lawful manner or store same in a public warehouse or elsewhere for the
account and at the expense and risk of Tenant. If Tenant shall fail to pay the
cost of storing any such property after storage for thirty (30) days or more,
Landlord may sell any or all of such property at public or private sale, in such
manner and at such times and places as Landlord may deem proper, without notice
to or demand upon Tenant. Landlord shall apply the proceeds of any such sale as
follows: first, to the costs of such sale; second, to the costs of storing any
such property; third, to the payment of any other sums of money which may then
or thereafter be due to Landlord from Tenant under any of the terms of this
Lease; and fourth, the balance, if any, to Tenant.
5.16. Tenant's Remedies. Landlord shall not be deemed in breach of this
Lease unless Landlord fails within a reasonable time to perform an obligation
required to be performed by Landlord. For purposes of this Section 5.16, a
reasonable time shall in no event, be less than thirty (30) days after receipt
by Landlord, and by the holders of any ground lease, deed of trust or mortgage
covering the Leased Premises whose name and address shall have been furnished
Tenant in writing for such purpose, of written notice specifying wherein such
obligation of Landlord has not been performed; provided, however, that if the
nature of Landlord's obligation is such that more than thirty (30) days after
such notice are reasonably required for its performance, then Landlord shall not
be in breach of this Lease if performance is commenced within said thirty (30)-
day period and thereafter diligently pursued to completion. If Landlord falls to
cure such default within the time provided for in this Lease, the holder of any
such ground lease, deed of trust or mortgage shall have an additional thirty
(30) days to cure such default; provided that if such default cannot reasonably
be cured within that thirty (30) day period, then such holder shall have such
additional time to cure the default as is reasonably necessary under the
circumstances. Tenant shall look solely to Landlord's interest in the Project
for recovery of any judgment from Landlord. Neither Landlord nor any of its
trustees, directors, officers, agents, employees or representatives (or, if
Landlord is a partnership, its partners, whether general or limited) shall ever
be personally liable for any such judgment. Any lien obtained to enforce any
such judgment and any levy of execution thereon shall be subject and subordinate
to any lien, deed of trust or mortgage to which Section 5.12 applies or may
apply. Tenant shall not have the right to terminate this Lease or withhold,
reduce or offset any amount against any payments of Rent due and payable under
this Lease solely by reason of a breach of this Lease by Landlord.
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5.17. Rules and Regulations. Tenant shall comply with the rules and
regulations for the Project attached as Exhibit D and such reasonable amendments
---------
thereto as Landlord may adopt from time to time with prior notice to Tenant.
Article 6.
Environmental Matters
6.01. Hazardous Materials Prohibited.
(a) Tenant shall not cause or permit any Hazardous Material (as
defined in Section 6.01(c) below) to be brought, kept, used, generated, released
or disposed in, on, under or about the Leased Premises or the Project by Tenant,
its agents, employees, contractors or invitees; provided, however, that Tenant
may use, store and dispose of, in accordance with applicable Laws, limited
quantities of standard office and janitorial supplies, but only to the extent
reasonably necessary for Tenant's operations in the Leased Premises. Tenant
hereby indemnifies Landlord from and against (i) any breach by Tenant of the
obligations stated in the preceding sentence, (ii) any breach of the obligations
stated in Section 6.01(b) below, or (iii) any claims or liability resulting from
Tenant's use of Hazardous Materials. Tenant hereby agrees to defend and hold
Landlord harmless from and against any and all claims, liability, losses,
damages, costs and/or expenses (including, without limitation, diminution in
value of the Project, or any portion thereof, damages for the loss or
restriction on use of rentable or usable space or of any amenity of the Project,
damages arising from any adverse impact on marketing of space in the Project,
and sums paid in settlement of claims, fines, penalties, attorneys' fees,
consultants' fees and experts' fees) which arise during or after the Term as a
result of any breach of the obligations stated in Sections 6.01(a) or 6.01(b) or
otherwise resulting from Tenant's use of Hazardous Materials. This
indemnification of Landlord by Tenant includes, without limitation, death of or
injury to person, damage to any property or the environment and costs incurred
in connection with any investigation of site conditions or any cleanup,
remedial, removal, or restoration work required by any federal, state or local
governmental agency or political subdivision because of any Hazardous Material
present in, on, under or about the Leased Premises or the Project (including
soil and ground water contamination) which results from such a breach. Without
limiting the foregoing, if the presence of any Hazardous Material in, on, under
or about the Leased Premises or the Project caused or permitted by Tenant
results in any contamination of the Leased Premises or the Project, Tenant shall
promptly take all actions at its sole expense as are necessary to return the
same to the condition existing prior to the introduction of such Hazardous
Material; provided that Landlord's approval of such actions, and the contractors
to be used by Tenant in connection therewith, shall first be obtained. This
indemnification of Landlord by Tenant shall survive the expiration or sooner
termination of this Lease.
(b) Tenant covenants and agrees that Tenant shall at all times be
responsible and liable for, and be in compliance with, all federal, state, local
and regional laws, ordinances, rules, codes and regulations, as amended from
time to time ("Governmental Requirements"), relating to health and safety and
environmental matters, arising, directly or indirectly, out of the use of
Hazardous Materials (as defined in Section 6.01(c) below) in the Project. Health
and safety and environmental matters for which Tenant is responsible under this
paragraph include, without limitation (i) notification and reporting to
governmental agencies, (ii) the provision of warnings of potential exposure to
Hazardous Materials to Landlord and Tenant's agents, employees, licensees,
contractors and others, (iii) the payment of taxes and fees, (iv) the proper of
f-site transportation and disposal of Hazardous Materials, and (v) all
requirements, including training, relating to the use of equipment. Immediately
upon discovery of a release of Hazardous Materials associated with Tenant's
activities, Tenant shall give written notice to Landlord, whether or not such
release is subject to reporting under Governmental Requirements. The notice
shall include information on the nature and conditions
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of the release and Tenant's planned response. Tenant shall be liable for the
cost of any clean-up of the release of any Hazardous Materials by Tenant on the
Project.
(c) As used in this Lease, 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 of California or the United States
Government. The term "Hazardous Material" includes, without limitation, any
substance, material or waste which is (i) defined as a "hazardous waste" or
similar term under the laws of the jurisdiction where the Project is located;
(ii) designated as a "hazardous substance" pursuant to Section 311 of the
Federal Water Pollution Control Act (33 U.S.C. (S) 1317); (iii) defined as a
"hazardous waste" pursuant to Section 1004 of the Federal Resource, Conservation
and Recovery Act, 42 U.S.C. (S) 6901 et seq. (42 U.S.C. (S) 6903); (iv) defined
as a "hazardous substance" pursuant to Section 101 of the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. (S) 9601 et
seq. (42 U.S.C. (S) 9601); (v) hydrocarbons, petroleum, gasoline, crude oil or
any products, by-products or fractions thereof; or (vi) asbestos in any form or
condition.
(d) As used in this Article 6, the term "Laws" means any applicable
federal, state or local laws, ordinances, rules or regulations relating to any
Hazardous Material affecting the Project, including, without limitation, the
specific laws, ordinances and regulations referred to in Section 6.01(c) above.
References to specific Laws shall also be references to any amendments thereto
and to any applicable successor Laws.
(e) To the best of Landlord's knowledge, except as disclosed in the
environmental reports (the "Environmental Reports") provided to Tenant by
Landlord (at Landlord's sole cost and expense) (i) there are no Hazardous
Materials in the Building, and (ii) the Building is in compliance with all Laws
relating to any Hazardous Material. Landlord's knowledge is limited to the
matters contained in the Environmental Reports. Tenant acknowledges its receipt
and review of the Environmental Reports prior to entering into this Lease.
Landlord represents and warrants that (i) during the period of its ownership of
the Project prior to entering into this Lease, it has not released any Hazardous
Materials on the Project, and (ii) after entering into this Lease, Landlord will
not release any Hazardous Materials on the Project. Landlord hereby agrees to
indemnify, protect, defend and hold the Tenant harmless of and from any and all
claims, liability, costs, penalties, fines, damages, injury, judgments,
forfeiture, losses or expenses (including without limitation reasonable
attorneys' fees) arising out of or in any way related to any breach by Landlord
of its representations and warranties in this Section 6.01(e) and Landlord shall
be liable for the cost of any clean-up of the release of any Hazardous Materials
by Landlord on the Project. Landlord, at its sole expense, shall cause to be
removed any asbestos or other Hazardous Materials discovered in the Leased
Premises (except any Hazardous Materials installed by Tenant or part of the
Tenant Improvements) during the term of this Lease required by Government
Requirements to be removed and Landlord shall restore the Leased Premises to its
condition prior to the removal of such Hazardous Materials. Landlord hereby
agrees to indemnify, protect, defend and hold the Tenant harmless of and from
any and all claims, liability, costs, penalties, fines, damages, injury,
judgments, forfeiture, losses or expenses (including without limitation
reasonable attorneys' fees) arising out of or in any way related to or resulting
from any Hazardous Materials discovered in the Leased Premises or on the Project
with were not brought, kept, used, generated, released or disposed in, on, under
or about the Leased Premises or the Project by Tenant, its agents, employees,
contractors or invitees.
6.02. Limitations on Assignment and Subletting. It shall not be
unreasonable for Landlord to withhold its consent to any proposed assignment or
subletting of the Leased Premises if (i) the proposed transferee's anticipated
use of the Leased Premises involves the generation, storage, use, treatment, or
disposal of Hazardous Material (excluding standard office and janitorial
supplies; in limited quantities as hereinabove provided); (ii) the proposed
transferee has been required by any prior landlord, lender or government
authority to take remedial action in connection with Hazardous Material
contaminating a property if the contamination
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resulted from such transferee's actions or use of the property in question; or
(iii) the proposed transferee is subject to an enforcement order issued by any
governmental authority in connection with the generation, storage, use,
treatment or disposal of a Hazardous Material.
6.03. Right of Entry. Landlord, its employees, agents and consultants,
shall have the right to enter the Leased Premises at any time, in case of an
emergency, and otherwise during reasonable hours and upon reasonable notice to
Tenant (upon twenty-four (24) hours notice), in order to conduct periodic
environmental inspections and tests to determine whether any Hazardous Materials
are present. The costs and expenses of such inspections shall be paid by
Landlord unless a default or breach of this Lease, violation of Laws or
contamination caused or permitted by Tenant is found to exist. In such event,
Tenant shall reimburse Landlord upon demand, as Additional Rent, for the costs
and expenses of such inspections. In the event of any entry by Landlord onto the
Leased Premises, Landlord shall use its best efforts not to interfere with the
conduct of Tenant's business.
6.04. Notice to Landlord. Tenant shall immediately notify Landlord in
writing of: (i) any enforcement, clean-up, removal or other governmental or
regulatory action instituted or threatened regarding the Leased Premises or the
Project pursuant to any Laws; (ii) any claim made or threatened by any person
against Tenant or the Leased Premises relating to damage, contribution, cost
recovery, compensation, loss or injury resulting from or claimed to result from
any Hazardous Material; and (iii) any reports made to or received from any
governmental agency arising out of or in connection with any Hazardous Material
in or removed from the Leased Premises or the Project, including any complaints,
notices, warnings or asserted violations in connection therewith. Tenant shall
also supply to Landlord as promptly as possible, and in any event within three
(3) business days after Tenant first receives or sends the same, copies of all
claims, reports, complaints, notices, warnings, asserted violations or other
communications relating in any way to the Leased Premises or Tenant's use
thereof.
Article 7.
Insurance, Indemnity, Condemnation, Damage and Default
7.01. Landlord's Insurance. Landlord shall secure and maintain policies of
insurance for the Project (including the Leased Premises) covering loss of or
damage to the Project, including the Tenant Improvements, but excluding all
subsequent alterations, additions and improvements to the Leased Premises, with
loss payable to Landlord and to the holders of any deeds of trust, mortgages or
ground leases on the Project. Landlord shall not be obligated to obtain
insurance for Tenant's trade fixtures, equipment, furnishings, machinery or
other property. Such policies shall provide protection against fire and extended
coverage perils and such additional perils as Landlord deems suitable, and with
such deductible(s) as Landlord shall deem reasonably appropriate. Landlord shall
further secure and maintain commercial general liability insurance with respect
to the Project in such amount as Landlord shall determine, such insurance to be
in addition to, and not in lieu of, the liability insurance required to be
maintained by Tenant. In addition, Landlord may secure and maintain rental
income insurance. Landlord may elect to self-insure for the coverages required
under this Section 7.01. If the annual cost to Landlord for any such insurance
exceeds the standard rates because of the nature of Tenant's operations, Tenant
shall, upon receipt of appropriate invoices, reimburse Landlord for such
increases in cost, which amounts shall be deemed Additional Rent hereunder.
Tenant shall not be named as an additional insured on any policy of insurance
maintained by Landlord.
7.02. Tenant's Liability Insurance.
(a) Tenant (with respect to both the Leased Premises and the
Project) shall secure and maintain, at its own expense, at all times during the
Term, a policy or policies of commercial general liability
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insurance with the premiums thereto paid in advance, protecting Tenant and
naming Landlord, the holders of any deeds of trust, mortgages or ground leases
on the Project, and Landlord's representatives (which term, whenever used in
this Article 7, shall be deemed to include Landlord's partners, trustees,
ancillary trustees, officers, directors, shareholders, beneficiaries, agents,
employees and independent contractors) as additional insureds against claims for
bodily injury, personal injury, advertising injury and property damage
(including attorneys' fees) based upon, involving or arising out of Tenant's
operations, assumed liabilities or Tenant's use, occupancy or maintenance of the
Leased Premises and the Common Areas of the Project. Such insurance shall
provide for a minimum amount of Two Million Dollars ($2,000,000.00) for property
damage or injury to or death of one or more than one person in any one accident
or occurrence, with an annual aggregate limit of at least Two Million Dollars
($2,000,000.00). The coverage required to be carried shall include fire legal
liability, blanket contractual liability, personal injury liability (libel,
slander, false arrest and wrongful eviction), broad form property damage
liability, products liability and completed operations coverage (as well as
owned, non-owned and hired automobile liability if an exposure exists) and the
policy shall contain an exception to any pollution exclusion which insures
damage or injury arising out of heat, smoke or fumes from a hostile fire. Such
insurance shall be written on an occurrence basis and contain a separation of
insureds provision or cross-liability endorsement acceptable to Landlord. Tenant
shall provide Landlord with a certificate evidencing such insurance coverage.
The certificate shall indicate that the insurance provided specifically
recognizes the liability assumed by Tenant under this Lease (including without
limitation performance by Tenant under Section 7.04) and that Tenant's insurance
is primary to and not contributory with any other insurance maintained by
Landlord, whose insurance shall be considered excess insurance only. Not more
frequently than every two (2) years, if, in the opinion of any mortgagee of
Landlord or of the insurance broker retained by Landlord, the amount of
liability insurance coverage at that time is not adequate, then Tenant shall
increase its liability insurance coverage as required by either any mortgagee of
Landlord or Landlord's insurance broker.
(b) Tenant shall, at Tenant's expense, comply with (i) all insurance
company requirements pertaining to the use of the Leased Premises and (ii) all
rules, orders, regulations or requirements of the American Insurance Association
(formerly the National Board of Fire Underwriters) and with any similar body.
7.03. Tenant's Additional Insurance Requirements.
(a) Tenant shall secure and maintain, at Tenant's expense, at all
times during the Term, a policy of physical damage insurance on all of Tenant's
fixtures, furnishings, equipment, machinery, merchandise and personal property
in the Leased Premises and on any alterations, additions or improvements made by
or for Tenant upon the Leased Premises, all for the full replacement cost
thereof without deduction for depreciation of the covered items and in amounts
that meet any co-insurance clauses of the policies of insurance. Such insurance
shall insure against those risks customarily covered in an "all risk" policy of
insurance covering physical loss or damage. Tenant shall use the proceeds from
such insurance for the replacement of fixtures, furnishings, equipment and
personal property and for the restoration of any alterations, additions or
improvements to the Leased Premises. In addition, Tenant shall secure and
maintain, at all times during the Term, loss of income, business interruption
and extra expense insurance in such amounts as will reimburse Tenant for direct
or indirect loss of earnings and incurred costs attributable to all perils
commonly insured against by prudent tenants or attributable to prevention of
access to the Leased Premises or to the Building as a result of such perils;
such insurance shall be maintained with Tenant's property insurance carrier.
Further, Tenant shall secure and maintain at all times during the Term workers'
compensation insurance in such amounts as are required by law, employer's
liability insurance in the amount of One Million Dollars ($1,000,000.00) per
occurrence, and all such other insurance as may be required by applicable law or
as may be reasonably required by Landlord. In the event Tenant makes any
alterations, additions or improvements to the Leased Premises, prior to
commencing any work in the Leased Premises, Tenant shall secure "builder's all
risk" insurance which shall be maintained throughout the course of construction,
such policy being an all risk builder's risk completed value form, in an amount
approved by Landlord, but not less than the total contract
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price for the construction of such alterations, additions or improvements and
covering the construction of such alterations, additions or improvements, and
such other insurance as Landlord may require, it being understood and agreed
that all of such alterations, additions or improvements shall be insured by
Tenant pursuant to this Section 7.03 immediately upon completion thereof. Tenant
shall provide Landlord with certificates of all such insurance. The property
insurance certificate shall confirm that the waiver of subrogation required to
be obtained pursuant to Section 7.05 is permitted by the insurer. Tenant shall,
at least thirty (30) days prior to the expiration of any policy of insurance
required to be maintained by Tenant under this Lease, furnish Landlord with an
"insurance binder" or other satisfactory evidence of renewal thereof.
(b) All policies required to be carried by Tenant under this Lease
shall be issued by and binding upon a reputable insurance company of good
financial standing licensed to do business in the State of California with a
rating of at least A-VII, or such other rating as may be required by a lender
having a lien on the Project, as set forth in the most current issue of "Best's
Insurance Reports." Tenant shall not do or permit anything to be done that would
invalidate the insurance policies referred to in this Article 7. Evidence of
insurance provided to Landlord shall include an endorsement showing that
Landlord, its representatives and the holders of any deeds of trust, mortgages
or ground leases on the Project are included as additional insureds on general
liability insurance, and as loss payees for property insurance, to the extent
required hereunder, and an endorsement whereby the insurer agrees not to cancel,
non-renew or materially alter the policy without at least thirty (30) days prior
written notice to Landlord, its representatives and any mortgagee of Landlord.
(c) In the event that Tenant fails to provide evidence of insurance
required to be provided by Tenant under this Lease, prior to commencement of the
Term, and thereafter during the Term, within ten (10) days following Landlord's
request therefor, and thirty (30) days prior to the expiration date of any such
coverage, Landlord shall be authorized (but not required) to procure such
coverage in the amounts stated with all costs thereof (plus a fifteen percent
(15%) administrative fee) to be chargeable to Tenant and payable upon written
invoice therefor, which amounts shall be deemed Additional Rent hereunder.
(d) The minimum limits of insurance required by this Lease, or as
carried by Tenant, shall not limit the liability of Tenant nor relieve Tenant of
any obligation hereunder.
7.04. Indemnity and Exoneration.
(a) To the extent not prohibited by law, or unless due to the gross
negligence or willful misconduct of Landlord, Landlord and Landlord's
representatives shall not be liable for any loss, injury or damage to person or
property of Tenant, Tenant's agents, employees, contractors, invitees or any
other person, whether caused by theft, fire, act of God, acts of the public
enemy, riot, strike, insurrection, war, court order, requisition or order of
governmental body or authority or which may arise through repair, alteration or
maintenance of any part of the Project or failure to make any such repair or
from any other cause whatsoever, except as expressly otherwise provided in
Sections 7.06 and 7.07. Landlord shall not be liable for any loss, injury or
damage arising from any act or omission of any other tenant or occupant of the
Project, nor shall Landlord be liable under any circumstances for damage or
inconvenience to Tenant's business or for any loss of income or profit
therefrom.
(b) Tenant shall indemnify, protect, defend and hold the Project,
Landlord and its representatives, harmless of and from any and all claims,
liability, costs, penalties, fines, damages, injury, judgments, forfeiture,
losses (including without limitation diminution in the value of the Leased
Premises) or expenses (including without limitation attorneys' fees, consultant
fees, testing and investigation fees, expert fees and court costs) arising out
of or in any way related to or resulting directly or indirectly from (i) the use
or occupancy of the Leased Premises, (ii) the activities of Tenant, its agents,
employees, contractors or invitees in or about the Leased Premises or the
Project (where not covered by Landlord's insurance), (iii) any failure
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to comply with any applicable law, and (iv) any default or breach by Tenant in
the performance of any obligation of Tenant under this Lease; provided, however,
that the foregoing indemnity shall not be applicable to claims arising by reason
of the gross negligence or willful misconduct of Landlord.
(c) Tenant shall indemnify, protect, defend and hold the Project,
Landlord and its representatives, harmless of and from any and all claims,
liability, costs, penalties, fines, damages, injury, judgments, forfeiture,
losses (including without limitation diminution in the value of the Leased
Premises) or expenses (including without limitation attorneys' fees, consultant
fees, testing and investigation fees, expert fees and court costs) arising out
of or in any way related to or resulting directly or indirectly from work or
labor performed, materials or supplies furnished at the request of Tenant or in
connection with obligations incurred by or performance of any work done for the
account of Tenant in the Leased Premises or the Project unless such work is
performed by or at the direction of Landlord.
(d) The provisions of this Section 7.04 shall survive the expiration
or sooner termination of this Lease. BY SIGNING ITS INITIALS BELOW, TENANT
ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS THE MEANING AND RAMIFICATIONS OF
THE PROVISIONS SET FORTH IN THIS SECTION 7.04 AND FURTHER ACKNOWLEDGES THAT SUCH
PROVISIONS WERE SPECIFICALLY NEGOTIATED.
RAV
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Tenant's Initials
(e) To the extent not prohibited by law or not inconsistent with
Sections 7.04(a) and (b), Tenant shall not be liable for any loss, injury or
damage in or about the Project, nor shall Tenant be liable for any damage or
inconvenience to Landlord or Landlord's business or for any loss of income or
profit therefrom to the extent such loss, injury or damage arises from any gross
negligence or willful misconduct of Landlord.
(f) To the extent not prohibited by law or not inconsistent with
Sections 7.04(a) and (b), Landlord shall indemnify, protect, defend and hold
Tenant and its representatives, harmless of and from any and all claims,
liability, costs, penalties, fines, damages, injury, judgments, forfeiture,
losses or expenses (including without limitation reasonable attorneys' fees,
consultant fees, testing and investigation fees, expert fees and court costs) by
reason of (i) any damage or injury occurring on the Project to the extent that
such damage or injury shall be caused by or arise from any gross negligence or
willful misconduct by Landlord, (ii) Landlord's failure to comply with any
governmental laws, ordinances and regulations applicable to the Project, or
(iii) any default or breach beyond the expiration of the applicable cure period
on the part of Landlord in the performance of any obligation of Landlord to be
performed pursuant to this Lease; provided however, that the foregoing indemnity
shall not be applicable to claims to the extent arising by reason of any
negligence or willful misconduct of Tenant.
7.05. Waiver of Subrogation. Anything in this Lease to the contrary
notwithstanding, Landlord and Tenant each waives all rights of recovery, claim,
action or cause of action against the other, its agents (including partners,
both general and limited), trustees, officers, directors, and employees, for any
loss or damage that may occur to the Leased Premises, or any improvements
thereto, or the Project or any personal property of such party therein, by
reason of any cause required to be insured against under this Lease to the
extent of the coverage required, regardless of cause or origin, including
negligence of the other party hereto, provided that such party's insurance is
not invalidated thereby; and each party covenants that, to the fullest extent
permitted by law, no insurer shall hold any right of subrogation against such
other party. Tenant shall advise its insurers of the foregoing and such waiver
shall be a part of each policy maintained by Tenant which applies to the Leased
Premises, any part of the Project or Tenant's use and occupancy of any part
thereof.
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7.06. Condemnation.
(a) If the Leased Premises are taken under the power of eminent
domain or sold under the threat of the exercise of such power (all of which are
referred to herein as "condemnation"), this Lease shall terminate as to the part
so taken as of the date the condemning authority takes title or possession,
whichever first occurs (the "date of taking"). If the Leased Premises or any
portion of the Project is taken by condemnation to such an extent as to render
the Leased Premises untenantable as reasonably determined by Landlord, this
Lease shall, at the option of either party to be exercised in writing within
thirty (30) days after receipt of written notice of such taking, forthwith cease
and terminate as of the date of taking. All proceeds from any condemnation of
the Leased Premises shall belong and be paid to Landlord, subject to the rights
of any mortgagee of Landlord's interest in the Project or the beneficiary of any
deed of trust which constitutes an encumbrance thereon; provided that Tenant
shall be entitled to any compensation separately awarded to Tenant for Tenant's
relocation expenses or, loss of Tenant's trade fixtures. If this Lease continues
in effect after the date of taking pursuant to the provisions of this Section
7.06(a), Landlord shall proceed with reasonable diligence to repair, at its
expense, the remaining parts of the Project and the Leased Premises to
substantially their former condition to the extent that the same is feasible
(subject to reasonable changes which Landlord shall deem desirable) and so as to
constitute a complete and tenantable Project and Leased Premises. Gross Rent
shall abate to the extent appropriate during the period of restoration, and
Gross Rent shall thereafter be equitably adjusted according to the remaining
Rentable Area of the Leased Premises and the Building.
(b) In the event of a temporary taking of all or a portion of the
Leased Premises, there shall be no abatement of Rent and Tenant shall remain
fully obligated for performance of all of the covenants and obligations on its
part to be performed pursuant to the terms of this Lease. All proceeds awarded
or paid with respect thereto shall belong to Tenant.
7.07. Damage or Destruction. In the event of a fire or other casualty in
the Leased Premises, Tenant shall immediately give notice thereof to Landlord.
The following provisions shall then apply:
(a) If the damage is limited solely to the Leased Premises and the
Leased Premises can, in Landlord's reasonable opinion, be made tenantable with
all damage repaired within six (6) months from the date of damage, then Landlord
shall be obligated to rebuild the same to substantially their former condition
to the extent that the same is feasible (subject to reasonable changes which
Landlord shall deem desirable and such changes as may be required by applicable
law) and shall proceed with reasonable diligence to do so and this Lease shall
remain in full force and effect.
(b) If portions of the Project outside the boundaries of the Leased
Premises are damaged or destroyed (whether or not the Leased Premises are also
damaged or destroyed) and the Leased Premises and the Project can, in Landlord's
reasonable opinion, both be made tenantable with all damage repaired within six
(6) months from the date of damage or destruction, and provided that Landlord
determines that it is economically feasible, then Landlord shall be obligated to
rebuild the same to substantially their former condition to the extent that the
same is feasible (subject to reasonable changes which Landlord shall deem
desirable and such changes as may be required by applicable law) and shall
proceed with reasonable diligence to do so and this Lease shall remain in full
force and effect.
(c) Notwithstanding anything to the contrary contained in Sections
7.07(a) or 7.07(b) above, Landlord shall not have any obligation whatsoever to
repair, reconstruct or restore the Leased Premises when any damage thereto or to
the Project occurs during the last eighteen (18) months of the Term and Tenant
has not effectively exercised any option granted to Tenant to extend the Term.
Under such circumstances, Landlord shall promptly notify Tenant of its decision
not to rebuild, whereupon the Lease shall terminate as of the date of such
notice.
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(d) If neither Section 7.07(a) nor 7.07(b) above applies, Landlord
shall so notify Tenant within sixty (60) days after the date of the damage or
destruction and either Tenant or Landlord may terminate this Lease within thirty
(30) days after the date of such notice, such termination notice to be
immediately effective; provided, however, that Landlord shall have the right to
elect to reconstruct the Project and the Leased Premises, in which event (i)
Landlord shall notify Tenant of such election within said sixty (60) day period
and Tenant shall thereupon have no right to terminate this Lease, and (ii)
Landlord shall proceed with reasonable diligence to rebuild the Project and the
Leased Premises to substantially their former condition to the extent that the
same is feasible (subject to reasonable changes which Landlord shall deem
desirable and such changes as may be required by applicable law).
(e) During any period when Tenant's use of the Leased Premises is
significantly impaired by damage or destruction, Gross Rent shall abate in
proportion to the degree to which Tenant's use of the Leased Premises is
impaired until such time as the Leased Premises are made tenantable as
reasonably determined by Landlord; provided that no such rental abatement shall
be permitted if the casualty is the result of the negligence or willful
misconduct of Tenant or Tenant's employees, agents, contractors or invitees.
(f) The proceeds from any insurance paid by reason of damage to or
destruction of the Project or any part thereof insured by Landlord shall belong
to and be paid to Landlord, subject to the rights of any mortgagee of Landlord's
interest in the Project or the beneficiary of any deed of trust which
constitutes an encumbrance thereon. Tenant shall be responsible at its sole cost
and expense for the repair, restoration and replacement of (i) its fixtures,
furnishings, equipment, machinery, merchandise and personal property in the
Leased Premises, and (ii) its alteration, additions and improvements; provided,
however, that Landlord shall have the option of requiring Tenant to assign to
Landlord (or any party designated by Landlord) some or all of the proceeds
payable to Tenant under this Article 7, whereupon Landlord shall be responsible
for the repair or restoration of such insured property.
(g) Landlord's repair and restoration obligations under this Section
7.07 shall not impair or otherwise affect the rights and obligations of the
parties set forth elsewhere in this Lease. Subject to Section 7.07(e), Landlord
shall not be liable for any inconvenience or annoyance to Tenant, its employees,
agents, contractors or invitees, or injury to Tenant's business resulting in any
way from such damage or the repair thereof. Landlord and Tenant agree that the
terms of this Lease shall govern the effect of any damage to or destruction of
the Leased Premises or the Project with respect to the termination of this Lease
and hereby waive the provisions of any present or future statute or law to the
extent inconsistent therewith.
7.08. Default by Tenant.
(a) Events of Default. The occurrence of any of the following shall
constitute an event of default on the part of Tenant:
(1) Abandonment. Vacating the Leased Premises without the
intention to reoccupy same, or abandonment of the Leased Premises for a
continuous period of fourteen (14) days;
(2) Nonpayment of Rent. Failure to pay any installment of Rent
due and payable hereunder on the date when payment is due, such failure
continuing for a period of three (3) business days after written notice of such
failure; provided, however, that Landlord shall not be required to provide such
notice more than two (2) times during the Term with respect to non-payment of
Gross Rent or Additional Rent, the third such non-payment constituting default
without requirement of notice; furthermore, if Tenant shall be served with a
demand for the payment of past due Rent, any payment(s) tendered thereafter to
cure any default by Tenant shall be made only by cashier's check, wire-transfer
or direct deposit of immediately available funds;
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(3) Other Obligations. Failure to perform any obligation,
agreement or covenant under this Lease other than those matters specified in
subsections 7.08(a)(1) and 7.08(a)(2), such failure continuing for a period of
fifteen (15) business days after written notice of such failure (or such longer
period as is reasonably necessary to remedy such default, provided that Tenant
commences the remedy within such fifteen (15)-day period and continuously and
diligently pursues such remedy at all times until such default is cured);
(4) General Assignment. Any general arrangement or assignment
by Tenant for the benefit of creditors;
(5) Bankruptcy. The filing of any voluntary petition in
bankruptcy by Tenant, or the filing of an involuntary petition against Tenant,
which involuntary petition remains undischarged for a period of sixty (60) days.
In the event that under applicable law the trustee in bankruptcy or Tenant has
the right to affirm this Lease and continue to perform the obligations of Tenant
hereunder, such trustee or Tenant shall, within such time period as may be
permitted by the bankruptcy court having jurisdiction, cure all defaults of
Tenant hereunder outstanding as of the date of the affirmance of this Lease and
provide to Landlord such adequate assurances as may be necessary to ensure
Landlord of the continued performance of Tenant's obligations under this Lease;
(6) Receivership. The appointment of a trustee or receiver to
take possession of all or substantially all of Tenant's assets or the Leased
Premises, where possession is not restored to Tenant within ten (10) business
days;
(7) Attachment. The attachment, execution or other judicial
seizure of all or substantially all of Tenant's assets or the Leased Premises,
if such attachment or other seizure remains undismissed or undischarged for a
period of ten (10) business days after the levy thereof;
(8) Insolvency. The admission by Tenant in writing of its
inability to pay its debts as they become due; the filing by Tenant of a
petition seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation; the filing by Tenant of an answer admitting or failing timely
to contest a material allegation of a petition filed against Tenant in any such
proceeding; or, if within sixty (60) days after the commencement of any
proceeding against Tenant seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, such proceeding shall not have been
dismissed;
(9) Misrepresentation. The discovery by Landlord that any
representation, warranty or financial statement given to Landlord by Tenant or
any guarantor of Tenant's obligations under this Lease was materially false or
misleading.
(10) Security Deposit. Failure by Tenant to perform its
obligations with respect to the Security Deposit as set forth in Section 5.14.
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(b) Remedies Upon Default:
(1) Termination. If an event of default occurs, Landlord shall
have the right, until such default is cured, with or without notice or demand,
immediately (after expiration of any applicable grace period specified herein)
to terminate this Lease, and at any time thereafter recover possession of the
Leased Premises or any part thereof and expel and remove therefrom Tenant and
any other person occupying the same,
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by any lawful means, and again repossess and enjoy the Leased Premises without
prejudice to any of the remedies that Landlord may have under this Lease, or at
law or in equity by reason of Tenant's default or of such termination.
(2) Continuation After Default. Even though Tenant has breached
this Lease and/or abandoned the Leased Premises, this Lease shall continue in
effect for so long as Landlord does not terminate Tenant's night to possession
under subsection 7.08(b)(1) hereof in writing, and Landlord may enforce all of
its rights and remedies under this Lease, including (but without limitation) the
right to recover Rent as it becomes due, and Landlord, without terminating this
Lease, may exercise all of the rights and remedies of a landlord under Section
1951.4 of the Civil Code of the State of California or any amended or successor
code section. Acts of maintenance or preservation, efforts to relet the Leased
Premises or the appointment of a receiver upon application of Landlord to
protect Landlord's interest under this Lease shall not constitute an election to
terminate Tenant's right to possession. If Landlord elects to relet the Leased
Premises for the account of Tenant, the rent received by Landlord from such
reletting shall be applied as follows: first, to the payment of any indebtedness
other than Rent due hereunder from Tenant to Landlord; second, to the payment of
any costs of such reletting; third, to the payment of the cost of any
alterations or repairs to the Leased Premises; fourth, to the payment of Rent
due and unpaid hereunder; and the balance, if any, shall be held by Landlord and
applied in payment of future Rent as it becomes due. If that portion of rent
received from the reletting which is applied against the Rent due hereunder is
less than the amount of the Rent due, Tenant shall pay the deficiency to
Landlord promptly upon demand by Landlord. Such deficiency shall be calculated
and paid monthly. Tenant shall also pay to Landlord, as soon as determined, any
costs and expenses incurred by Landlord in connection with such reletting or in
making alterations and repairs to the Leased Premises, which are not covered by
the rent received from the reletting.
(c) Damages Upon Termination. Should Landlord terminate this Lease
pursuant to the provisions of subsection 7.08(b)(1) hereof, Landlord shall have
all the rights and remedies of a landlord provided by Section 1951.2 of the
Civil Code of the State of California. Upon such termination, in addition to any
other rights and remedies to which Landlord may be entitled under applicable
law, Landlord shall be entitled to recover from Tenant: (i) the worth at the
time of award of the unpaid Rent and other amounts which had been earned at the
time of termination; (ii) the worth at the time of award of the amount by which
the unpaid Rent which would have been earned after termination until the time of
award exceeds the amount of such Rent loss that Tenant proves could have been
reasonably avoided; (iii) the worth at the time of award of the amount by which
the unpaid Rent for the balance of the Term after the time of award exceeds the
amount of such Rent loss that Tenant proves could be reasonably avoided; and
(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. The "worth at the time of award" of the amounts referred to in
clauses (i) and (ii) shall be computed with interest at the lesser of eighteen
percent (18%) per annum or the maximum rate then allowed by law. The "worth at
the time of award" of the amount referred to in clause (iii) shall be computed
by discounting such amount at the discount rate of the Federal Reserve Bank of
San Francisco at the time of the award plus one percent (1%).\
(d) Computation of Rent for Purposes of Default. For purposes of
computing unpaid Rent which would have accrued and become payable under this
Lease pursuant to the provisions of Section 7.08(c), unpaid Rent shall consist
of the sum of:
(1) the total Base Rent for the balance of the Term, plus
(2) a computation of Tenant's Proportionate Share of Increased
Basic Operating Cost and of Tenant's Proportionate Share of Increased Property
Taxes for the balance of the Term, the assumed amounts for the Computation Year
of the default and each future Computation Year in the Term to
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be equal to Tenant's Proportionate Share of Increased Basic Operating Cost and
tenant's Proportionate Share of Property Taxes, respectively, for the
Computation Year immediately prior to the year in which default occurs,
compounded at a per annum rate equal to the mean average rate of inflation for
the preceding five (5) calendar years as determined by the United States
Department of Labor, Bureau of Labor Statistics Consumer Price Index (All Urban
Consumers, all items (1982-84=100)) for the Metropolitan Area or Region in which
the Project is located. If such Index is discontinued or revised, the average
rate of inflation shall be determined by reference to the index designated as
the successor or substitute index by the government of the United States.
(e) Late Charge. If any payment required to be made by Tenant under
this Lease is not received by Landlord on or before the date the same is due,
Tenant shall pay to Landlord an amount equal to six percent (6%) of the
delinquency. The parties agree that Landlord would incur costs not contemplated
by this Lease by virtue of such delinquencies, including without limitation
administrative, collection, processing and accounting expenses, the amount of
which would be extremely difficult to compute, and the amount stated herein
represents a reasonable estimate thereof. Acceptance of such late charge by
Landlord shall in no event constitute a waiver of Tenant's breach or default
with respect to such delinquency, or prevent Landlord from exercising any of
Landlord's other rights and remedies.
(f) Interest on Past-Due Obligations. Except as expressly otherwise
provided in this Lease, any Rent due Landlord hereunder, other than late
charges, which is not received by Landlord on the date on which it was due,
shall bear interest from the day after it was due at the maximum rate then
allowed by law, in addition to the late charge provided for in Section 7.08(e).
(g) Landlord's Right to Perform. Notwithstanding anything to the
contrary set forth elsewhere in this Lease, in the event Tenant falls to perform
any affirmative duty or obligation of Tenant under this Lease, and such failure
continues beyond any applicable notice and cure period, then within five (5)
business days after written notice to Tenant (and without notice in case of an
emergency) Landlord may (but shall not be obligated to) perform such duty or
obligation on Tenant's behalf, including, without limitation, the obtaining of
insurance policies or governmental licenses, permits or approvals. Tenant shall
reimburse Landlord upon demand for the costs and expenses of any such
performance (including penalties, interest and attorneys' fees incurred in
connection therewith). Such costs and expenses incurred by Landlord shall be
deemed Additional Rent hereunder.
(h) Remedies Cumulative. All rights, privileges and elections or
remedies of Landlord are cumulative and not alternative with all other rights
and remedies at law or in equity to the fullest extent permitted by law.
(i) Waiver. Tenant waives any right of redemption or relief from
forfeiture under California Code of Civil Procedure Sections 1174 and 1179, or
under any other present or future law in the event Tenant is evicted and
Landlord takes possession of the Leased Premises by reason of a default.
Article 8.
Option to Renew; Option to Expand
8.01. Option to Renew. None.
8.02. Option to Expand. None.
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Article 9.
Miscellaneous Matters
9.01. Parking. None.
9.02. Brokers. Landlord has been represented in this transaction by
Landlord's Broker. Tenant has been represented in this transaction by Tenant's
Broker. Upon full execution of this Lease by both parties, Landlord shall pay to
Landlord's Broker a fee for brokerage services rendered by it in this
transaction if provided for in a separate written agreement between Landlord and
Landlord's Broker. Nothing contained in this Lease shall impose on Landlord any
obligation to pay a commission or fee to any party other than Landlord's Broker
and Tenant acknowledges that Landlord will not pay any commission or fee to
---
Tenant's Broker.
Each party hereto represents and warrants that it has dealt with no
broker in connection with this Lease and the transactions contemplated herein,
except those listed in the Basic Lease Information sheet. Each party shall
indemnify, protect, defend and hold the other party harmless from all costs and
expenses (including reasonable attorneys' fees) arising from or relating to a
breach of the foregoing representation and warranty.
9.03. No Waiver. No waiver by either party of the default or breach of any
term, covenant or condition of this Lease by the other shall be deemed a waiver
of any other term, covenant or condition hereof, or of any subsequent default or
breach by the other of the same or of any other term, covenant or condition
hereof. Landlord's consent to, or approval of, any act shall not be deemed to
render unnecessary the obtaining of Landlord's consent to, or approval of, any
subsequent or similar act by Tenant, or be construed as the basis of an estoppel
to enforce the provision or provisions of this Lease requiring such consent.
Regardless of Landlord's knowledge of a default or breach at the time of
accepting Rent, the acceptance of Rent by Landlord shall not be a waiver of any
preceding default or breach by Tenant of any provision hereof, other than the
failure of Tenant to pay the particular Rent so accepted. Any payment given
Landlord by Tenant may be accepted by Landlord on account of monies or damages
due Landlord, notwithstanding any qualifying statements or conditions made by
Tenant in connection therewith, which statements and/or conditions shall be of
no force or effect whatsoever unless specifically agreed to in writing by
Landlord at or before the time of deposit of such payment.
9.04. Recording. Neither this Lease nor a memorandum thereof shall be
recorded without the prior written consent of Landlord, which consent may be
withheld in Landlord's sole discretion.
9.05. Holding Over. If Tenant holds over after expiration or termination
of this Lease, Tenant shall pay for each month of hold-over tenancy one hundred
fifty percent (150%) times the Gross Rent which Tenant was obligated to pay for
the month immediately preceding the end of the Term for each month or any part
thereof of any such hold-over period, together with such other amounts as may
become due hereunder. No holding over by Tenant after the Term shall operate to
extend the Term. In the event of any unauthorized holding over, Tenant shall
indemnify, defend and hold Landlord harmless from and against all claims,
demands, liabilities, losses, costs, expenses (including attorneys' fees),
injury and damages incurred by Landlord as a result of Tenant's delay in
vacating the Leased Premises.
9.06. Transfers by Landlord. The term "Landlord" as used in this Lease
shall mean the owner(s) at the time in question of the fee title to the Leased
Premises or, if this is a sublease, of the Tenant's interest in the master
lease. If Landlord transfers, in whole or in part, its rights and obligations
under this Lease or in the Project, upon its transferee's assumption of
Landlord's obligations hereunder and delivery to such transferee of any unused
Security Deposit then held by Landlord, no further liability or obligations
shall thereafter accrue
32
<PAGE>
against the transferring or assigning person as Landlord hereunder. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Landlord shall be binding only upon the Landlord as defined in this Section
9.06.
9.07. Attorneys' Fees. In the event either party places the enforcement of
this Lease, or any part of it, or the collection of any Rent due, or to become
due, hereunder, or recovery of the possession of the Leased Premises, in the
hands of an attorney, or files suit upon the same, the prevailing party shall
recover its reasonable attorneys' fees, costs and expenses, including those
which may be incurred on appeal. Such fees may be awarded in the same suit or
recovered in a separate suit, whether or not suit is filed or any suit that may
be filed is pursued to decision or judgment. The term "prevailing party" shall
include, without limitation, a party who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other party of its claim or defense. The attorneys'
fee award shall not be computed in accordance with any court fee schedule, but
shall be such as to fully reimburse all attorneys' fees reasonably incurred.
9.08. Termination; Merger. No act or conduct of Landlord, including,
without limitation, the acceptance of keys to the Leased Premises, shall
constitute an acceptance of the surrender of the Leased Premises by Tenant
before the scheduled Term Expiration Date. Only a written notice from Landlord
to Tenant shall constitute acceptance of the surrender of the Leased Premises
and accomplish a termination of this Lease. Unless specifically stated otherwise
in writing by Landlord, the voluntary or other surrender of this Lease by
Tenant, the mutual termination or cancellation hereof, or a termination hereof
by Landlord for default by Tenant, shall automatically terminate any sublease or
lesser estate in the Leased Premises; provided, however, Landlord shall, in the
event of any such surrender, termination or cancellation, have the option to
continue any one or all of any existing subtenancies. Landlord's failure within
thirty (30) days following any such event to make any written election to the
contrary by written notice to the holder of any such lesser interest, shall
constitute Landlord's election to have such event constitute the termination of
such interest.
9.09. Amendments; Interpretation. This Lease may not be altered, changed
or amended, except by an instrument in writing signed by the parties in interest
at the time of the modification. The captions of this Lease are for convenience
only and shall not be used to define or limit any of its provisions.
9.10. Severability. If any term or provision of this Lease, or the
application thereof to any person or circumstances, shall to any extent be
invalid or unenforceable, the remainder of this Lease, or the application of
such provision to persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected thereby, and each provision of
this Lease shall be valid and shall be enforceable to the fullest extent
permitted by law.
9.11. Notices. All notices, demands, consents and approvals which are
required or permitted by this Lease to be given by either party to the other
shall be in writing and shall be deemed to have been fully given by personal
delivery or by recognized overnight courier service or when deposited in the
United States mail, certified or registered, with postage prepaid, and addressed
to the party to be notified at the address for such party specified on the Basic
Lease Information sheet, or to such other place as the party to be notified may
from time to time designate by at least fifteen (15) days' notice to the
notifying party given in accordance with this Section 9.11, except that upon
Tenant's taking possession of the Leased Premises, the Leased Premises shall
constitute Tenant's address for notice purposes. A copy of all notices given to
Landlord under this Lease shall be concurrently transmitted to such party or
parties at such addresses as Landlord may from time to time hereafter designate
by notice to Tenant.
Any notice sent by registered or certified mail, return receipt requested,
shall be deemed given on the date of delivery shown on the receipt card, or if
no delivery date is shown, the postmark thereon. Notices
33
<PAGE>
delivered by recognized overnight courier shall be deemed given twenty-four (24)
hours after delivery of the same to the courier. If notice is received on a
Saturday, Sunday or legal holiday, it shall be deemed received on the next
business day. Tenant hereby appoints as its agent to receive the service of all
default notices and notice of commencement of unlawful detainer proceedings the
person in charge of or apparently in charge of or occupying the Leased Premises
at the time, and, if there is no such person, then such service may be made by
attaching the same on the main entrance of the Leased Premises.
9.12. Force Majeure. Any prevention, delay or stoppage of work to be
performed by Landlord or Tenant which is due to strikes, labor disputes,
inability to obtain labor, materials, equipment or reasonable substitutes
therefor, acts of God, governmental restrictions or regulations or controls,
judicial orders, enemy or hostile government actions, civil commotion, or other
causes beyond the reasonable control of the party obligated to perform
hereunder, shall excuse performance of the work by that party for a period equal
to the duration of that prevention, delay or stoppage. Nothing in this Section
9.12 shall excuse or delay Tenant's obligation to pay Rent or other charges due
under this Lease.
9.13. Successors and Assigns. This Lease shall be binding upon and inure
to the benefit of Landlord, its successors and assigns (subject to the
provisions hereof, including, without limitation, Section 5.15), and shall be
binding upon and inure to the benefit of Tenant, its successors, and to the
extent assignment or subletting, may be approved by Landlord hereunder, Tenant's
assigns or subtenants.
9.14. Further Assurances. Landlord and Tenant each agree to promptly sign
all documents reasonably requested to give effect to the provisions of this
Lease.
9.15. Incorporation of Prior Agreements. This Lease, including the
exhibits and addenda attached to it, contains all agreements of Landlord and
Tenant with respect to any matter referred to herein. No prior agreement or
understanding pertaining to such matters shall be effective.
9.16. Applicable Law. This Lease shall be governed by, construed and
enforced in accordance with the laws of the State of California.
9.17. Time of the Essence. Time is of the essence of each and every
covenant of this Lease. Each and every covenant, agreement or other provision of
this Lease on Tenant's part to be performed shall be deemed and construed as a
separate and independent covenant of Tenant, not dependent on any other
provision of this Lease or on any other covenant or agreement set forth herein.
9.18. No Joint Venture. This Lease shall not be deemed or construed to
create or establish any relationship of partnership or joint venture or similar
relationship or arrangement between Landlord and Tenant hereunder.
9.19. Authority. If Tenant is a corporation, trust or general or limited
partnership, each individual executing this Lease on behalf of Tenant represents
and warrants that he or she is duly authorized to execute and deliver this Lease
on Tenant's behalf and that this Lease is binding upon Tenant in accordance with
its terms. If Tenant is a corporation, trust or partnership, Tenant shall,
within ten (10) business days after request by Landlord, deliver to Landlord
evidence satisfactory to Landlord of such authority.
9.20. [Intentionally deleted.]
9.21. Offer. Preparation of this Lease by Landlord or Landlord's agent and
submission of same to Tenant shall not be deemed an offer to lease to Tenant.
This Lease is not intended to be binding and shall not be effective until fully
executed by both Landlord and Tenant.
34
<PAGE>
9.22. Exhibits; Addenda. The following Exhibits and addenda are attached
to, incorporated in and made a part of this Lease: Exhibit A Floor Plan of the
---------
Leased Premises; Exhibit B Initial Improvement of the Leased Premises; Exhibit C
--------- ---------
Confirmation of Term of Lease; and Exhibit D Building Rules and Regulations.
---------
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
day and year first written above.
"LANDLORD":
CEP-SANSOME INVESTORS LLC,
a Delaware limited liability company
By: CEP Investors IX LLC,
a Delaware limited liability company,
as Manager and Member
By: EPI Investors IX LLC,
a California limited liability
company, its Manager
By: Ellis Partners, Inc.,
a California corporation,
its Manager
By: /s/ James F Ellis
---------------------
Name: James F Ellis
-------------------
Title: Vice President
------------------
"TENANT":
PERSONIFY, INC.,
a California corporation
By: /s/ Richard Vinchesi
----------------------------------------
Name: Richard Vinchesi
--------------------------------------
Title: CFO
-------------------------------------
35
<PAGE>
EXHIBIT A
FLOOR PLAN
OF THE
LEASED PREMISES
1
<PAGE>
EXHIBIT B
INITIAL IMPROVEMENT OF THE LEASED PREMISES
1. Tenant Improvements. Tenant shall select a contractor (the
-------------------
"Contractor") to construct and install the Tenant Improvements (as defined
below), which Contractor shall be reasonably approved by Landlord. Landlord
shall select a contractor ("Landlord's Contractor") to construct and install the
Landlord Improvements (as defined below). The Contractor shall construct and
install the tenant improvements (the "Tenant Improvements") in the Leased
Premises, substantially in accordance with plans, working drawings and
specifications ("Tenant's Plans") prepared by Tenant's architect, which
architect shall be reasonably approved by Landlord (the "Architect") and the
Tenant's Plans shall be approved by Landlord and Tenant, which approval shall
not be unreasonably withheld by either party. The costs of preparing Tenant's
Plans and performing the Tenant Improvements shall be allocated between, and
paid by, Landlord and Tenant as set forth in this Exhibit B.
---------
2. Tenant's Plans. Tenant and Landlord shall mutually approve Tenant's
--------------
Plans in writing, each party's approval shall not be unreasonably withheld.
Tenant's Plan's shall comply with all applicable codes, laws, ordinances, rules
and regulations, shall not adversely affect the Building shell or core or any
systems, components or elements of the Buading, shall be in a form sufficient to
secure the approval of all government authorities with jurisdiction over the
Building, and shall be otherwise satisfactory to Landlord in Landlord's
reasonable discretion. Tenant's Plans shall be complete plans, working drawings
and specifications for the layout, improvement and finish of the Leased Premises
consistent with the design and construction of the Building, including
mechanical and electrical drawings and decorating plans, showing as many of the
following as possible:
(a) Location and type of all partitions;
(b) Location and type of all doors, with hardware and keying schedule;
(c) Ceiling plans, including light fixtures;
(d) Location of telephone equipment room, with all special electrical
and cooling requirements;
(e) Location and type of all electrical outlets, switches, telephone
outlets, and lights;
(f) Location of all sprinklers;
(g) Location and type of all equipment requiring special electrical
requirements;
(h) Location, weight per square foot and description of any heavy
equipment or filing system exceeding fifty (50) pounds per square foot live
and dead load;
(i) Requirements for air conditioning or special ventilation;
(j) Type and color of floor covering,
(k) Location, type and color of wall covering;
1
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(l) Location, type and color of paint or finishes;
(m) Location and type of plumbing;
(n) Location and type of kitchen equipment;
(o) Indicate critical dimensions necessary for construction;
(p) Details showing all millwork with verified dimensions and
dimensions of all equipment to be built in, corridor entrances, bracing or
support of special walls or glass partitions, and any other items or
information requested by Landlord; and
(q) Location of all cabling.
3. Landlord's review and approval of Tenant's Plans shall not constitute,
and Landlord shall not be deemed to have made, any representation or warranty as
to the compliance of the Tenant Improvements with any laws or as to the
suitability of the Leased Premises or the Tenant Improvements for Tenant's
needs.
4. Construction.
------------
(a) The Tenant Improvements in the Leased Premises shall be completed
substantially in accordance with Tenant's Plans by the Contractor in a good
and workmanlike manner. Subject to Section 5 of this Exhibit B. Tenant
--------- ---------
shall promptly pay when due the entire cost of all of the Tenant
Improvements (including the cost of all utilities, permits, fees, taxes,
and property and liability insurance in connection therewith) required by
Tenant's Plans. Except as otherwise expressly provided herein, Landlord
shall have no liability to Tenant if the Leased Premises is not suitable
for Tenant's occupancy or if Tenant or Landlord has not obtained all the
necessary permits for Tenant to occupy the Leased Premises by the Term
Commencement Date.
(b) Landlord, at its sole cost and expense, shall provide or construct
the following (collectively, the "Landlord Improvements") in the Leased
Premises:
(i) Floor Coverings: All existing floor coverings shall be
removed.
(ii) Elevator Lobby: The elevator lobbies on the floors of the
Leased Premises shall be restored pursuant to renderings provided to Tenant.
(iii) Partitions: All existing partitions shall be demolished.
(iv) Sprinkler System: Landlord shall provide the tap into the
main sprinkler riser and install the main sprinkler loop around the core area of
the Leased Premises.
(v) Life Safety Systems: Landlord shall provide Class "E" fire
life safety floor subpanels with adequate connection points on the floors of the
Leased Premises for code-required speaker and strobe lights as well as flow and
tamper switches for the sprinkler systems, in accordance with existing code. The
panels are to be installed in proximity to the Leased Premises. The code-
required speakers, strobe lights, flow and tamper switches, and other equipment
for the sprinkler systems shall be part of the Tenant Improvements.
2
<PAGE>
(vi) Bathrooms: All restrooms on the floors of the Leased
Premises shall be brought to meet all local codes, as well as ADA. Cosmetically,
Landlord shall refurbish the restrooms in a manner consistent with a Class "A"
San Francisco office tower.
(vii) Chilled Water Riser: Landlord shall provide a chilled water
riser which can be accessed by Tenant for specialized cooling or air
conditioning needs (e.g., for a computer room) on each of the floors of the
Leased Premises; provided, however, Tenant, at its sole cost, shall be
responsible for the installation, operation and maintenance of such cooling or
air conditioning systems from the point of departure from such chilled water
riser, and, provided further, that the total Rentable Area receiving the benefit
of such specialized cooling or air conditioning shall not exceed 400 square
feet.
5. Landlord's and Tenant's Contributions. As Landlord's contribution for
-------------------------------------
the costs of Tenant Plans and for the costs of constructing the Tenant
Improvements, Landlord shall give Tenant an allowance in the maximum amount of
$32.00 per square foot of Rentable Area, which equals $1,446,304.00 based upon
45,197 rentable square feet ("Landlord's Contribution"). Any costs of preparing
Tenant's Plans and constructing the Tenant Improvements in excess of Landlord's
Contribution shall be paid by Tenant. Landlord shall pay Landlord's Contribution
directly to Tenant's architects and engineers and to the Contractor for the
account of Tenant, in installments as professional services for Tenant's Plans
are rendered, and Tenant Improvements are completed, upon Landlord's receipt of
a written request for payment accompanied by written invoices and other written
evidence reasonably satisfactory to Landlord showing the costs incurred, until
Landlord's Contribution is exhausted. Unless such arises due to a breach by
Landlord of its obligations hereunder, Tenant shall indemnify and protect
Landlord against any liability for mechanics, materialmen's and other liens or
claims with respect to the Tenant Improvements and shall obtain releases to
liens as payments are made relating to such liens. Tenant shall also provide to
Landlord (at Tenant's expense or as a deduction from Landlord's Contribution),
if reasonably required by Landlord, lien insurance or a lien completion bond in
the amount provided for Section 5.07(c) of the Lease as reduced by Landlord's
Contribution. Any unused portion of Landlord's Contribution shall accrue to
Landlord. Tenant shall pay to Landlord (or Landlord may deduct from Landlord's
Contribution) a construction management fee the lesser of (i) three and one-half
percent (3.5%) of Landlord's Contribution, or (ii) $1.05 per square foot of
rentable Area.
Notwithstanding anything in this Exhibit B to the contrary, any costs
---------
that are due to the following shall not be included in the cost of Tenant
Improvements and shall be the sole responsibility of Landlord: any costs
incurred due to the remediation of Hazardous Materials, where such were not
caused by Tenant.
6. Changes. Except for minor and immaterial changes, if Tenant requests
-------
any change in Tenant's Plans, Tenant shall request such change in a written
notice to Landlord.
7. Other Work by Tenant. All work not within the scope of the normal
--------------------
construction trades employed on the Building, such as the furnishing and
installing of furniture, telephone equipment, office equipment and wiring, shall
be furnished and installed by Tenant at Tenant's expense.
8. Requirements for Work Performed by Tenant. All other work performed
----------------------------------
at the Building or in the Project by Tenant or Tenant's contractor or
subcontractors shall be subject to the following additional requirements:
(a) Such work shall not proceed until Landlord has approved in
writing: (i) Tenant's contractor, (ii) the amount and coverage of public
liability and property damage insurance, with Landlord named as an
additional insured, carried by Tenant's contractor, (iii) complete and
detailed plans and specifications for such work, and (iv) a schedule for
the work.
3
<PAGE>
(b) All work shall be done in conformity with a valid permit when
required, a copy of which shall be furnished to Landlord before such work
is commenced. In any case, all such work shall be performed in accordance
with all applicable laws. Notwithstanding any failure by Landlord to object
to any such work, Landlord shall have no responsibility for Tenant's
failure to comply with applicable laws.
(c) Tenant or Tenant's contractor shall arrange for necessary utility,
hoisting and elevator service, on a nonexclusive basis, with Landlord.
Landlord shall have the right to require any necessary movement of
materials by the elevator to be done after regular working hours.
(d) Tenant shall be responsible for cleaning the Leased Premises, the
Building and the Project and removing all debris in connection with its
work. All completed work shall be subject to inspection and acceptance by
Landlord. Tenant shall reimburse Landlord for the cost all extra expense
incurred by Landlord by reason of faulty work done by Tenant or Tenant's
contractor or by reason of inadequate cleanup by Tenant or Tenant's
contractor. Landlord will provide Tenant with copies of third party
consultant invoices within five (5) business days of Tenant's request for
such invoices.
(e) Landlord shall not unreasonably withhold, delay or condition to
any consent that is required hereunder.
9. The Tenant Improvements shall be performed pursuant to a "fixed price"
or a "cost plus fee, subject to a guaranteed maximum price" construction
contract to be entered into by Tenant and the Contractor.
4
<PAGE>
EXHIBIT C
CONFIRMATION OF TERM OF LEASE
This Confirmation of Term of Lease is made by and between _________,
_________, a ________, as Landlord, and _________, a ________ _________, as
Tenant, who agree as follows:
1. Landlord and Tenant entered into a Lease dated _____________, 19___
(the "Lease"), in which Landlord leased to Tenant and Tenant leased from
Landlord the Leased Premises described in the Basic Lease Information sheet of
the Lease (the "Leased Premises").
2. Pursuant to Section 3.01 of the Lease, Landlord and Tenant agree to
confirm the commencement date and expiration date of the Term of the Lease as
follows:
a. _________________, 19____, is the Term Commencement Date;
b. _________________, 19____, is the Term Expiration Date;
c. _________________, 19____, is the commencement date of Rent under
the Lease.
3. Tenant hereby confirms that the Lease is in full force and effect and:
a. It has accepted possession of the Leased Premises as provided in
the Lease;
b. The improvements and space required to be furnished by Landlord
under the Lease have been furnished;
c. Landlord has fulfilled all its duties of an inducement nature;
d. The Lease has not been modified, altered or amended, except as
follows: _____________________________________________; and
e. There are no setoffs or credits against Rent and no security
deposit has been paid except as expressly provided by the Lease.
1
<PAGE>
4. The provisions of this Confirmation of Term of Lease shall inure to the
benefit of, or bind, as the case may require, the parties and their respective
successors, subject to the restrictions on assignment and subleasing contained
in the Lease.
DATED: , 19
----------------- --
"LANDLORD": "TENANT":
- --------------------------, -------------------------------,
a a
------------------------- -----------------------------
By: By:
----------------------- ----------------------------
Typed Name: Name:
--------------- --------------------------
Title: Title:
-------------------- -------------------------
2
<PAGE>
EXHIBIT D
BUILDING RULES AND REGULATIONS
1. The sidewalks, doorways, halls, stairways, vestibules and other similar
areas shall not be obstructed by Tenant or used by it for any purpose other than
ingress to and egress from the Leased Premises, and for going from one part of
the Building to another part. Corridor doors, when not in use, shall be kept
closed. Before leaving the Building, Tenant shall ensure that all doors to the
Leased Premises are securely locked and all water faucets and electricity are
shut off.
2. Plumbing fixtures shall be used only for their designated purpose, and
no foreign substances of any kind shall be deposited therein. Damage to any
such fixtures resulting from misuse by Tenant or any employee or invitee of
Tenant shall be repaired at the expense of Tenant.
3. Nails, screws and other attachments to the Building require prior
written consent from Landlord, except for the routine hanging of pictures and
diplomas or certifications. Tenant shall not mar or deface the Leased Premises
in any way. Tenant shall not place anything on or near the glass of any window,
door or wall which may appear unsightly from outside the Leased Premises.
4. All contractors and technicians rendering any installation service to
Tenant shall be subject to Landlord's approval and supervision prior to
performing services. This applies to all work performed in the Building,
including, but not limited to, installation of telephones, telegraph equipment,
wiring of any kind, and electrical devices, as well as all installations
affecting floors, walls, woodwork, windows, ceilings and any other physical
portion of the Building.
5. Movement in or out of the Building of furniture, office equipment,
safes or other bulky material which requires the use of elevators, stairways, or
the Building entrance and lobby shall be restricted to hours established by
Landlord. All such movement shall be under Landlord's supervision, and the use
of an elevator for such movements shall be restricted to the Building's freight
elevator. Arrangements shall be made at least 24 hours in advance with Landlord
regarding the time, method, and routing of such movements. Tenant shall pay for
the services of the employees of the elevator service company employed when
safes and other heavy articles are moved into or from the Building, and Tenant
shall assume all risks of damage and pay the cost of repairing or providing
compensation for damage to the Building, to articles moved and injury to persons
or property resulting from such moves. Landlord shall not be liable for any
acts or damages resulting from any such activity.
6. Landlord shall have the right to limit the weight and size of, and to
designate the location of, all safes and other heavy property brought into the
Building.
7. Tenant shall cooperate with Landlord in maintaining the Leased
Premises. Tenant shall not employ any person for the purpose of cleaning the
Leased Premises other than the Building's cleaning and maintenance personnel.
Window cleaning shall be done only by Landlord's agents at such times and during
such hours as Landlord shall elect. Janitorial services will not be furnished
on nights when rooms are occupied after 7:00 P.M.
8. Deliveries of water, soft drinks, newspapers or other such items to the
Leased Premises shall be restricted to hours established by Landlord and made by
use of the freight elevator if Landlord so directs.
1
<PAGE>
9. Nothing shall be swept or thrown into the corridors, halls, elevator
shafts or stairways. No birds, fish or animals of any kind shall be brought
into or kept in, on or about the Leased Premises, with the exception of guide
dogs where necessary.
10. No cooking shall be done in the Leased Premises except in connection
with a convenience lunch room (use of a microwave oven shall be permitted) for
the sole use of employees and guests (on a non-commercial basis) in a manner
which complies with all of the provisions of the Lease and which does not
produce fumes or odors. The cooking/heating of food using a microwave oven
shall be permitted.
11. Food, soft drink or other vending machines shall not be placed within
the Leased Premises without Landlord's prior written consent.
12. Tenant shall not install or operate on the Leased Premises any
electric heater, stove or similar equipment without Landlord's prior written
consent. Tenant shall not use or keep on the Leased Premises any kerosene,
gasoline, or inflammable or combustible fluid or material other than limited
quantities reasonably necessary for the operation and maintenance of office
equipment utilized at the Leased Premises. No explosives shall be brought onto
the Project at any time.
13. Tenant shall not waste electricity or water and agrees to cooperate
fully with Landlord to assure the most effective operation of the Building's
heating and to comply with any governmental energy-saving rules, laws or
regulations of which Tenant has actual notice.
14. [Intentionally deleted]
15. Tenant, its employees, agents and invitees shall each comply with all
requirements necessary for the security of the Leased Premises, including, if
implemented by Landlord, the use of service passes issued by Landlord for after-
hours movement of office equipment/packages, and the signing of a security
register in the Building lobby after hours. Landlord reserves the right to
refuse entry to the Building after normal business hours to Tenant, its
employees, agents or invitees, or any other person without satisfactory
identification showing his or her right of access to the Building at such time.
Landlord shall not be liable for any damages resulting from any error in regard
to any such identification or from such admission to or exclusion from the
Building. Landlord shall not be liable to Tenant for losses due to theft or
burglary, or for damage by unauthorized persons in, on or about the Project, and
Tenant assumes full responsibility for protecting the Leased Premises from
theft, robbery and pilferage, which includes keeping doors locked and other
means of entry closed.
16. Landlord will furnish Tenant with a reasonable number of initial keys
for entrance doors into the Leased Premises, and may charge Tenant for
additional keys thereafter. All such keys shall remain the property of
Landlord. No additional locks are allowed on any door of the Leased Premises
without Landlord's prior written consent and Tenant shall not make any duplicate
keys. Upon termination of this Lease, Tenant shall surrender to Landlord all
keys to the Leased Premises, and give to Landlord the combination of all locks
for safes and vault doors, if any, in the Leased Premises.
17. Tenant shall not bring into (or permit to be brought into) the
Building any bicycle or other type of vehicle.
18. Landlord retains the right at any time, without liability to Tenant,
to change the name and street address of the Building, except as otherwise
expressly provided in the Lease with respect to signage.
2
<PAGE>
19. Canvassing, peddling, soliciting, and distribution of handbills in or
at the Project are prohibited and Tenant will cooperate to prevent these
activities.
20. The Building hours of operation are 7:00 A.M. to 6:00 P.M., Monday
through Friday, excluding holidays. Landlord reserves the right to close and
keep locked all entrance and exit doors of the Building on Saturdays, Sundays
and legal holidays, and between the hours of 6:01 P.M. of any day and 6:59 A.M.
of the following day, and during such other hours as Landlord may deem advisable
for the protection of the Building and the tenants thereof. Notwithstanding the
foregoing Tenant shall have access to the Premises 24 hours per day, seven days
per week.
21. The requirements of Tenant will be attended to only upon application
to the Project manager. Employees will not perform any work or do anything
outside of their regular duties unless under specific instruction from the
Project manager.
22. Tenant shall cooperate fully with the life safety program of the
Building as established and administered by Landlord. This shall include
participation by Tenant and its employees in exit drills, fire inspections, life
safety orientations and other programs relating to fire and life safety that may
be established by Landlord.
23. No smoking shall be permitted in the Building.
24. Landlord reserves the right to rescind any of these rules and
regulations and to make future rules and regulations required for the safety,
protection and maintenance of the Project, the operation and preservation of the
good order thereof, and the protection and comfort of the tenants and their
employees and visitors. Such rules and regulations, when made and written
notice thereof given to Tenant, shall be binding as if originally included
herein. Landlord shall not be responsible to Tenant for the non-observance or
violation of these rules and regulations by any other tenant of the Building.
Landlord reserves the right to exclude or expel from the Project any person who,
in Landlord's judgment, is 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.
25. Following a written request from Tenant, Landlord shall use
commercially reasonable efforts to enforce the rules and regulations against
other tenants of the Building.
3
<PAGE>
EXHIBIT 10.2
PERSONIFY, INC.
2000 EQUITY INCENTIVE PLAN
Adopted June 6, 1996
Approved By Shareholders November 26, 1996
Amended and Restated December 3, 1998
Amended and Restated ____________, 2000
1. Purposes of the Plan. The purposes of this 2000 Equity Incentive Plan are:
--------------------
. to attract and retain the best available personnel for positions of
substantial responsibility,
. to provide additional incentive to Employees, Directors and Consultants,
and
. to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall be
-------------
administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the administration
---------------
of stock option plans under U. S. state corporate laws, U.S. federal and state
securities laws, the Code, any stock exchange or quotation system on which the
Common Stock is listed or quoted and the applicable laws of any foreign country
or jurisdiction where Options or Stock Purchase Rights are, or will be, granted
under the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a committee of Directors appointed by the Board in
---------
accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
------------
(g) "Company" means Personify Incorporated, a Delaware corporation.
-------
(h) "Consultant" means any person, including an advisor, engaged by the
----------
Company or a Parent or Subsidiary to render services to such entity.
<PAGE>
(i) "Director" means a member of the Board.
--------
(j) "Disability" means total and permanent disability as defined in Section
----------
22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors, employed
--------
by the Company or any Parent or Subsidiary of the Company. A Service Provider
shall not cease to be an Employee in the case of (i) any leave of absence
approved by the Company or (ii) transfers between locations of the Company or
between the Company, its Parent, any Subsidiary, or any successor. For purposes
of Incentive Stock Options, no such leave may exceed ninety days, unless
reemployment upon expiration of such leave is guaranteed by statute or contract.
If reemployment upon expiration of a leave of absence approved by the Company is
not so guaranteed, on the 181st day of such leave any Incentive Stock Option
held by the Optionee shall cease to be treated as an Incentive Stock Option and
shall be treated for tax purposes as a Nonstatutory Stock Option. Neither
service as a Director nor payment of a director's fee by the Company shall be
sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
(m) "Fair Market Value" means, as of any date, the value of Common Stock
-----------------
determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the Nasdaq National
Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market
Value shall be the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such exchange or system for the last market
trading day prior to the day of determination, as reported in The Wall Street
Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value shall be determined in good faith by the Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as an
----------------------
incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(o) "Inside Director" means a Director who is an Employee.
---------------
(p) "IPO Effective Date" means the date upon which the Securities and
------------------
Exchange Commission declares the initial public offering of the Company's common
stock as effective.
-2-
<PAGE>
(q) "Nonstatutory Stock Option" means an Option not intended to qualify as
-------------------------
an Incentive Stock Option.
(r) "Notice of Grant" means a written or electronic notice evidencing
---------------
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
(s) "Officer" means a person who is an officer of the Company within the
-------
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(t) "Option" means a stock option granted pursuant to the Plan.
------
(u) "Option Agreement" means an agreement between the Company and an
----------------
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(v) "Option Exchange Program" means a program whereby outstanding Options
-----------------------
are surrendered in exchange for Options with a lower exercise price.
(w) "Optioned Stock" means the Common Stock subject to an Option, Stock
--------------
Purchase Right or other right under the Plan.
(x) "Optionee" means the holder of an outstanding Option or Stock Purchase
--------
Right granted under the Plan.
(y) "Outside Director" means a Director who is not an Employee.
----------------
(z) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(aa) "Plan" means this 2000 Equity Incentive Plan.
----
(bb) "Restricted Stock" means shares of Common Stock acquired pursuant to a
----------------
grant of Stock Purchase Rights under Section 11 of the Plan.
(cc) "Restricted Stock Purchase Agreement" means a written agreement between
-----------------------------------
the Company and the Optionee evidencing the terms and restrictions applying to
stock purchased under a Stock Purchase Right. The Restricted Stock Purchase
Agreement is subject to the terms and conditions of the Plan and the Notice of
Grant.
(dd) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
----------
Rule 16b-3, as in effect when discretion is being exercised with respect to the
Plan.
(ee) "Section 16(b) " means Section 16(b) of the Exchange Act.
-------------
(ff) "Service Provider" means an Employee, Director or Consultant.
----------------
(gg) "Share" means a share of the Common Stock, as adjusted in accordance
-----
with Section 13 of the Plan.
-3-
<PAGE>
(hh) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ii) "Subsidiary" means a "subsidiary corporation", whether now or hereafter
----------
existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of the
-------------------------
Plan, the maximum aggregate number of Shares that may be optioned and sold under
the Plan is 8,131,110 Shares, plus an annual increase to be added on the first
day of the Company's fiscal year beginning in 2001, equal to the lesser of (i)
3,000,000 shares, (ii) 5% of the outstanding shares on such date or (iii) a
lesser amount determined by the Board. The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
--------
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. Different Committees with
------------------------------
respect to different groups of Service Providers may administer the Plan.
(ii) Section 162(m). To the extent that the Administrator
--------------
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
----------
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided above, the
--------------------
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
-4-
<PAGE>
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may be
exercised (only the Board may determine whether vesting may be based on
performance criteria), any vesting acceleration or waiver of forfeiture
restrictions (the Board may not delegate this power), and any restriction or
limitation regarding any Option or Stock Purchase Right or the shares of Common
Stock relating thereto, based in each case on such factors as the Administrator,
in its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted (the
Board may not delegate this power);
(vii) to institute an Option Exchange Program (the Board may not
delegate this power);
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan (the Board may not delegate this power);
(xi) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be withheld. The Fair Market
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined. All elections by an Optionee
to have Shares withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
-5-
<PAGE>
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's decisions,
----------------------------------
determinations and interpretations shall be final and binding on all Optionees
and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
-----------
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. Limitations.
-----------
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year
of the Company, Options to purchase more than 1,000,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 1,000,000
Shares, which shall not count against the limit set forth in subsection (i)
above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the amendment and
------------
restatement of the Plan shall become effective upon the IPO Effective Date. It
shall continue in effect for a term of ten (10) years from the date of obtaining
stockholder approval of the Plan in 2000, unless terminated earlier under
Section 15 of the Plan.
-6-
<PAGE>
8. Term of Option. The term of each Option shall be stated in the Option
--------------
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions that must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
-7-
<PAGE>
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
-------------------------------------------------
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent
-8-
<PAGE>
that the Option is vested on the date of termination (but in no event later than
the expiration of the term of such Option as set forth in the Option Agreement).
In the absence of a specified time in the Option Agreement, the Option shall
remain exercisable for three (3) months following the Optionee's termination.
If, on the date of termination, the Optionee is not vested as to his or her
entire Option, the Shares covered by the unvested portion of the Option shall
revert to the Plan. If, after termination, the Optionee does not exercise his or
her Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
-----------------
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or administrator
of the Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution. If the
Option is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares an Option previously granted based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
-9-
<PAGE>
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
--------------------------------------------------------
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
- ----------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
-10-
<PAGE>
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Change in Control - Asset Sale, Merger, Consolidation or Reverse
----------------------------------------------------------------
Merger. In the event of (i) a sale of substantially all of the assets of the
- ------
Company, (ii) a merger or consolidation in which the Company is not the
surviving corporation or (iii) a reverse merger in which the Company is the
surviving corporation but the Shares outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise, each outstanding Option or Stock Purchase
Right shall be assumed or an equivalent option or right substituted by the
successor corporation or a Parent or Subsidiary of the successor corporation.
In the event that the successor corporation refuses to assume or
substitute for the Option or Stock Purchase Right, the Optionee shall fully vest
in and have the right to exercise the Option or Stock Purchase Right as to all
of the Optioned Stock, including Shares as to which it would not otherwise be
vested or exercisable. If an Option or Stock Purchase Right becomes fully
vested and exercisable in lieu of assumption or substitution in the event of a
merger, reverse merger or sale of assets, the Option or Stock Purchase Right
shall terminate at or prior to such merger, reverse merger or sale of assets.
For the purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger, reverse merger or sale of assets,
the option or right confers the right to purchase or receive, for each Share of
Optioned Stock subject to the Option or Stock Purchase Right immediately prior
to the merger, reverse merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger, reverse
merger or sale of assets by holders of Common Stock for each Share held on the
effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger, reverse merger or sale of assets is not solely common stock of
the successor corporation or its Parent, the Administrator may, with the consent
of the successor corporation, provide for the consideration to be received upon
the exercise of the Option or Stock Purchase Right, for each Share of Optioned
Stock subject to the Option or Stock Purchase Right, to be solely common stock
of the successor corporation or its Parent equal in fair market value to the per
share consideration received by holders of Common Stock in the merger, reverse
merger or sale of assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase Right
-------------
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the
-11-
<PAGE>
determination shall be provided to each Optionee within a reasonable time after
the date of such grant.
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend, alter,
-------------------------
suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
--------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this Plan, will
---------------------
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. The Plan shall be subject to approval by the
--------------------
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
20. Lock-Up Period. If so requested by the Company or any representative of
--------------
the underwriters (the "Managing Underwriter") in connection with any
registration of the offering of any securities of the Company under the
Securities Act, Optionee shall not sell or otherwise transfer
-12-
<PAGE>
any Shares or other securities of the Company during the 180-day period (or such
other period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company, not to exceed 210 days) (the "Market
Standoff Period") following the effective date of a registration statement of
the Company filed under the Securities Act. Such restriction shall apply only to
the first registration statement of the Company to become effective under the
Securities Act that includes securities to be sold on behalf of the Company to
the public in an underwritten public offering under the Securities Act. The
Company may impose stop-transfer instructions with respect to securities subject
to the foregoing restrictions until the end of such Market Standoff Period.
-13-
<PAGE>
EXHIBIT 10.3
PERSONIFY, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 2000 Employee Stock Purchase
Plan of Personify Incorporated.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company or any
-----
committee thereof designated by the Board of Directors of the Company in
accordance with Section 14 of the Plan.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the common stock of the Company.
------------
(d) "Company" shall mean Personify Incorporated and any Designated
-------
Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross earnings
------------
and commissions, but exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary that has been
---------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first Trading Day of each
---------------
Offering Period.
(i) "Exercise Date" shall mean the first Trading Day on or after June
-------------
1 and November 1 of each year.
<PAGE>
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the date of determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock for
the last market trading day prior to the date of determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; or
(iv) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement in Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").
(k) "Offering Periods" shall mean the periods of approximately twenty-
----------------
four (24) months during which an option granted pursuant to the Plan may be
exercised, commencing on the first Trading Day on or after June 1 and November 1
of each year and terminating on the first Trading Day on or after the June 1 or
November 1 Offering Period commencement date approximately twenty-four months
later; provided, however, that the first Offering Period under the Plan shall
commence with the first Trading Day on or after the date on which the Securities
and Exchange Commission declares the Company's Registration Statement effective
and end on the first Trading Day on or after June 1, 2002. The duration and
timing of Offering Periods may be changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this 2000 Employee Stock Purchase Plan.
----
(m) "Purchase Period" shall mean the approximately six month period
---------------
commencing on one Exercise Date and ending with the next Exercise Date, except
that the first Purchase Period of any Offering Period shall commence on the
Enrollment Date and end with the next Exercise Date.
(n) "Purchase Price" shall mean 85% of the Fair Market Value of a
--------------
share of Common Stock on the Enrollment Date or on the Exercise Date, whichever
is lower; provided however, that the Purchase Price may be adjusted by the Board
pursuant to Section 20.
-2-
<PAGE>
(o) "Reserves" shall mean the number of shares of Common Stock covered
--------
by each option under the Plan which have not yet been exercised and the number
of shares of Common Stock which have been authorized for issuance under the Plan
but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock exchanges
-----------
and the Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after June 1 and November 1 each year, or on such other date
as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and end on the first Trading Day on or after
June 1, 2002. The Board shall have the power to change the duration of Offering
Periods (including the commencement dates thereof) with respect to future
offerings without shareholder approval if such change is announced at least five
(5) days prior to the scheduled beginning of the first Offering Period to be
affected thereafter.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
-3-
<PAGE>
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription agreement,
he or she shall elect to have payroll deductions made on each pay day during the
Offering Period in an amount not exceeding fifteen percent (15%) of the
Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be credited to
his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the Plan
as provided in Section 10 hereof, or may increase or decrease the rate of his or
her payroll deductions during the Offering Period by completing or filing with
the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during a
Purchase Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than 3,000
shares of the Company's Common Stock (subject to any adjustment pursuant to
Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. The Board may, for future
Offering Periods, increase or decrease, in its absolute discretion, the maximum
number of shares of
-4-
<PAGE>
the Company's Common Stock an Employee may purchase during each Purchase Period
of such Offering Period. Exercise of the option shall occur as provided in
Section 8 hereof, unless the participant has withdrawn pursuant to Section 10
hereof. The option shall expire on the last day of the Offering Period.
8. Exercise of Option.
------------------
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the number
of shares with respect to which options are to be exercised may exceed (i) the
number of shares of Common Stock that were available for sale under the Plan on
the Enrollment Date of the applicable Offering Period, or (ii) the number of
shares available for sale under the Plan on such Exercise Date, the Board may in
its sole discretion (x) provide that the Company shall make a pro rata
allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
shareholders subsequent to such Enrollment Date.
9. Delivery. As promptly as practicable after each Exercise Date on which
--------
a purchase of shares occurs, the Company shall arrange the delivery to each
participant, as appropriate, of a certificate representing the shares purchased
upon exercise of his or her option.
10. Withdrawal.
----------
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant
-5-
<PAGE>
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. Termination of Employment.
-------------------------
Upon a participant's ceasing to be an Employee, for any reason, he or
she shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
13. Stock.
-----
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 1,000,000 shares plus an annual increase to be added on the first day
of the Company's fiscal year beginning in 2001, equal to the lesser of (i)
500,000 shares, (ii) 1.5% of the outstanding shares on such date or (iii) a
lesser amount determined by the Board.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
--------------
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
-6-
<PAGE>
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such participant of
such shares and cash. In addition, a participant may file a written designation
of a beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to exercise of the
option. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a participant's
---------------
account nor any rights with regard to the exercise of an option or to receive
shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and distribution
or as provided in Section 15 hereof) by the participant. Any such attempt at
assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds from
an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each participant
-------
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
---------------------------------------------------------------------
Merger or Asset Sale.
- --------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as well
as the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of
-7-
<PAGE>
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its shareholders. Except as provided
in Section 19 and this Section 20 hereof, no amendment may make any change in
any option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any successor rule or provision or any other applicable law, regulation or stock
exchange rule), the Company shall obtain shareholder approval in such a manner
and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount
-8-
<PAGE>
withheld during an Offering Period, establish the exchange ratio applicable to
amounts withheld in a currency other than U.S. dollars, permit payroll
withholding in excess of the amount designated by a participant in order to
adjust for delays or mistakes in the Company's processing of properly completed
withholding elections, establish reasonable waiting and adjustment periods
and/or accounting and crediting procedures to ensure that amounts applied toward
the purchase of Common Stock for each participant properly correspond with
amounts withheld from the participant's Compensation, and establish such other
limitations or procedures as the Board (or its committee) determines in its sole
discretion advisable which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the Board
may, in its discretion and, to the extent necessary or desirable, modify or
amend the Plan to reduce or eliminate such accounting consequence including, but
not limited to:
(i) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(ii) shortening any Offering Period so that Offering Period
ends on a new Exercise Date, including an Offering Period underway at the time
of the Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to occur
------------
of its adoption by the Board of Directors or its approval by the shareholders of
the Company. It shall continue in effect until terminated under Section 20
hereof.
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<PAGE>
24. Automatic Transfer to Low Price Offering Period. To the extent
-----------------------------------------------
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period.
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<PAGE>
EXHIBIT A
---------
PERSONIFY INCORPORATED
2000 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date:___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ____________________ hereby elects to participate in the Personify
Incorporated Employee Stock Purchase Plan (the "Employee Stock Purchase
Plan") and subscribes to purchase shares of the Company's Common Stock in
accordance with this Subscription Agreement and the Employee Stock Purchase
Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from __ to _____%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is subject
to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only).
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise Date, I will be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in an amount equal
to the excess of the fair market value of the shares at the time such
shares were purchased by me over the price which I paid for the shares. I
-
hereby agree to notify the Company in writing within 30 days after the date
---------------------------------------------------------------------------
of any disposition of my shares and I will make adequate provision for
----------------------------------------------------------------------
Federal, state or other tax withholding obligations, if any, which arise
------------------------------------------------------------------------
upon the
--------
<PAGE>
disposition of the Common Stock. The Company may, but will not be
--------------------------------
obligated to, withhold from my compensation the amount necessary to meet
any applicable withholding obligation including any withholding necessary
to make available to the Company any tax deductions or benefits
attributable to sale or early disposition of Common Stock by me. If I
dispose of such shares at any time after the expiration of the 2-year and
1-year holding periods, I understand that I will be treated for federal
income tax purposes as having received income only at the time of such
disposition, and that such income will be taxed as ordinary income only to
the extent of an amount equal to the lesser of (1) the excess of the fair
market value of the shares at the time of such disposition over the
purchase price which I paid for the shares, or (2) 15% of the fair market
value of the shares on the first day of the Offering Period. The remainder
of the gain, if any, recognized on such disposition will be taxed as
capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)_____________________________________________________
(First) (Middle) (Last)
_________________________ _________________________
Relationship
_________________________
(Address)
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<PAGE>
Employee's Social
Security Number: ____________________________________
Employee's Address: ____________________________________
____________________________________
____________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:________________ _________________________
Signature of Employee
____________________________________________________
Spouse's Signature (If beneficiary other than spouse)
-3-
<PAGE>
EXHIBIT B
---------
PERSONIFY INCORPORATED
2000 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Personify
Incorporated Employee Stock Purchase Plan which began on ____________, ______
(the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
________________________________
________________________________
________________________________
Signature:
________________________________
Date:____________________________
<PAGE>
EXHIBIT 10.4
PERSONIFY, INC.
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT (the "Agreement") is made as of the
____________, by and between Personify, Inc., a Delaware corporation (the
"Company"), and ______________ ("Indemnitee").
Recitals
A. The Company desires to attract and retain qualified directors,
officers, employees and other agents, and to provide them with protection
against liability and expenses incurred while acting in that capacity;
B. The Certificate of Incorporation and Bylaws of the Company contain
provisions for indemnifying directors and officers of the Company, and the
Bylaws and Delaware law contemplate that separate contracts may be entered into
between the Company and its directors and officers, employees and other agents
with respect to their indemnification by the Company, which contracts may
provide greater protection than is afforded by the Certificate of Incorporation
and Bylaws;
C. The Company understands that Indemnitee has reservations about serving
or continuing to serve the Company without adequate protection against personal
liability arising from such service, and that it is also of critical importance
to Indemnitee that adequate provision be made for advancing costs and expenses
of legal defense; and
D. The Board of Directors and the stockholders of the Company have
approved as being in the best interests of the Company indemnity contracts
substantially in the form of this Agreement for directors and officers of the
Company and its subsidiaries and for certain other employees and agents of the
Company designated by the Board of Directors.
NOW, THEREFORE, in order to induce Indemnitee to serve or to continue to
serve as a director and/or officer of the Company, and in consideration of
Indemnitee's service to the Company, the parties agree as follows:
1. Contractual Indemnity. In addition to the indemnification provisions of
---------------------
the Bylaws of the Company, the Company hereby agrees, subject to the limitations
of Sections 2 and 5 hereof:
(a) To indemnify, defend and hold Indemnitee harmless to the greatest
extent possible under applicable law from and against any and all judgments,
fines, penalties, amounts paid in settlement and any other amounts reasonably
incurred or suffered by Indemnitee (including attorneys' fees) in connection
with any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, including an action by or in
the right of the Company, to which Indemnitee is, was or at any time becomes a
party, or is threatened to be made a party, by reason of the fact that
Indemnitee is, was or at any time becomes a director, officer, employee or agent
of the Company or is or was serving or at any time serves at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise (collectively referred to
hereafter as a "Claim"), whether or not arising prior to the date of this
Agreement.
-1-
<PAGE>
(b) To pay any and all expenses reasonably incurred by Indemnitee in
defending any Claim or Claims (including reasonable attorneys' fees and other
reasonable costs of investigation and defense), as the same are incurred and in
advance of the final disposition of any such Claim or Claims, upon receipt of an
undertaking by or on behalf of Indemnitee to reimburse such amounts if it shall
be ultimately determined that Indemnitee (i) is not entitled to be indemnified
by the Company under this Agreement, and (ii) is not entitled to be indemnified
by the Company under the Certificate of Incorporation or the Bylaws of the
Company.
The termination of any action or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
---------------
shall not, of itself, create a presumption that (i) Indemnitee did not act in
good faith and in a manner which Indemnitee reasonably believed to be in the
best interests of the Company, or (ii) with respect to any criminal action or
proceeding, Indemnitee had reasonable cause to believe that Indemnitee's conduct
was unlawful.
2. Limitations on Contractual Indemnity. Indemnitee shall not be entitled
------------------------------------
to indemnification or advancement of expenses under Section 1:
(a) if a court of competent jurisdiction, by final judgment or decree,
shall determine that (i) the Claim or Claims in respect of which indemnity is
sought arise from Indemnitee's fraudulent, dishonest or willful misconduct, or
(ii) such indemnity is not permitted under applicable law; or
(b) on account of any suit in which judgment is rendered for an
accounting of profits made from the purchase or sale by Indemnitee of securities
of the Company in violation of the provisions of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of any
federal, state or local statutory law; or
(c) for any acts or omissions or transactions from which a director
may not be relieved of liability under the Delaware General Corporation Law; or
(d) with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except (i) with respect to
proceedings brought in good faith to establish or enforce a right to
indemnification under this Agreement or any other statute or law, or (ii) at the
Company's discretion, in specific cases if the Board of Directors of the Company
has approved the initiation or bringing of such suit; or
(e) for expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts
paid in settlement) which have been paid directly to Indemnitee by an insurance
carrier under a policy of directors' and officers' liability insurance
maintained by the Company; or
(f) on account of any suit brought against Indemnitee for misuse or
misappropriation of non-public information, or otherwise involving Indemnitee's
status as an "insider" of the Company, in connection with any purchase or sale
by Indemnitee of securities of the Company.
3. Continuation of Contractual Indemnity. Subject to the termination
-------------------------------------
provisions of Section 11, all agreements and obligations of the Company
contained herein shall continue for so long as Indemnitee shall be subject to
any possible action, suit, proceeding or other assertion of a Claim or Claims.
-2-
<PAGE>
4. Expenses; Indemnification Procedure. The Company shall advance all
-----------------------------------
expenses incurred by Indemnitee in connection with the investigation, defense,
settlement or appeal of any civil or criminal action or proceeding referenced in
Section 1 hereof (but not amounts actually paid in settlement of any such action
or proceeding). Indemnitee hereby undertakes to repay such amounts advanced if,
and to the extent that, it shall ultimately be determined that Indemnitee is not
entitled to be indemnified by the Company as authorized hereby. The advances to
be made hereunder shall be paid by the Company to Indemnitee within twenty (20)
days following delivery of a written request therefor by Indemnitee to the
Company.
5. Notification and Defense of Claim. If any action, suit, proceeding or
---------------------------------
other Claim is brought against Indemnitee in respect of which indemnity may be
sought under this Agreement:
(a) Indemnitee will promptly notify the Company in writing of the
commencement thereof, and the Company and any other indemnifying party similarly
notified will be entitled to participate therein at its own expense or to assume
the defense thereof and to employ counsel reasonably satisfactory to Indemnitee.
Notice to the Company shall be directed to the Chief Executive Officer of the
Company at the address shown on the signature page of this Agreement (or such
other address as the Company shall designate in writing to Indemnitee). Notice
shall be deemed received three (3) business days after the date postmarked if
sent by domestic certified or registered mail, properly addressed; otherwise
notice shall be deemed received when such notice shall actually be received by
the Company. Indemnitee shall have the right to employ its own counsel in
connection with any such Claim and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of Indemnitee
unless (i) the Company shall not have assumed the defense of the Claim and
employed counsel for such defense, or (ii) the named parties to any such action
(including any impleaded parties) include both Indemnitee and the Company, and
Indemnitee shall have reasonably concluded that joint representation is
inappropriate under applicable standards of professional conduct due to a
material conflict of interest between Indemnitee and the Company, in either of
which events the reasonable fees and expenses of such counsel to the Indemnitee
shall be borne by the Company upon delivery to the Company of the undertaking
referred to in subparagraph (b) of Section 1. However, in no event will the
Company be obligated to pay the fees or expenses of more than one firm of
attorneys representing Indemnitee and any other agents of the Company in
connection with any one Claim or separate but substantially similar or related
Claims in the same jurisdiction arising out of the same general allegations or
circumstances.
(b) The Company shall not be liable to indemnify Indemnitee for any
amounts paid in settlement of any Claim effected without the Company's written
consent, and the Company shall not settle any Claim in a manner which would
impose any penalty or limitation on Indemnitee without Indemnitee's written
consent; provided, however, that neither the Company nor Indemnitee will
unreasonably withhold its consent to any proposed settlement and, provided
further, that if a claim is settled by the Indemnitee with the Company's written
consent, or if there be a final judgment or decree for the plaintiff in
connection with the Claim by a court of competent jurisdiction, the Company
shall indemnify and hold harmless Indemnitee from and against any and all
losses, costs, expenses and liabilities incurred by reason of such settlement or
judgment.
(c) Indemnitee shall give the Company such information and cooperation
as it may reasonably require and as shall be within Indemnitee's power.
(d) Any indemnification provided for in Section 1 shall be made no
later than forty-five (45) days after receipt of the written request of
Indemnitee. If a Claim under this Agreement, under any statute, or
-3-
<PAGE>
under any provision of the Company's Certificate of Incorporation or Bylaws
providing for indemnification, is not paid in full by the Company within forty-
five (45) days after a written request for payment thereof has first been
received by the Company, Indemnitee may, but need not, at any time thereafter
bring an action against the Company to recover the unpaid amount of the claim
and, subject to Section 13 of this Agreement, Indemnitee shall also be entitled
to be reimbursed for the expenses (including attorneys' fees) of bringing such
action. It shall be a defense to any such action (other than an action brought
to enforce a claim for expenses incurred in connection with any action or
proceeding in advance of its final disposition) that Indemnitee has not met the
standards of conduct which make it permissible under applicable law for the
Company to indemnify Indemnitee for the amount claimed but the burden of proving
such defense shall be on the Company, and Indemnitee shall be entitled to
receive interim payments of expenses pursuant to Subsection 4 unless and until
such defense may be finally adjudicated by court order or judgment from which no
further right of appeal exists. It is the parties' intention that if the Company
contests Indemnitee's right to indemnification, the question of Indemnitee's
right to indemnification shall be for the court to decide, and neither the
failure of the Company (including its Board of Directors, any committee or
subgroup of the Board of Directors, independent legal counsel, or its
stockholders) to have made a determination that indemnification of Indemnitee is
proper in the circumstances because Indemnitee has met the applicable standard
of conduct required by applicable law, nor an actual determination by the
Company (including its Board of Directors, any committee or subgroup of the
Board of Directors, independent legal counsel, or its stockholders) that
Indemnitee has not met such applicable standard of conduct, shall create a
presumption that Indemnitee has or has not met the applicable standard of
conduct.
(e) If, at the time of the receipt of a notice of a Claim, the Company
has director and officer liability insurance in effect, the Company shall give
prompt notice of the commencement of such proceeding to the insurers in
accordance with the procedures set forth in the respective policies. The
Company shall thereafter take all necessary or desirable action to cause such
insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of
such proceeding in accordance with the terms of such policies.
6. Scope. Notwithstanding any other provision of this Agreement, the
-----
Company hereby agrees to indemnify the Indemnitee against any Claim to the
fullest extent permitted by law, notwithstanding that such indemnification is
not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change, after the date of this Agreement, in any applicable
law, statute or rule which expands the right of a Delaware corporation to
indemnify a member of its board of directors, an officer or other corporate
agent, such changes shall be, ipso facto, within the purview of Indemnitee's
---- -----
rights and Company's obligations, under this Agreement. In the event of any
change in any applicable law, statute, or rule which narrows the right of a
Delaware corporation to indemnify a member of its Board of Directors, an
officer, or other corporate agent, such changes, to the extent not otherwise
required by applicable law to be applied to this Agreement, shall have no
effect on this Agreement or the parties' rights and obligations hereunder.
7. Partial Indemnification. If Indemnitee is entitled under any provision
-----------------------
of this Agreement to indemnification by the Company for some or a portion of the
expenses, judgments, fines or penalties actually or reasonably incurred by him
in the investigation, defense, appeal or settlement of any civil or criminal
action or proceeding, but not, however, for the total amount thereof, the
Company shall nevertheless indemnify Indemnitee for the portion of such
expenses, judgments, fines or penalties to which Indemnitee is entitled.
8. Public Policy. Both the Company and Indemnitee acknowledge that in
-------------
certain instances, Federal law or applicable public policy may prohibit the
Company from indemnifying its directors and officers under
-4-
<PAGE>
this Agreement or otherwise. Indemnitee understands and acknowledges that the
Company has undertaken or may be required in the future to undertake with the
Securities and Exchange Commission to submit the question of indemnification to
a court in certain circumstances for a determination of the Company's right
under public policy to indemnify Indemnitee.
9. Insurance. Although the Company may from time to time maintain
---------
insurance for the purpose of indemnifying Indemnitee and other agents of the
Company against personal liability, including costs of legal defense, nothing in
this Agreement shall obligate the Company to do so.
10. No Restrictions. The rights and remedies of Indemnitee under this
---------------
Agreement shall not be deemed to exclude or impair any other rights or remedies
to which Indemnitee may be entitled under the Certificate of Incorporation or
Bylaws of the Company, or under any other agreement, provision of law or
otherwise, nor shall anything contained herein restrict the right of the Company
to indemnify Indemnitee in any proper case even though not specifically provided
for in this Agreement, nor shall anything contained herein restrict Indemnitee's
right to contribution as may be available under applicable law.
11. Termination. The Company may terminate this Agreement at any time upon
-----------
90 days written notice, but any such termination will not affect Claims relating
to events occurring prior to the effective date of termination.
12. Severability. Each of the provisions of this Agreement is a separate
------------
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid or unenforceable for any reason, such
invalidity or unenforceability shall not affect the validity or enforceability
of the other provisions hereof.
13. Attorneys' Fees. In the event of any litigation or other action or
---------------
proceeding to enforce or interpret this Agreement, the prevailing party as
determined by the court shall be entitled to an award of its reasonable
attorneys' fees and other costs, in addition to such relief as may be awarded by
a court or other tribunal.
14. Further Assurances. The parties will do, execute and deliver, or will
------------------
cause to be done, executed and delivered, all such further acts, documents and
things as may be reasonably required for the purpose of giving effect to this
Agreement and the transactions contemplated hereby.
15. Acknowledgment. The Company expressly acknowledges that it has
--------------
entered into this Agreement and assumed the obligations imposed on the Company
hereunder in order to induce Indemnitee to serve or to continue to serve as an
agent of the Company, and acknowledges that Indemnitee is relying on this
Agreement in serving or continuing to serve in such capacity.
16. Construction of Certain Phrases.
-------------------------------
(a) "Company": For purposes of this Agreement, references to the
-------
"Company" shall also include, in addition to the resulting corporation in any
consolidation or merger to which the Company is a party, any constituent
corporation (including any constituent of a constituent) absorbed in
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents, so that if Indemnitee is or was a director, officer, employee or agent
of such
-5-
<PAGE>
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, Indemnitee shall stand in
the same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
(b) Benefit Plans: References to "fines" contained in this Agreement
-------------
shall include any excise taxes assessed on Indemnitee with respect to an
employee benefit plan; and references to "serving at the request of the Company"
shall include any service as a director, officer, employee or agent of the
Company which imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit plan, its
participants, or beneficiaries.
17. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original.
18. 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, on the date of such
receipt, or (ii) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked. Addresses for
notice to either party are as shown on the signature page of this Agreement, or
as subsequently modified by written notice.
19. Governing Law; Binding Effect; Amendment.
----------------------------------------
(a) This Agreement shall be interpreted and enforced in accordance
with the laws of the State of Delaware applicable to contracts entered into in
Delaware.
(b) This Agreement shall be binding upon Indemnitee and the Company,
their successors and assigns, and shall inure to the benefit of Indemnitee, his
heirs, personal representatives and assigns and to the benefit of the Company,
its successors and assigns.
(c) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by both parties hereto.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"COMPANY"
Personify, Inc.
a Delaware corporation
425 Battery Street, Suite 450B
San Francisco, CA 94111
------------------------------------------
Richard Vinchesi
Chief Financial Officer
"INDEMNITEE"
------------------------------------------
(Signature of Indemnitee)
Print name:
-------------------------------
Print address:
----------------------------
----------------------------
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<PAGE>
EXHIBIT 10.5
January 6, 2000
Mr. Love Goel
13033 Ridgedale Drive
Box 126
Minnesota, MN 55305
Dear Love
On behalf of Personify and its Board of Directors I am pleased to offer you the
position of Chief Executive Officer, reporting to the Board of Directors, on the
following terms.
Your compensation will be $25,000 per month (or $300,000 on an annualized
basis), less payroll deductions and all required withholdings. You will be paid
according to the Company's regular payroll policy and you will be entitled to
two weeks paid vacation per year or the amount granted to officers under the
Company's employment policies, whichever is greater. The Company will provide
you with medical, dental, disability, 401K and life insurance benefits in
accordance with our standard policies. Details about these benefits are
available for your review.
You will receive a fist year bonus of $100,000 based upon meeting certain
objectives as mutually agreed between you and the Board of Directors on or
before February 15, 2000 (the "Objectives Date"). You will receive payment of
the $100,000 within three business days of the Objectives Date). In addition,
you will receive an additional bonus of $300,000 upon the completion of an
underwritten Initial Public Offering (IPO) of the Company's common stock.
You will also receive a secured loan from the Company in the amount of $200,000
with an annual interest rate of 6% (or the minimum applicable Federal Discount
Rate, whichever is higher). Proceeds of the loan shall be disbursed to you in
twelve equal increments of $16,686.67, beginning ten days after the commencement
of your employment and every thirty days thereafter. The principal of the loan
and any accrued interest shall be repayable in full upon your sale of the stock
or any portion thereof referred to in the next paragraph. The obligation to
repay the principal of the loan shall be forgiven in the event of (a) a
termination of your employment, or (b) a Change in Control as defined herein.
Contingent upon your acceptance of this offer, the Company's Board of Directors
has granted you the right to immediately purchase 1,691,000 shares of the
Company's common stock (approximately 8% of the Company's outstanding capital
stock). The purchase price shall be the closing price of the Company's common
stock on the date that the Board of Directors approves the stock grant (the
Purchase Price). The purchase shall be funded by your payment of cash to the
Company in the amount of $10,000.00, and
<PAGE>
those customarily required of a chief executive officer of a company, or (c) a
reduction in your title or position. For an event described in the preceding
sentence to qualify as a Covered Breach, you must give written notice of the
event to the Company and the Company must fail to cure the event within thirty
days of receipt of that written notice. If, however, you voluntarily terminate
your employment other than for a Covered Breach, or if you are terminated for
Cause, there will be no termination of the Company's right to repurchase your
shares, the right to repurchase all shares not yet repurchased by the Company
shall ripen immediately, and no severance payment will be made.
Contingent upon your acceptance of this offer, you have also been nominated by
the Board of Directors to serve as a member of the Board of Directors of the
Company.
This letter sets forth the terms of your employment with the Company and
supersedes any prior representations or agreements, whether written or oral.
For purposes of federal immigration law, you will be required to provide to the
Company documentary evidence of your identity and eligibility for employment in
the United States.
As a Personify employee, you will be expected to sign and comply with the
attached Proprietary Information Agreement, which prohibits unauthorized use or
disclosure of Personify proprietary information.
This letter, together with your Proprietary Information and Inventions
Agreement, forms the complete and exclusive statement of your employment
agreement with Personify. The employment terms in this letter supersede any
other agreements or promises made to you by anyone, whether oral or written. As
required by law, this offer is subject to satisfactory proof of your right to
work in the United States.
Love, we are very excited about you joining Personify, and we look forward to a
mutually rewarding relationship. Please sign below and return to us.
Sincerely,
/s/ Lucio Lanza
Lucio Lanza
Chairman
I accept your offer of employment pursuant to the terms and conditions set forth
in this letter.
Name: /s/ Love Goel Date: 1/6/00
------------------------------- --------------------------------
Love Goel
<PAGE>
EXHIBIT 10.6
17 June 1999
Mr. Richard Vinchesi
200 W. 60th Street, Apt. 30A
New York, NY 10023
Dear Rich:
I am pleased to offer you the position of COO/CFO, reporting to the CEO. This
letter outlines the proposed terms of employment with Personify. Your monthly
salary will be $15,000.00, which is $180,000 annually. You will be paid twice
monthly and will have a yearly performance review. Your start date will be
Monday 26 July 1999.
For the balance of FY 1999, you will also be eligible for $20,000 in bonuses
tied to MBO's re staffing your team, preparing the company for an S-1 filing,
and developing an internal financial reporting system. We will finalize the
1999 MBO plan details within 45 days of your start date.
Additionally, the company will reimburse your out-of-pocket relocation expenses
from New York City to San Francisco, under the terms and conditions of the
enclosed Relocation Benefits Agreement up to a maximum reimbursement of $10,000.
We will also reimburse temporary living expenses up to a maximum of $5,000.
We will recommend that you will be granted an option to purchase 2% of the total
outstanding shares of Personify stock (approximately 284.131 shares). This
grant is subject to approval by the board of directors. The option would vest
over four years and would be governed by the terms set forth in Personify's
standard form of stock option agreement. The purchase price for each of the
shares covered by the option will be the closing price of Personify's common
stock on the date that the board approves the grant.
Personify will provide to you the health, holiday, vacation, and other benefits
that it affords all its employees.
Please understand that your employment is not governed by any written or oral
contract and is considered an "at will" arrangement. This means you are free,
as is Personify to terminate the employment relationship at any time for any
reason, so long as there is no violation of applicable state or federal law. Of
course, Personify may change your position duties and work location from time to
time as it deems necessary.
However, should there be a change of control and termination without cause or
should you be constructively terminated or terminated without cause, the company
will grant you a severance equal to twelve months base salary. Further, the
company's stock option plan has a provision for executives that allows for a
one-year acceleration of options upon
<PAGE>
change of control and termination without cause. That same one-year acceleration
of options will also be triggered if you are constructively terminated or
terminated without cause.
As a Personify employee, you will be expected to sign and comply with the
attached Proprietary Information Agreement which prohibits unauthorized use or
disclosure of Personify proprietary information.
This letter, together with your Proprietary Information and Inventions
Agreement, forms the complete and exclusive statement of your employment
agreement with Personify. The employment terms in this letter supersede any
other agreements or promises made to you by anyone whether oral or written. As
required by law, this offer is subject to satisfactory proof of your right to
work in the United States.
Rich, we hope you will be joining Personify and we look forward to a mutually
rewarding relationship. Please sign below and return to me by Tuesday, 22nd
June 1999, which is the expiration of the date of this offer.
Sincerely,
/s/ Eileen H. Gittins
Eileen Hicken Gittins
CEO
I accept your offer of employment pursuant to the terms and conditions set forth
in this letter.
Name: /s/ Richard Vinchesi Date: 6-30-99
----------------------------------- -----------------------------
Rich Vinchesi
<PAGE>
EXHIBIT 10.7
SECURED PROMISSORY NOTE
$8,867,750.00 February 29, 2000
For Value Received, Love Goel ("Goel") hereby unconditionally promises to
pay to the order of Personify Incorporated, a California corporation (the
"Company"), at 425 Battery Street, Suite 450B, San Francisco, California 94111,
or at such other place as the holder hereof may designate in writing, in lawful
money of the United States of America or in the form of common stock of the
Company, the principal sum of Eight Million Eight Hundred Sixty-Seven Thousand
Seven Hundred Fifty Dollars ($8,867,750.00) (the "Sum"), as follows:
1. With respect to each of the one million six hundred ninety-one thousand
(1,691,000) shares of common stock of the Company transferred to Goel
pursuant to that certain Restricted Stock Purchase Agreement, dated as
of February 29, 2000, by and between Goel and the Company (the
"Purchase Agreement"), promptly following such time as Goel transfers
any such shares (other than to the Company), Goel shall pay to the
Company Five Dollars and Twenty-Five Cents ($5.25) per share
transferred, and the Sum shall be reduced by such aggregate amount.
2. No interest shall be payable in respect of the Sum.
3. This Note may be prepaid at any time without penalty.
4. The holder of this Note shall have full recourse against Goel with
respect to 100% of the principal amount.
5. As security for the full, prompt and complete payment and performance
when due of all indebtedness created under the Note (all such
indebtedness being the "Liabilities"), the undersigned hereby pledges
to the Company, and grants to the Company, a first priority security
interest in the one million six hundred ninety-one thousand (1,691,000)
shares of Common Stock of the Company issued to Goel pursuant to the
Purchase Agreement and represented by certificates numbered
C-_____________.
6. This Note shall be governed by, and construed, enforced and interpreted
in accordance with, the laws of the State of California, excluding
conflict of law principles that would cause the application of laws of
any other jurisdiction.
/s/ LOVE GOEL
__________________________________
Love Goel
Address: 330 Bush Street
Apt. 4103
San Francisco, CA 94104
<PAGE>
EXHIBIT 10.8
Eileen Gittins
89 Midland Drive
Mill Valley, California 94941
Dear Eileen:
This letter sets forth the substance of the separation agreement (the
"Agreement") which PERSONIFY, INC. (the "Company") is offering to you to aid in
your employment transition.
1. Separation. Your resignation from the Company has been accepted effective
as of, and your last day of work with the Company shall be January 7, 2000
(the "Separation Date").
2. Accrued Salary and Paid Time Off. On the Separation Date, the Company will
pay you all accrued salary, and all accrued and unused vacation earned
through the Separation Date, subject to standard payroll deductions and
withholdings. You are entitled to these payments regardless of whether or
not you sign this Agreement.
3. Additional Consideration. As consideration for your execution of the
Employee Agreement and Release form attached as Exhibit A and your
agreement to the provisions of this Agreement, the Company agrees as
follows:
(a) Severance Benefits. Although the Company has no policy or procedure
for providing severance benefits, the Company will make severance
payments to you in the form of six months base salary ($14, 583.33
per month) payable according to the Company's standard payroll
schedule. In addition, in the event that you are unable to gain
employment at a position with a compensation rate equal to or greater
than the compensation rate at which you were currently earning with
the Company, the Company will make additional severance payments to
for up to an additional six months in an amount equal to the
difference between your current base salary and the base salary of
any new position, if any. These payments will be made in accordance
with the Company's standard payroll schedule and also be subject to
standard payroll deductions and withholdings.
(b) Additional Stock Option Vesting. You have been granted two options to
purchase common stock of the Company. The first option, granted
December 4, 1997, entitled you to purchase up to 248,920 shares at
$0.05 per share (the "1997 Option"). 171,133 shares under the 1997
Option are vested as of the Separation Date. The second option grant,
effective July 1, 1998, entitled you to purchase up to 390,400 shares
at $0.125 per share (the "1998 Option"). 195,200 shares under
<PAGE>
the 1998 Option are vested as of the Separation Date. In addition to
shares of Common Stock vested as described above, the Company has
agreed to accelerate the vesting of 15,558 additional option shares
under the 1997 Option and 97,600 additional option shares under the
1998 Option. Other than the accelerated vesting, all other terms and
conditions of such options remain unchanged. As a result of such
vesting acceleration, you will be vested in 75% of the shares under
each of the 1997 Option and the 1998 Option.
4. Future Employment. In exchange for the payments and other consideration
under this Agreement to which you would not otherwise be entitled, you
agree that, for a reasonable period following the Separation Date, you
will remain reasonably available to the Company for the purposes of
consultation and providing advice with regards to the Company's affairs,
at an hourly consulting fee to be determined later.
5. Other Compensation or Benefits. You acknowledge that, except as expressly
provided in this Agreement, you will not receive any additional
compensation, vesting, severance or benefits after the Separation Date.
6. Expense Reimbursement. You agree that, within ten (10) days of the
Separation Date, you will submit your final documented expense
reimbursement statement reflecting all business expenses you incurred
through the Separation Date, if any, for which you seek reimbursement.
The Company will reimburse you for these expenses pursuant to its regular
business practice.
7. Return of Company Property. By the Separation Date, you agree to return
to the Company all Company documents (and all copies thereof) and other
Company property which you have had in your possession at any time,
including, but not limited to, Company files, notes, drawings, records,
business plans and forecasts, financial information, specifications,
computer-recorded information, tangible property (including, but not
limited to, computers), credit cards, entry cards, identification badges
and keys; and, any materials of any kind which contain or embody any
proprietary or confidential information of the Company (and all
reproductions thereof).
8. Proprietary Information Obligations. You acknowledge your continuing
obligations under your Proprietary Information and Inventions Agreement
not to use or disclose any confidential or proprietary information of the
Company without prior written authorization from a duly authorized
representative of the Company. A copy of your Proprietary Information and
Inventions Agreement is attached hereto as Exhibit B.
9. Confidentiality. The provisions of this Agreement shall be held in
strictest confidence by you and the Company and shall not be publicized
or disclosed in any manner whatsoever; provided, however, that: (a) you
may disclose this Agreement to your immediate family; (b) the parties may
disclose this Agreement in confidence to their respective attorneys,
accountants, auditors, tax preparers, and financial advisors; (c) the
Company may disclose this Agreement as necessary to fulfill standard or
legally required corporate reporting or disclosure requirements; and (d)
the parties may disclose this
2
<PAGE>
Agreement insofar as such disclosure may be necessary to enforce its
terms or as otherwise required by law.
10. Nondisparagement. Both you and the Company agree not to disparage the
other party, and the other party's officers, directors, employees,
shareholders and agents, in any manner likely to be harmful to them or
their business, business reputation or personal reputation; provided that
both you and the Company shall respond accurately and fully to any
question, inquiry or request for information when required by legal
process.
11. Non-Solicitation of Company Employees. In exchange for the payments and
other consideration under this Agreement to which you would not otherwise
be entitled, you agree that for a period of two (2) years following the
Separation Date, you shall not, either directly or through others,
solicit or attempt to solicit any employee, independent contractor or
consultant of the Company to terminate his or her relationship with the
Company in order to become an employee, consultant or independent
contractor to or for any other person or entity. Further, you agree that
during this period, you shall not, either directly or through others,
hire any employee, independent contractor or consultant of the Company as
an employee, independent contractor or consultant of any organization for
which you are associated as an employee, independent contractor or
consultant.
12. No Competition with Company Business. In exchange for the payments and
other consideration under this Agreement to which you would not otherwise
be entitled, you agree that for a period of two (2) years following the
Separation Date, you shall not either directly or indirectly participate
in any business, or provide any service (as an employee, consultant or
otherwise) or support (including financial or investment) to a business,
if such business, participation, service, or support is competitive or
diminishing in any material respect to the Company's Business as defined
below. For the purpose of this Agreement the "Company's Business" shall
mean enabling software and services for web/enterprise data mining,
web/enterprise data warehousing, marketing analytics, campaign
automation, and web personalization.
13. Release. In exchange for the payments, loan and other consideration under
this Agreement to which you would not otherwise be entitled, you agree to
execute the Employee Agreement and Release attached hereto as Exhibit A.
14. Loan. To assist you in your transition, the Company will offer you a
loan in the amount of $46,000. Such loan will bear interest at a rate of
6.2 percent or the minimum applicable federal rate and be in the form
attached hereto as Exhibit C.
15. Miscellaneous. This Agreement, including Exhibits A, B, and C
constitutes the complete, final and exclusive embodiment of the entire
agreement between you and the Company with regard to this subject matter.
It is entered into without reliance on any promise or representation,
written or oral, other than those expressly contained herein, and it
supersedes any other such promises, warranties or representations. This
Agreement may not be modified or amended except in a writing signed by
both you and a duly authorized officer of the Company. This Agreement
shall bind the heirs, personal representatives, successors and assigns of
both you and the Company, and inure to the
3
<PAGE>
benefit of both you and the Company, their heirs, successors and assigns.
If any provision of this Agreement is determined to be invalid or
unenforceable, in whole or in part, this determination will not affect
any other provision of this Agreement and the provision in question shall
be modified by the court so as to be rendered enforceable. This Agreement
shall be deemed to have been entered into and shall be construed and
enforced in accordance with the laws of the State of California as
applied to contracts made and to be performed entirely within California.
If this Agreement is acceptable to you, please sign below and on the attached
Employee Agreement and Release, which is part of this Agreement, and return the
originals of both to me.
I wish you luck in your future endeavors.
Sincerely,
PERSONIFY INCORPORATED
By: /s/ STEVE KRAUSE
------------------------------------------
Steve Krause
President
Exhibit A - Employee Agreement and Release
Exhibit B - Proprietary Information and Inventions Agreement
AGREED:
/s/ EILEEN GITTINS
- ----------------------------------------------
Eileen Gittins
4
<PAGE>
EXHIBIT A
EMPLOYMENT AGREEMENT AND RELEASE
Except as otherwise set forth in this Agreement, I hereby release, acquit
and forever discharge the Company, its parents and subsidiaries, and their
officers, directors, agents, servants, employees, attorneys, shareholders,
successors, assigns and affiliates, of and from any and all claims, liabilities,
demands, causes of action, costs, expenses, attorneys fees, damages, indemnities
and obligations of every kind and nature, in law, equity, or otherwise, known
and unknown, suspected and unsuspected, disclosed and undisclosed, arising out
of or in any way related to agreements, events, acts or conduct at any time
prior to and including the execution date of this Agreement, including but not
limited to: all such claims and demands directly or indirectly arising out of
or in any way connected with my employment with the Company or the termination
of that employment; claims or demands related to salary, bonuses, commissions,
stock, stock options, or any other ownership interests in the Company, vacation
pay, fringe benefits, expense reimbursements, severance pay, or any other form
of compensation; claims pursuant to any federal, state or local law, statute or
cause of action including, but not limited to, the federal Civil Rights Act of
1964, as amended; the federal Americans with Disabilities Act of 1990; the
federal Age Discrimination in Employment Act of 1967, as amended ("ADEA"); the
California Fair Employment and Housing Act, as amended; tort law; contract law;
wrongful discharge; discrimination; harassment; fraud; defamation; emotional
distress; and breach of the implied covenant of good faith and fair dealing.
I acknowledge that I am knowingly and voluntarily waiving and releasing any
rights I may have under the ADEA, as amended. I also acknowledge that the
consideration given for the waiver and release in the preceding paragraph hereof
is in addition to anything of value to which I was already entitled. I further
acknowledge that I have been advised by this writing, as required by the ADEA,
that: (a) my waiver and release do not apply to any rights or claims that may
arise after the execution date of this Agreement; (b) I have been advised hereby
that I have the right to consult with an attorney prior to executing this
Agreement; (c) I have twenty-one (21) days to consider this Agreement (although
I may choose to voluntarily execute this Agreement earlier); (d) I have seven
(7) days following the execution of this Agreement by the parties to revoke the
Agreement; and (e) this Agreement shall not be effective until the date upon
which the revocation period has expired, which shall be the eighth day after
this Agreement is executed by me, provided that the Company has also executed
this Agreement by that date ("Effective Date").
In giving this release, which includes claims which may be unknown to me at
present, I acknowledge that I have read and understand Section 1542 of the
California Civil Code which reads as follows: "A general release does not
extend to claims which the creditor does not know or suspect to exist in his
favor at the time of executing the release, which if known by him must have
materially affected his settlement with the debtor." I hereby expressly waive
and relinquish all rights and benefits under that section and any law of any
jurisdiction of similar effect with respect to my release of any claims I may
have against the Company.
By: /s/ EILEEN GITTINS
------------------------------------
Eileen Gittins
Date: 1/7/2000
----------------------------------
5
<PAGE>
EXHIBIT B
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
6
<PAGE>
EXHIBIT C
PROMISSORY NOTE
$46,000.00 February 16, 2000
For Value Received, Eileen Gittins ("Payor") hereby unconditionally
promises to pay to the order of Personify Incorporated, a California corporation
(the "Company"), at 425 Battery Street, Suite 450B, San Francisco, CA 94111, or
at such other place as the holder hereof may designate in writing, in lawful
money of the United States of America and in immediately available funds, the
principal sum of Forty Six Thousand Dollars ($46,000.00), at the rate of 6.2%
per annum, or the maximum rate permissible by law (which under the laws of the
State of California shall be deemed to be the laws relating to permissible rates
of interest on commercial loans), whichever is less. This Note shall be subject
to the following additional terms and conditions:
1. The outstanding principal amount and all accrued but unpaid interest
hereunder shall be due and payable in full upon the earlier to occur of (i)
February 16, 2003; or (ii) the date of the first sale or exchange of any shares
of stock of the Company obtained by Payor by purchase from the Company.
2. Interest shall be payable annually in arrears and shall be calculated on
the basis of a 360-day year for the actual number of days elapsed.
3. If the undersigned fails to pay any of the principal and accrued interest
when due, the Company, at its sole option, shall have the right to accelerate
this Note, in which event the entire principal balance and all accrued interest
shall become immediately due and payable, and immediately collectible by the
Company pursuant to applicable law.
4. This Note may be prepaid at any time without penalty. All money paid toward
the satisfaction of this Note shall be applied first to the payment of interest
as required hereunder and then to the retirement of the principal.
5. The undersigned hereby represents and agrees that the amounts due under
this Note are not consumer debt, and are not incurred primarily for personal,
family or household purposes, but are for business and commercial purposes only.
6. The undersigned hereby waives presentment, protest and notice of protest,
demand for payment, notice of dishonor and all other notices or demands in
connection with the delivery, acceptance, performance, default or endorsement of
this Note.
7. The holder hereof shall be entitled to recover, and the undersigned agrees
to pay when incurred, all costs and expenses of collection of this Note,
including without limitation, reasonable attorneys' fees.
8. This Note shall be governed by, and construed, enforced and interpreted in
accordance with, the laws of the State of California, excluding conflict of laws
principles that would cause the application of laws of any other jurisdiction.
/s/ Eileen Gittins
------------------------------
Eileen Gittins
Address: 89 Milland Drive
Mill Valley, CA 94941
7
<PAGE>
NOTICE OF EXERCISE
Personify Incorporated
425 Battery Street, Suite 450B
San Francisco, California 94111 Date of Exercise: 1/7/00
------
Ladies and Gentlemen:
This constitutes notice under my stock option that I elect to purchase the
number of shares for the price set forth below.
Type of option (check one): Incentive [X] Nonstatutory [_]
Stock option dated: 7/1/98
--------------
Number of shares as
to which option is
exercised: 292,800
--------------
Certificates to be
issued in name of: Eileen Hicken Gittins
--------------
Total exercise price: $36,600.00
--------------
Cash payment delivered
herewith: $
--------------
Promissory note delivered
herewith: $
--------------
By this exercise, I agree (i) to provide such additional documents as you
may require pursuant to the terms of the 1998 Equity Incentive Plan, (ii) to
provide for the payment by me to you (in the manner designated by you) of your
withholding obligation, if any, relating to the exercise of this option, and
(iii) if this exercise relates to an incentive stock option, to notify you in
writing within fifteen (15) days after the date of any disposition of any of the
shares of Common Stock issued upon exercise of this option that occurs within
two (2) years after the date of grant of this option or within one (1) year
after such shares of Common Stock are issued upon exercise of this option.
I hereby make the following certifications and representations with respect
to the number of shares of Common Stock of the Company listed above (the
"Shares"), which are being acquired by me for my own account upon exercise of
the Option as set forth above:
I acknowledge that the Shares have not been registered under the Securities
Act of 1933, as amended (the "Securities Act"), and are deemed to constitute
"restricted securities" under
1.
<PAGE>
Rule 701 and "control securities" under Rule 144 promulgated under the
Securities Act. I warrant and represent to the Company that I have no present
intention of distributing or selling said Shares, except as permitted under the
Securities Act and any applicable state securities laws.
I further acknowledge that I will not be able to resell the Shares for at
least ninety days (90) after the stock of the Company becomes publicly traded
(i.e., subject to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934) under Rule 701 and that more restrictive
conditions apply to affiliates of the Company under Rule 144.
I further acknowledge that all certificates representing any of the Shares
subject to the provisions of the Option shall have endorsed thereon appropriate
legends reflecting the foregoing limitations, as well as any legends reflecting
restrictions pursuant to the Company's Articles of Incorporation, Bylaws and/or
applicable securities laws.
By exercising your option you agree that the Company (or a representative
of the underwriters) may, in connection with The first underwritten registration
of the offering of any securities of the Company under the Securities Act,
require that you not sell, dispose of, transfer, make any short sale of, grant
any option for the purchase of, or enter into any hedging or similar transaction
with the same economic effect as a sale, any shares of Common Stock or other
securities of the Company held by you, for a period of time specified by the
underwriter(s) (not to exceed one hundred eighty (180) days) following the
effective date of the registration statement of the Company filed under the
Securities Act. You further agree to execute and deliver such other agreements
as may be reasonably requested by the Company and/or the underwriter(s) which
are consistent with the foregoing or which are necessary to give further effect
thereto. In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to your Common Stock until the end of
such period.
Very truly yours,
/s/ EILEEN GITTINS
---------------------------------
2.
<PAGE>
NOTICE OF EXERCISE
Personify Incorporated
425 Battery Street, Suite 450B
San Francisco, California 94111 Date of Exercise: 1/7/00
------
Ladies and Gentlemen:
This constitutes notice under my stock option that I elect to purchase the
number of shares for the price set forth below.
Type of option (check one): Incentive [X] Nonstatutory [_]
Stock option dated: 12/4/97
--------------
Number of shares as
to which option is
exercised: 186,891
--------------
Certificates to be
issued in name of: Eileen Hicken Gittins
--------------
Total exercise price: $9,344.55
--------------
Cash payment delivered
herewith: $
--------------
Promissory note delivered
herewith: $
--------------
By this exercise, I agree (i) to provide such additional documents as you
may require pursuant to the terms of the 1998 Equity Incentive Plan, (ii) to
provide for the payment by me to you (in the manner designated by you) of your
withholding obligation, if any, relating to the exercise of this option, and
(iii) if this exercise relates to an incentive stock option, to notify you in
writing within fifteen (15) days after the date of any disposition of any of the
shares of Common Stock issued upon exercise of this option that occurs within
two (2) years after the date of grant of this option or within one (1) year
after such shares of Common Stock are issued upon exercise of this option.
I hereby make the following certifications and representations with respect
to the number of shares of Common Stock of the Company listed above (the
"Shares"), which are being acquired by me for my own account upon exercise of
the Option as set forth above:
I acknowledge that the Shares have not been registered under the Securities
Act of 1933, as amended (the "Securities Act"), and are deemed to constitute
"restricted securities" under
1.
<PAGE>
Rule 701 and "control securities" under Rule 144 promulgated under the
Securities Act, I warrant and represent to the Company that I have no present
intention of distributing or selling said Shares, except as permitted under the
Securities Act and any applicable state securities laws.
I further acknowledge that I will not be able to resell the Shares for at
least ninety days (90) after the stock of the Company becomes publicly traded
(i.e., subject to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934) under Rule 701 and that more restrictive
conditions apply to affiliates of the Company under Rule 144.
I further acknowledge that all certificates representing any of the Shares
subject to the provisions of the Option shall have endorsed thereon appropriate
legends reflecting the foregoing limitations, as well as any legends reflecting
restrictions pursuant to the Company's Articles of Incorporation, Bylaws and/or
applicable securities laws.
By exercising your option you agree that the Company (or a representative
of the underwriters) may, in connection with the first underwritten registration
of the offering of any securities of the Company under the Securities Act,
require that you not sell, dispose of, transfer, make any short sale of, grant
any option for the purchase of, or enter into any hedging or similar transaction
with the same economic effect as a sale, any shares of Common Stock or other
securities of the Company held by you, for a period of time specified by the
underwriter(s) (not to exceed one hundred eighty (180) days) following the
effective date of the registration statement of the Company filed under the
Securities Act. You further agree to execute and deliver such other agreements
as may be reasonably requested by the Company and/or the underwriter(s) which
are consistent with the foregoing or which are necessary to give further effect
thereto. In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to your Common Stock until the end of
such period.
Very truly yours,
/s/ EILEEN GITTINS
---------------------------------
2.
<PAGE>
May 10, 2000
Eileen Gittens
86 Midland Drive
Mill Valley, California 94941
Re: Letter of Agreement to amend Separation Agreement
Dear Ms. Gittens:
This Letter of Agreement will confirm our mutual understanding and desire to
amend the Separation Agreement of January 7, 2000, (the "Separation Agreement"),
between Eileen Gittens and Personify, Inc., (the "Parties"). The Parties agree
as follows:
1. The purpose of this letter of Agreement is to clarify the intent of
the Parties at the time of execution of the Separation Agreement,
including all exhibits and attachments.
2. The Parties entered into the Separation Agreement on January 7, 2000.
Section 14 of the Separation Agreement stated that a loan in the
amount of $46,000.00, in the form of a Promissory Note, would be
offered to Eileen Gittens by Personify.
3. At the time the Parties entered into and executed the Separation
Agreement and the Promissory Note, it was the intent of the Parties
that the holder of the Promissory Note should have full recourse
against Eileen Gittens with respect to 100% of the principal amount
stated in the Promissory Note.
4. The Parties agree that the holder of the Promissory Note shall have
full recourse against Eileen Gittens with respect to 100% of the
principal amount stated in the Promissory Note.
5. This Letter of Agreement is hereby incorporated into the Separation
Agreement. The general terms and conditions of the Separation
Agreement shall govern this Letter of Agreement.
Acknowledged and accepted by:
Eileen Gittens Personify, Inc.
/s/ Eileen Gittens By ________________________
---------------------- Name ______________________
Date 10 MAY 2000 Date ______________________
-----------------
<PAGE>
TBCC
EXHIBIT 10.9
Loan and Security Agreement
Borrower: Personify Incorporated, a California corporation
Address: 425 Battery Street, Suite 450B
San Francisco, California 94111
Date: March 31, 2000
THIS LOAN AND SECURITY AGREEMENT is entered into as of the above date, between
the above borrower (the "Borrower"), having its chief executive office and
principal place of business at the address shown above, and TRANSAMERICA
BUSINESS CREDIT CORPORATION, a Delaware corporation, ("TBCC") having its
principal office at 9399 West Higgins Road, Suite 600, Rosemont, Illinois 60018
and having an office at 76 Batterson Park Road, Farmington, Connecticut
06032-2571. The Schedule to this Agreement (the "Schedule") being signed
concurrently is an integral part of this Agreement. (Definitions of certain
terms used in this Agreement are set forth in Section 9 below.) The parties
agree as follows:
1. LOANS.
-----
1.1. Loans. TBCC, subject to the terms and conditions of this Agreement,
-----
agrees to make loans (the "Loans") to Borrower, from time to time during the
period from the date of this Agreement to the Maturity Date set forth in the
Schedule, at Borrower's request, in an aggregate principal amount at any one
time outstanding not to exceed the Credit Limit shown on the Schedule (the
"Credit Limit"). If at any time the total outstanding Loans and other monetary
Obligations exceed the Credit Limit, Borrower shall repay the excess immediately
without demand. Borrower shall use the proceeds of all Loans solely for lawful
general business purposes.
1.2. Due Date. The Loans, all accrued interest and all other monetary
--------
Obligations shall be payable in full on the Maturity Date. Borrower may borrow,
repay and reborrow Loans (other than any Term Loans), in whole or in part, in
accordance with the terms of this Agreement.
1.3. Loan Account. TBCC shall maintain an account on its books in the name of
------------
Borrower (the "Loan Account"). All Loans and advances made by TBCC to Borrower
or for Borrower's account and all other monetary Obligations will be charged to
the Loan Account. All amounts received by TBCC from Borrower or for Borrower's
account will be credited to the Loan Account. TBCC will send Borrower a monthly
statement reflecting the activity in the Loan Account, and each such monthly
statement shall be an account stated between Borrower and TBCC and shall be
final, conclusive and binding absent manifest error.
1.4. Collection of Receivables. * Borrower shall remit to TBCC all
-------------------------
Collections including all checks, drafts and other documents and instruments
evidencing remittances in payment (collectively referred to as "Items of
Payment") within one Business Day after receipt, in the same form as received,
with any necessary indorsements. For purposes of calculating interest due to
TBCC, credit will be given for Collections and all other proceeds of Collateral
and other payments to TBCC three Business Days after receipt of cleared funds.
For all purposes of this Agreement any cleared funds received by TBCC later than
10:00 a.m. (California time) on any Business Day shall be deemed to have been
received on the following Business Day and any applicable interest or fee shall
continue to accrue. Borrower's Loan Account will be credited only with the net
amounts actually received in payment of Receivables, and such payments shall be
credited to the Obligations in such order as TBCC shall determine in its
discretion. Pending delivery to TBCC, Borrower will not commingle any Items of
Payment with any of its other funds or property, but will segregate them from
the other assets of Borrower and will hold them in trust and for the account and
as the property of TBCC. Borrower hereby agrees to endorse any Items of Payment
upon the request of TBCC.
-1-
<PAGE>
* Subject to the provisions of the Streamlined Facility Agreement of even date
herewith between Borrower and TBCC,
1.5. Reserves. TBCC may, from time to time, in its Good Faith business
--------
judgment: (i) establish and modify reserves against Eligible Receivables and
Eligible Inventory, (ii) modify advance rates with respect to Eligible
Receivables and Eligible Inventory, (iii) modify the standards of eligibility
set forth in the definitions of Eligible Receivables and Eligible Inventory, and
(iv) establish reserves against available Loans.
1.6. Term. * See Section 9 of the Schedule
----
1.7. Payment Procedures. Borrower hereby authorizes TBCC to charge the Loan
------------------
Account with the amount of all interest, fees, expenses and other payments to be
made hereunder and under the other Loan Documents. TBCC may, but shall not be
obligated to, discharge Borrower's payment obligations hereunder by so charging
the Loan Account. Whenever any payment to be made hereunder is due on a day
that is not a Business Day, the payment may be made on the next succeeding
Business Day and such extension of time shall be included in the computation of
the amount of interest due.
1.8. Conditions to Initial Loan. The obligation of TBCC to make the initial
--------------------------
Loan is subject to the satisfaction of the following conditions prior to or
concurrent with such initial Loan, and Borrower shall cause all such conditions
to be satisfied by the Closing Deadline set forth in the Schedule:
(a) Except for the filing of termination statements under the Uniform
Commercial Code by the existing lender to Borrower whose loans are being repaid
with the Loan proceeds, no consent or authorization of, filing with or other act
by or in respect of any Governmental Authority or any other Person is required
in connection, with the execution, delivery, performance, validity or
enforceability of this Agreement, or the other Loan Documents or the
consummation of the transactions contemplated hereby or thereby or the
continuing operations of the Borrower following the consummation of such
transactions.
(b) TBCC and its counsel shall have performed (i) a review satisfactory to
TBCC of all of the Material Contracts and other assets of the Borrower, the
financial condition of the Borrower, including all of its tax, litigation,
environmental and other potential contingent liabilities, and the corporate and
capital structure of the Borrower and (ii) a pre-closing audit and collateral
review, in each case with results satisfactory to TBCC.
(c) TBCC shall have received the following, each dated the date of the
initial Loan or as of an earlier date acceptable to TBCC, in form and substance
satisfactory to TBCC and its counsel: (i) a Depository Account Agreement (as
TBCC shall designate), duly executed by the Borrower and its bank on TBCC's
standard form; (ii) acknowledgment copies of Uniform Commercial Code financing
statements (naming TBCC as secured party and the Borrower as debtor), duly filed
in all jurisdictions that TBCC deems necessary or desirable to perfect and
protect the Liens created hereunder, and evidence that all other filings,
registrations and recordings have been made in the appropriate governmental
offices, and all other action has been taken, which shall be necessary to
create, in favor of TBCC, a perfected first priority Lien on the Collateral;
(iii) the opinion of counsel for the Borrower covering such matters incident to
the transactions contemplated by this Agreement as TBCC may specify in its *
discretion; (iv) certified copies of all policies of insurance required by this
Agreement and the other Loan Documents, together with loss payee endorsements
for all such policies naming TBCC as lender loss payee and an additional
insured; (v) copies of the Borrower's articles or certificate of incorporation,
certified as true, correct and complete by the secretary of state of Borrower's
state of incorporation within 45 days of the date hereof; (vi) copies of the
bylaws of the Borrower and a copy of the resolutions of the Board of Directors
of the Borrower authorizing the execution, delivery and performance of this
Agreement, the other Loan Documents, and the transactions contemplated hereby
and thereby, attached to which is a certificate of the Secretary or an Assistant
Secretary of the Borrower certifying (A) that such copies of the bylaws and
resolutions are true, complete and accurate copies thereof,
-2-
<PAGE>
have not been amended or modified since the date of such certificate and are in
full force and effect and (B) the incumbency, names and true signatures of the
officers of the Borrower; (vii) a good standing certificate from the Secretary
of State of Borrower's state of incorporation and each state in which the
Borrower is qualified as a foreign corporation, each dated within ten days of
the date hereof; (viii) the additional documents and agreements, if any, listed
in the Schedule; and (ix) such other agreements and instruments as TBCC deems
necessary in its sole and absolute discretion in connection with the
transactions contemplated hereby.
* reasonable
1.9. Conditions to Lending. The obligation of TBCC to make any Loan is
----------------------
subject to the satisfaction of the following conditions precedent:
(a) There shall be no pending or, to the * knowledge of Borrower threatened
litigation, proceeding, inquiry or other action relating to this Agreement, or
any other Loan Document, or which could be expected to have a Material Adverse
Effect in the judgment of TBCC;
* best of the
(b) Borrower shall be in compliance with all Requirements of Law and
Material Contracts, other than such noncompliance that could not have a Material
Adverse Effect;
(c) The Liens in favor of TBCC shall have been duly perfected and shall
constitute first priority Liens, except for Permitted Liens;
(d) All representations and warranties contained in this Agreement and the
other Loan Documents shall be true and correct on and as of the date of such
Loan as if then made, other than representations and warranties that expressly
relate solely to an earlier date, in which case they shall have been true and
correct as of such earlier date;
(e) No Default or Event of Default shall have occurred and be continuing or
would result from the making of the requested Loan as of the date of such
request; and
(f) No Material Adverse Effect shall have occurred.
2. INTEREST AND FEES.
-----------------
2.1. Interest. Borrower shall pay TBCC interest on all outstanding Loans and
--------
other monetary Obligations, at the interest rate set forth in the Schedule.
Interest shall be payable monthly in arrears on the first Business Day of each
month, and on the Maturity Date. Following the occurrence and during the
continuance of any Event of Default, the interest rate applicable to all
Obligations shall be increased by two percent per annum (except that as to
Obligations evidenced by a promissory note, if such note specifies a different
default rate of interest, such default rate shall apply to such note).
2.2. Fees. Borrower shall pay TBCC the fees set forth in the Schedule.
----
2.3. Calculations. All interest and fees under this Agreement shall be
------------
calculated on the basis of a year of 360 days for the actual number of days
elapsed in the period for which such interest or fees are payable.
2.4. Taxes. Any and all payments by Borrower under this Agreement or any
-----
other Loan Document shall be made free and clear of and without deduction for
any and all present or future taxes, levies, imposts, deductions, charges or
withholdings and penalties, interest and all other liabilities with respect
thereto, excluding in the case of TBCC, taxes imposed on its net income and
franchise taxes imposed on it by the jurisdiction under the laws of which TBCC
is organized or any political subdivision thereof.
3. SECURITY.
--------
3.1. Grant of Security Interest. To secure the payment and performance when
--------------------------
due of all of the Obligations, Borrower hereby grants to TBCC a security
interest in all of its present and future Receivables, Investment Property,
Inventory, Equipment, Other Property, and other Collateral, wherever located. *
-3-
<PAGE>
* Notwithstanding the foregoing, the security interests granted herein shall
not extend to and the term "Collateral" shall not include any license under
which Borrower is a licensee, to the extent that, and only so long as: (i) such
license is listed on Schedule I hereto or other written agreement by TBCC as
excluded from the Collateral, or only related to software with aggregate monthly
license fees, royalties and other costs not exceeding $1,000, (ii) the granting
of a security interest therein is prohibited by or would constitute a default
under such license, and (iii) such prohibition is enforceable under applicable
law.
3.2. Other Liens; Location of Collateral. Borrower represents, warrants and
-----------------------------------
covenants that all of the Collateral is, and will at all times continue to be,
free and clear of all Liens, other than Permitted Liens and Liens in favor of
TBCC. All Collateral is and will continue to be maintained at the locations
shown on the Schedule *.
* or at any other location within the United States previously disclosed to
TBCC in conformity with the notice requirements of Section 5.8(c)
3.3. Receivables.
-----------
(a) Schedules and Other Actions. As often as * requested by TBCC, Borrower
---------------------------
shall execute and deliver to TBCC written schedules of Receivables and Eligible
Receivables (but the failure to execute or deliver any schedule shall not affect
or limit TBCC's security interest in all Receivables). On TBCC's request,
Borrower shall also furnish to TBCC copies of invoices to customers and shipping
and delivery receipts. Borrower shall deliver to TBCC the originals of all
letters of credit, notes, and instruments in its favor and such endorsements or
assignments as TBCC may reasonably request and, upon the request of TBCC,
Borrower shall deliver to TBCC all certificated securities with respect to any
Investment Property, with all necessary indorsements, and obtain such account
control agreements with securities intermediaries and take such other action
with respect to any Investment Property, as TBCC shall * request, in form and
substance satisfactory to TBCC. Upon request of TBCC Borrower additionally
shall obtain consents from any letter of credit issuers with respect to the
assignment to TBCC of any letter of credit proceeds.
* reasonably
(b) Records, Collections. Borrower shall report all customer credits to
--------------------
TBCC, on the regular reports to TBCC in the form from time to time specified by
TBCC. Borrower shall notify TBCC of all returns and recoveries of merchandise
and of all claims asserted with respect to merchandise, on its regular reports
to TBCC. Borrower shall not settle or adjust any dispute or claim, or grant any
discount, credit or allowance or accept any return of merchandise, except in the
ordinary course of its business, without TBCC's prior written consent.
(c) Representations. Borrower represents and warrants to TBCC that each
---------------
Receivable with respect to which Loans are requested by Borrower shall, on the
date each Loan is requested and made, represent an undisputed, bona fide,
existing, unconditional obligation of the account debtor created by the sale,
delivery, and acceptance of goods, the licensing of software or the rendition of
services, in the ordinary course of Borrower's business, and meet the Minimum
Eligibility Requirements set forth in Section 9.1(n) below.
3.4. Inventory. Borrower shall maintain full, accurate and complete records
---------
respecting the Inventory describing the kind, type and quantity of the Inventory
and Borrower's cost therefor, withdrawals therefrom and additions thereto,
including a perpetual inventory for work in process and finished goods.
3.5. Equipment. Borrower shall at all times keep correct and accurate records
---------
itemizing and describing the location, kind, type, age and condition of the
Equipment, Borrower's cost therefor and accumulated depreciation thereof and
retirements, sales, or other dispositions thereof. Borrower shall keep all of
its Equipment in a satisfactory state of repair and satisfactory operating
condition in accordance with industry standards, ordinary wear and tear
excepted. No Equipment shall be annexed or affixed to or become part of any
realty, unless the owner of the realty has executed and delivered a Landlord
Waiver in such form as TBCC shall specify. Where Borrower is permitted to
dispose of any Equipment under this Agreement or by any consent thereto
hereafter given by TBCC, Borrower shall do so at arm's length, in good faith and
by obtaining the maximum amount of recovery practicable therefor and without
impairing the operating integrity or value of the remaining Equipment.
3.6. Investment Property. Borrower shall have the right to retain all
-------------------
Investment Property payments and distributions, unless and until an Event of
Default has occurred *. If an Event of Default exists, Borrower shall hold all
payments on, and proceeds of, and distributions with respect to, Investment
Property in trust for TBCC, and Borrower shall deliver all such payments,
proceeds and distributions to TBCC, immediately upon receipt, in their original
form, duly endorsed, to be applied to the
-4-
<PAGE>
Obligations in such order as TBCC shall determine. Upon the request of TBCC, any
such distributions and payments with respect to any Investment Property held in
any securities account shall be held and retained in such securities account as
part of the Collateral.
* and is continuing
3.7. Further Assurances. Borrower will perform any and all steps that TBCC
------------------
may reasonably request to perfect TBCC's security interests in the Collateral,
including, without limitation, executing and filing financing and continuation
statements in form and substance satisfactory to TBCC. TBCC is hereby authorized
by Borrower to sign Borrower's name or file any financing statements or similar
documents or instruments covering the Collateral whether or not Borrower's
signature appears thereon. Borrower agrees, from time to time, at TBCC's
request, to file notices of Liens, financing statements, similar documents or
instruments, and amendments, renewals and continuations thereof, and cooperate
with TBCC, in connection with the continued perfection and protection of the
Collateral. If any Collateral is in the possession or control of any Person
other than a public warehouseman where the warehouse receipt is in the name of
or held by TBCC, Borrower shall notify such Person of TBCC's security interest
therein and, upon request, instruct such Person or Persons to hold all such
Collateral for the account of TBCC and subject to TBCC's instructions. If so
requested by TBCC, Borrower will deliver to TBCC warehouse receipts covering any
Collateral located in warehouses showing TBCC as the beneficiary thereof and
will also cause the warehouseman to execute and deliver such agreements as TBCC
may request relating to waivers of liens by such warehouseman and the release of
the Inventory to TBCC on its demand. Borrower shall defend the Collateral
against all claims and demands of all Persons.
3.8. Power of Attorney. Borrower hereby appoints and constitutes TBCC as
-----------------
Borrower's attorney-in-fact (i) to request at any time from account debtors
verification of information concerning Receivables and the amount owing thereon,
(ii) upon the occurrence and during the continuance of an Event of Default, to
convey any item of Collateral to any purchaser thereof, (iii) to give or sign
Borrower's name to any notices or statements necessary or desirable to create or
continue the Lien on any Collateral granted hereunder, (iv) to execute and
deliver to any securities intermediary or other Person any entitlement order,
account control agreement or other notice, document or instrument with respect
to any Investment Property, and (v) to make any payment or take any act
necessary or desirable to protect or preserve any Collateral. TBCC's authority
hereunder shall include, without limitation, the authority to execute and give
receipt for any certificate of ownership or any document, transfer title to any
item of Collateral * and take any other actions arising from or incident to the
powers granted to TBCC under this Agreement. This power of attorney is coupled
with an interest and is irrevocable.
* (at such time that an Event of Default has occurred and is continuing)
4. Representations and Warranties of Borrower. Borrower represents and
------------------------------------------
warrants as follows:
4.1. Organization, Good Standing and Qualification. Borrower (i) is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State set forth above, (ii) has the corporate power and authority to own
its properties and assets and to transact the businesses in which it is engaged
and (iii) is duly qualified, authorized to do business and in good standing in
each jurisdiction where it is engaged in business, except to the extent that the
failure to so qualify or be in good standing would not have a Material Adverse
Effect.
4.2. Locations of Offices, Records and Collateral. The address of the
--------------------------------------------
principal place of business and chief executive office of Borrower is, and the
books and records of Borrower and all of its chattel paper and records relating
to Collateral are maintained exclusively in the possession of Borrower at, the
address of Borrower specified in the heading of this Agreement. Borrower has
places of business, and Collateral is located, only at such address and at the
addresses set forth in the Schedule and at any additional locations reported to
TBCC as provided in Section 5.8(c) as to which TBCC has taken all necessary
action to perfect and protect its security interests in the Collateral at any
such locations.
4.3. Authority. Borrower has the requisite corporate power and authority to
---------
-5-
<PAGE>
execute, deliver and perform its obligations under each of the Loan Documents.
All corporate action necessary for the execution, delivery and performance by
Borrower of the Loan Documents has been taken.
4.4. Enforceability. This Agreement is, and, when executed and delivered,
--------------
each other Loan Document will be, the legal, valid and binding obligation of
Borrower enforceable in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and general principles of equity.
4.5. No Conflict. The execution, delivery and performance of each Loan
-----------
Document by Borrower does not and will not contravene (i) any of the Governing
Documents, (ii) any Requirement of Law * or (iii) any Material Contract and will
not result in the imposition of any Liens other than in favor of TBCC.
* (except with respect to any Requirement of Law to the extent to which any
such non-compliance could not reasonably be expected to result in a Material
Adverse Effect)
4.6. Consents and Filings. No consent, authorization or approval of, or
--------------------
filing with or other act by, any shareholders of Borrower or any Governmental
Authority or other Person is required in connection with the execution,
delivery, performance, validity or enforceability of this Agreement or any other
Loan Document, the consummation of the transactions contemplated hereby or
thereby or the continuing operations of Borrower following such consummation,
except (i) those that have been obtained or made, (ii) the filing of financing
statements under the Uniform Commercial Code and (iii) any necessary filings
with the U.S. Copyright Office and the U.S. Patent and Trademark Office.
4.7. Solvency. Borrower is Solvent and will be Solvent upon the completion
--------
of all transactions contemplated to occur on or before the date of this
Agreement (including, without limitation, the Loans to be made on the date of
this Agreement).
4.8. Financial Data. Borrower has provided to TBCC complete and accurate
--------------
Financial Statements, which have been prepared in accordance with GAAP
consistently applied throughout the periods involved and fairly present the
financial position and results of operations of Borrower for each of the periods
covered, subject, in the case of any quarterly financial statements, to normal
year-end adjustments and the absence of notes. Borrower has no Contingent
Obligation or liability for taxes, unrealized losses, unusual forward or long-
term commitments or long-term leases, which is not reflected in such Financial
Statements or the footnotes thereto. Since the last date covered by such
Financial Statements, there has been no sale, transfer or other disposition by
Borrower of any material part of its business or property and no purchase or
other acquisition of any business or property (including any capital stock of
any other Person) material in relation to the financial condition of Borrower at
said date. Since said date, (i) there has been no change, occurrence,
development or event which has had or could reasonably be expected to have a
Material Adverse Effect and (ii) none of the capital stock of Borrower has been
redeemed, retired, purchased or otherwise acquired for value by Borrower.
4.9. Accuracy and Completeness of Information. All data, reports and
----------------------------------------
information previously, now or hereafter furnished by or on behalf of Borrower
to TBCC or the Auditors are or will be true and accurate in all material
respects on the date as of which such data, reports and information are dated or
certified, and not incomplete by omitting to state any material fact necessary
to make such data, reports and information not materially misleading at such
time. There are no facts now known to Borrower which individually or in the
aggregate would reasonably be expected to have a Material Adverse Effect and
which have not been disclosed in writing to TBCC.
4.10. No Joint Ventures, Partnerships or Subsidiaries. Borrower is not
-----------------------------------------------
engaged in any
-6-
<PAGE>
joint venture or partnership with any other Person *. Borrower has no
Subsidiaries **.
* , other than for joint ventures or strategic partnerships which, in each
case, do not involve the transfer of funds or other Collateral to such joint
venture or strategic partnership, except for the non-exclusive licensing of
technology and other than for Permitted Investments
** other than for Anubis Acquisition Corporation
4.11. Corporate and Trade Name. During the past five years, Borrower has not
------------------------
been known by or used any other corporate, trade or fictitious name except for
its name as set forth on the signature page of this Agreement and the other
names specified in the Schedule.
4.12. No Actual or Pending Material Modification of Business. There exists no
------------------------------------------------------
actual or, to the best of Borrower's knowledge threatened termination,
cancellation or limitation of, or any modification or change in the business
relationship of Borrower with any customer or group of customers whose purchases
individually or in the aggregate are material to the operation of Borrower's
business or with any material supplier.
4.13. No Broker's or Finder's Fees. No broker or finder brought about this
----------------------------
Agreement or the Loans. No broker's or finder's fees or commissions will be
payable by Borrower to any Person in connection with the transactions
contemplated by this Agreement.
4.14. Taxes and Tax Returns. Borrower has properly completed and timely filed
---------------------
all income tax returns it is required to file. The information filed is
complete and accurate in all material respects. All deductions taken in such
income tax returns are appropriate and in accordance with applicable laws and
regulations, except deductions that may have been disallowed but are being
challenged in good faith and for which adequate reserves have been made in
accordance with GAAP. All taxes, assessments, fees and other governmental
charges for periods beginning prior to the date of this Agreement have been
timely paid (or, if not yet due, adequate reserves therefor have been
established in accordance with GAAP) and Borrower has no liability for taxes in
excess of the amounts so paid or reserves so established. No deficiencies for
taxes have been claimed, proposed or assessed by any taxing or other
Governmental Authority against Borrower and no notice of any tax Lien has been
filed. There are no pending or threatened audits, investigations or claims for
or relating to any liability for taxes and there are no matters under discussion
with any Governmental Authority which could result in an additional liability
for taxes. No extension of a statute of limitations relating to taxes,
assessments, fees or other governmental charges is in effect with respect to
Borrower. Borrower is not a party to and does not have any obligations under
any written tax sharing agreement or agreement regarding payments in lieu of
taxes.
4.15. No Judgments or Litigation. Except as set forth in the Schedule, no
--------------------------
judgments, orders, writs or decrees are outstanding against Borrower, nor is
there now pending or, to the knowledge of Borrower, threatened litigation,
contested claim, investigation, arbitration, or governmental proceeding by or
against Borrower that (i) could individually or in the aggregate be likely in
the reasonable business judgment of TBCC to have a Material Adverse Effect or
(ii) purports to affect the legality, validity or enforceability of this
Agreement, any other Loan Document or the consummation of the transactions
contemplated hereby or thereby.
4.16. Investments; Contracts. * Borrower (i) has not committed to make any
----------------------
Investment; (ii) is not a party to any indenture, agreement, contract,
instrument or lease or subject to any charter, by-law or other corporate
restriction or any injunction, order, restriction or decree, which would
materially and adversely affect its business, operations, assets or financial
condition; (iii) is not a party to any take or pay contract as to which it is
the purchaser; or (iv) has no material
-7-
<PAGE>
contingent or long-term liability, including management contracts (excluding
employment contracts of full-time individual officers or employees), which could
have a Material Adverse Effect. **
* Other than for Permitted Investments,
** If Borrower desires to make an Investment that is not otherwise permitted
hereunder and TBCC, in its sole discretion, does not consent thereto,
notwithstanding any other provision set forth herein, Borrower may prepay all
Obligations hereunder without the payment of penalties as otherwise set forth
herein.
4.17. No Defaults; Legal Compliance. Borrower is not in default under any
-----------------------------
term of any Material Contract or in violation of any Requirement of Law, nor is
Borrower subject to any investigation with respect to a claimed violation of any
Requirement of Law *.
* , except, in each case, to the extent that such non-compliance could not
reasonably be expected to result in a Material Adverse Effect,
4.18. Rights in Collateral; Priority of Liens. All Collateral is owned or
---------------------------------------
leased by Borrower, free and clear of any and all Liens in favor of third
parties, other than Permitted Liens. The Liens granted to TBCC pursuant to the
Loan Documents constitute valid, enforceable and perfected first-priority Liens
on the Collateral, except for Permitted Liens.
4.19. Intellectual Property. Set forth in the written Representations and
---------------------
Warranties of Borrower previously delivered to TBCC is a complete and accurate
list of all patents, trademarks, trade names, service marks and copyrights
(registered and unregistered), and all applications therefor and licenses
thereof, of Borrower. Borrower owns or licenses all material patents,
trademarks, service-marks, logos, tradenames, trade secrets, know-how,
copyrights, or licenses and other rights with respect to any of the foregoing,
which are necessary or advisable for the operation of its business as presently
conducted or proposed to be conducted. To the best of its knowledge, Borrower
has not infringed any patent, trademark, service-mark, tradename, copyright,
license or other right owned by any other Person by the sale or use of any
product, process, method, substance, part or other material presently
contemplated to be sold or used, where such sale or use would reasonably be
expected to have a Material Adverse Effect and no claim or litigation is
pending, or to the best of Borrower's knowledge, threatened against or affecting
Borrower that contests its right to sell or use any such product, process,
method, substance, part or other material.
4.20. Labor Matters. There are no existing or threatened strikes, lockouts or
-------------
other disputes relating to any collective bargaining or similar agreement to
which Borrower is a party which would, individually or in the aggregate, be
reasonably likely to have a Material Adverse Effect.
4.21. Licenses and Permits. Borrower has obtained and holds in full force and
--------------------
effect, all franchises, licenses, leases, permits, certificates, authorizations,
qualifications, easements, rights of way and other rights and approvals which
are necessary or advisable for the operation of its business as presently
conducted and as proposed to be conducted, except where the failure to possess
any of the foregoing (individually or in the aggregate) would not have a
Material Adverse Effect.
4.22. Government Regulation. Borrower is not subject to regulation under the
---------------------
Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act, the Investment Company Act of 1940, or any other
Requirement of Law that limits its ability to incur indebtedness or its ability
to consummate the transactions contemplated by this Agreement and the other Loan
Documents.
4.23. Business and Properties. The business of Borrower is not affected by
-----------------------
any fire, explosion, accident, strike, lockout or other labor dispute,
-8-
<PAGE>
drought, storm, hail, earthquake, embargo, act of God or of the public enemy or
other casualty (whether or not covered by insurance) that could reasonably be
expected to have a Material Adverse Effect.
4.24. Affiliate Transactions. Borrower is not a party to or bound by any
----------------------
agreement or arrangement (whether oral or written) to which any Affiliate of
Borrower is a party except (i) in the ordinary course of and pursuant to the
reasonable requirements of the business of Borrower and (ii) upon fair and
reasonable terms no less favorable to Borrower than it could obtain in a
comparable arm's-length transaction with an unaffiliated Person.
4.25. Survival of Representations. All representations made by Borrower in
---------------------------
this Agreement and in any other Loan Document executed and delivered by it in
connection herewith shall survive the execution and delivery hereof and thereof
and the closing of the transactions contemplated hereby and thereby.
5. AFFIRMATIVE COVENANTS OF THE BORROWER. Until termination of this Agreement
--------------------------------------
and payment and satisfaction of all Obligations:
5.1. Corporate Existence. Borrower shall (i) maintain its corporate
-------------------
existence, (ii) maintain in full force and effect all material licenses, bonds,
franchises, leases, trademarks, qualifications and authorizations to do
business, and all material patents, contracts and other rights necessary or
advisable to the profitable conduct of its business, and (iii) continue in, and
limit its operations to, the same lines of business as presently conducted by
it.
5.2. Maintenance of Property. Borrower shall keep all property useful and
-----------------------
necessary to its business in good working order and condition (ordinary wear and
tear excepted) in accordance with its past operating practices.
5.3. Affiliate Transactions. Borrower shall conduct transactions with any of
----------------------
its Affiliates on an arm's-length basis or other basis no less favorable to
Borrower and which are approved by the board of directors of Borrower.
5.4. Taxes. Borrower shall pay when due (i) all tax assessments, and other
-----
governmental charges and levies imposed against it or any of its property and
(ii) all lawful claims that, if unpaid, might by law become a Lien upon its
property; provided, however, that, unless such tax assessment, charge, levy or
-------- -------
claim has become a Lien on any of the property of Borrower, it need not be paid
if it is being contested in good faith, by appropriate proceedings diligently
conducted and an adequate reserve or other appropriate provision shall have been
made therefor as required in accordance with GAAP.
5.5. Requirements of Law. Borrower shall comply with all Requirements of Law
-------------------
applicable to it, including, without limitation, all applicable Federal, State,
local or foreign laws and regulations, including, without limitation, those
relating to environmental matters, employee matters, the Employee Retirement
Income Security Act of 1974, and the collection, payment and deposit of
employees' income, unemployment and social security taxes, provided that
--------
Borrower shall not be deemed in violation hereof if Borrower's failure to comply
with any of the foregoing would not require more than $50,000 to cure the same.
5.6. Insurance. Borrower shall maintain public liability insurance, business
---------
interruption insurance, third party property damage insurance and replacement
value insurance on its assets (including the Collateral) under such policies of
insurance, with such insurance companies, in such amounts and covering such
risks as are at all times satisfactory to TBCC in its commercially reasonable
judgment, all of which policies covering the Collateral shall name TBCC as an
additional insured and lender loss payee in case of loss, and contain other
provisions as TBCC may reasonably require to protect fully TBCC's interest in
the Collateral and any payments to be made under such policies.
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<PAGE>
5.7. Books and Records; Inspections. Borrower shall (i) maintain books and
------------------------------
records (including computer records) pertaining to the Collateral in such
detail, form and scope as is consistent with good business practice and (ii)
provide TBCC and its agents access to the premises of Borrower at any time and
from time to time, during normal business hours and upon reasonable notice under
the circumstances, and at any time on and after the occurrence * Event of
Default, for the purposes of (A) inspecting and verifying the Collateral, (B)
inspecting and copying (at Borrower's expense) any and all records pertaining
thereto, and (C) discussing the affairs, finances and business of Borrower with
any officer, employee or director of Borrower or with the Auditors. Borrower
shall reimburse TBCC for the reasonable travel and related expenses of TBCC's
employees or, at TBCC's option, of such outside accountants or examiners as may
be retained by TBCC to verify or inspect Collateral, records or documents of
Borrower on a regular basis or for a special inspection if TBCC deems the same
appropriate. If TBCC's own employees are used, Borrower shall also pay therefor
$600 per person per day (or such other amount as shall represent TBCC's then
current standard charge for the same), or, if outside examiners or accountants
are used, Borrower shall also pay TBCC such sum as TBCC may be obligated to pay
as fees therefor.
* and during the continuance of an
5.8. Notification Requirements. Borrower shall give TBCC the following
-------------------------
notices and other documents:
(a) Notice of Defaults. Borrower shall give TBCC written notice of any
------------------
Default or Event of Default within two Business Days after becoming aware of the
same.
(b) Proceedings or Adverse Changes. Borrower shall give TBCC written notice
------------------------------
of any of the following, promptly, and in any event within five Business Days
after Borrower becomes aware of any of the following: (i) any proceeding being
instituted or threatened by or against it in any federal, state, local or
foreign court or before any commission or other regulatory body involving a sum,
together with the sum involved in all other similar proceedings, in excess of
$50,000 in the aggregate, (ii) any order, judgment or decree being entered
against Borrower or any of its properties or assets involving a sum, together
with the sum of all other orders, judgments or decrees, in excess of $50,000 in
the aggregate, and (iii) any actual or prospective change, development or event
which has had or could reasonably be expected to have a Material Adverse Effect.
(c) Change of Name or Chief Executive Office; Opening Additional Places of
----------------------------------------------------------------------
Business. Borrower shall give TBCC at least 30 days prior written notice of any
- --------
change of Borrower's corporate name or its chief executive office or of the
opening of any additional place of business.
(d) Casualty Loss. Borrower shall (i) provide written notice to TBCC,
-------------
within ten Business Days, of any material damage to, the destruction of or any
other material loss to any asset or property owned or used by Borrower other
than any such asset or property with a net book value (individually or in the
aggregate) less than $10,000 or any condemnation, confiscation or other taking,
in whole or in part, or any event that otherwise diminishes so as to render
impracticable or unreasonable the use of such asset or property owned or used by
Borrower together with the amount of the damage, destruction, loss or diminution
in value and (ii) diligently file and prosecute its claim or claims for any
award or payment in connection with any of the foregoing.
(e) Intellectual Property. Borrower shall promptly give TBCC written notice
---------------------
of any copyright registration made by it, any rights Borrower may obtain to any
copyrightable works, new trademarks or any new patentable inventions, and of any
renewal or extension of any trademark registration, or if it shall otherwise
become entitled to the benefit of any patent or patent
-10-
<PAGE>
application or trademark or trademark application.
(f) Deposit Accounts and Security Accounts. Borrower shall promptly give
--------------------------------------
TBCC written notice of the opening of any new bank account or other deposit
account, and any new securities account.
5.9. Qualify to Transact Business. Borrower shall qualify to transact
----------------------------
business as a foreign corporation in each jurisdiction where the nature or
extent of its business or the ownership of its property requires it to be so
qualified or authorized and where failure to qualify or be authorized would have
a Material Adverse Effect.
5.10. Financial Reporting. Borrower shall timely deliver to TBCC the
-------------------
following financial information: the information set forth in the Schedule,
and, when requested by TBCC in its good-faith judgment, any further information
respecting Borrower or any Collateral. Borrower authorizes TBCC to communicate
directly with its officers, employees and Auditors and to examine and make
abstracts from its books and records. Borrower authorizes its Auditors to
disclose to TBCC any and all financial statements, work papers and other
information of any kind that they may have with respect to Borrower and its
business and financial and other affairs. Borrower shall deliver a letter
addressed to the Auditors requesting them to comply with the provisions of this
paragraph when requested by TBCC.
5.11. Payment of Liabilities. Borrower shall pay and discharge, * in the
----------------------
ordinary course of business, all Indebtedness, except where the same may be
contested in good faith by appropriate proceedings and adequate reserves with
respect thereto have been provided on the books and records of Borrower in
accordance with GAAP.
* when due,
5.12. Patents, Trademarks, Etc. Borrower shall do and cause to be done all
------------------------
things necessary to preserve, maintain and keep in full force and effect all of
its registrations of trademarks, service marks and other marks, trade names and
other trade rights, patents, copyrights and other intellectual property in
accordance with prudent business practices.
5.13. Proceeds of Collateral. Without limiting any of the other terms of
----------------------
this Agreement, and without implying any consent to any sale or other transfer
of Collateral in violation of any provision of this Agreement, Borrower shall
deliver to TBCC all proceeds of any sale or other transfer or disposition of any
Collateral, immediately upon receipt of the same and in the same form as
received, with any necessary endorsements, and Borrower will not commingle any
such proceeds with any of its other funds or property, but will segregate them
from the other assets of Borrower and will hold them in trust and for the
account and as the property of TBCC.
5.14. Solvency. Borrower shall be Solvent at all times.
--------
6. NEGATIVE COVENANTS. Until termination of this Agreement and payment and
------------------
satisfaction of all Obligations:
6.1. Contingent Obligations. Borrower will not, directly or indirectly,
----------------------
incur, assume, or suffer to exist any Contingent Obligation, excluding
indemnities given in connection with this Agreement or the other Loan Documents
in favor of TBCC or in connection with the sale of Inventory or other asset
dispositions permitted hereunder.
6.2. Corporate Changes. * Borrower will not, directly or indirectly, merge
-----------------
or consolidate with any Person, or liquidate or dissolve (or suffer any
liquidation or dissolution). **
* Without TBCC's prior written consent,
** If Borrower desires to undertake a transaction described in the
immediately preceding sentence that is not otherwise permitted hereunder and
TBCC, in its sole discretion, does not consent thereto, notwithstanding any
other provision set forth herein, Borrower may prepay all Obligations hereunder
without the payment of penalties as otherwise set forth herein. Further, it is
agreed that a transaction the sole purpose of which is to change the state of
incorporation of the Borrower shall be permitted hereunder,
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<PAGE>
provided that in such instance Borrower shall provide prior written' notice of
- --------
such proposed transaction, and, further, Borrower shall execute such
documentation and take such actions as Silicon determines are necessary or
desirable in connection with such proposed transaction regarding the assumption
by the new entity of the Obligations and the execution of new UCC and related
documentation and Borrower shall not be permitted to consummate such transaction
unless and until the foregoing covenants and agreements are satisfied.
6.3. Change in Nature of Business. Borrower will not at any time make any
----------------------------
material change in the lines of its business as carried on at the date of this
Agreement or enter into any new line of business * .
* , provided that the Borrower may enter into any new business resulting from
-------- ----
the development or exploitation of its technology or the acquisition of related
technology
6.4. Sales of Assets. Borrower will not, directly or indirectly, in any
---------------
fiscal year, sell, transfer or otherwise dispose of any assets, or grant any
option or other right to purchase or otherwise acquire any assets other than (i)
Equipment with an aggregate value of less than $25,000 the proceeds of which
shall be paid to TBCC and applied to the Obligations, (ii) sales of Inventory in
the ordinary course of business and (iii) licenses or sublicenses on a non-
exclusive basis of intellectual property in the ordinary course of Borrower's
business.
6.5. Cancellation of Debt. Borrower will not cancel any claim or debt owed to
--------------------
it, except in the ordinary course of business.
6.6. Loans to Other Persons. Borrower will not at any time make loans or
----------------------
advance any credit (except to trade debtors in the ordinary course of business)
to any Person in excess of $25,000 in the aggregate at any time for all such
loans *.
* and other than (a) travel advances, employee relocation loans and other
employee loans and advances in the ordinary course of business; (b) loans to
employees, officers or directors relating to the purchase of equity securities
of the Borrower in an aggregate amount not to exceed $50,000 outstanding at any
one time, other than for employee loans and loans to former employees
outstanding prior to the date hereof in an aggregate amount not exceeding
$8,867,750; and (c) other loans to officers and employees of the Borrower in an
aggregate amount not in excess of $100,000 outstanding at any time.
6.7. Liens. Borrower will not, directly or indirectly, at any time create,
-----
incur, assume or suffer to exist any Lien on or with respect to any of the
Collateral, other than: Liens created hereunder and by any other Loan Document;
and Permitted Liens.
6.8. Dividends, Stock Redemptions. Borrower will not, directly or indirectly,
-----------------------------
pay any dividends or distributions on, purchase, redeem or retire any shares of
any class of its capital stock or any warrants, options or rights to purchase
any such capital stock, whether now or hereafter outstanding (Stock), or make
any payment on account of or set apart assets for a sinking or other analogous
fund for, the purchase, redemption, defeasance, retirement or other acquisition
of its Stock, or make any other distribution in respect thereof, either directly
or indirectly, whether in cash or property or in obligations of Borrower, except
for dividends paid solely in stock of the Borrower *.
* and except for repurchases of stock owned by employees, directors and
consultants of Borrower upon exercise of any right of repurchase upon
termination of employment or services to Borrower provided that the aggregate
amount of such repurchases shall not exceed $100,000 in the aggregate at any
time outstanding.
6.9. Investments in Other Persons. Borrower will not, directly or indirectly,
----------------------------
at any time make or hold any Investment in any Person (whether in
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<PAGE>
cash, securities or other property of any kind) other than Investments in Cash
Equivalents *. **
* and other Investments and Permitted Investments as allowed under this
Agreement
** If Borrower desires to make an Investment that is not otherwise permitted
hereunder and TBCC, in its sole discretion, does not consent thereto,
notwithstanding any other provision set forth herein, Borrower may prepay all
Obligations hereunder without the payment of penalties as otherwise set forth
herein.
6.10. Partnerships; Subsidiaries; Joint Ventures; Management Contracts.
----------------------------------------------------------------
Borrower will not at any time create any direct or indirect Subsidiary, enter
into any joint venture or similar arrangement or become a partner in any general
or limited partnership or enter into any management contract (other than an
employment contract for the employment of an officer or employee entered into in
the regular course of Borrower's business) permitting third party management
rights with respect to Borrower's business *.
* , other than for joint ventures or strategic partnerships which, in each
case, do not involve the transfer of funds or other Collateral to such joint
ventures or strategic partnerships, except for the non-exclusive licensing of
technology and other than for Permitted Investments
6.11. Fiscal Year. Borrower will not change its fiscal year.
-----------
6.12. Accounting Changes. Borrower will not at any time make or permit any
------------------
change in accounting policies or reporting practices, except as required by
GAAP.
6.13. Broker's or Finder's Fees. Borrower will not pay or incur any broker's
-------------------------
or finder's fees in connection with this Agreement or the transactions
contemplated hereby.
6.14. Unusual Terms of Sale. Borrower will not sell goods or products on
---------------------
extended terms, consignment terms, on a progress billing or bill and hold basis,
or on any other unusual terms.
6.15. Amendments of Material Contracts. Borrower will not amend, modify,
--------------------------------
cancel or terminate, or permit the amendment, modification, cancellation or
termination of, any Material Contract, if such amendment, modification,
cancellation or termination could have a Material Adverse Effect.
6.16. Sale and Leaseback Obligations. Borrower will not at any time create,
------------------------------
incur or assume any obligations as lessee for the rental of real or personal
property in connection with any sale and leaseback transaction.
6.17. Acquisition of Stock or Assets. Borrower will not acquire or commit or
------------------------------
agree to acquire all or any stock, securities or assets of any other Person
other than Inventory and Equipment acquired in the ordinary course of business
*. **
* and Permitted Investments
** If Borrower desires to undertake a transaction described in the
immediately preceding sentence that is not otherwise permitted hereunder and
TBCC, in its sole discretion, does not consent thereto, notwithstanding any
other provision set forth herein, Borrower may prepay all Obligations hereunder
without the payment of penalties as otherwise set forth herein.
7. EVENTS OF DEFAULT.
-----------------
7.1. Events of Default. The occurrence of any of the following events shall
-----------------
constitute an Event of Default:
(a) Borrower shall fail to pay any principal, interest, fees, expenses or
other Obligations when payable, whether at stated maturity, by acceleration, or
otherwise; or
(b) Borrower shall default in the performance or observance of any
agreement, covenant, condition, provision or term contained in Section 1.1, 1.2,
1.4, 3.3, 5.7, 5.13, 6 (and its Sections and subsections), or 8.1 of this
Agreement, or
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<PAGE>
Borrower shall fail to perform any non-monetary Obligation which by its nature
cannot be cured; or
(c) Borrower shall default in the performance or observance of any other
agreement, covenant, condition, provision or term of this Agreement (other than
those referred to in Section 7.1(a) above or Section 7.1(b) above) or any other
Loan Document, and such failure continues uncured for a period of five *
Business Days after the date it occurs; or
* ten
(d) Borrower or any Guarantor shall dissolve, wind up or otherwise cease to
conduct its business; or
(e) Borrower or any Guarantor shall become the subject of (i) an Insolvency
Event except as set forth in clause (e) of the definition of Insolvency Event or
(ii) an Insolvency Event as set forth in clause (e) of the definition of
Insolvency Event that is not dismissed within sixty days; or
(f) any representation or warranty made by or on behalf of Borrower or any
Guarantor to TBCC, under this Agreement or otherwise, shall be incorrect or
misleading in any material respect when made or deemed made; or
(g) A change in the ownership or control of more than 20% * of the voting
stock of the Borrower compared to such ownership on the date of this Agreement;
or
* 50%
(h) any judgment or order for the payment of money * shall be rendered
against Borrower and shall not be stayed, vacated, bonded or discharged within
thirty days; or
* in excess of $50,000 and relating to which no lien or encumbrance on any
part of the Collateral shall arise that has a higher priority therein than the
lien and encumbrance of TBCC,
(i) any defined "Event of Default" shall occur under any other Loan Document;
or Borrower or any Guarantor shall deny or disaffirm its obligations under any
of the Loan Documents or any Liens granted in connection therewith or shall
otherwise challenge any of its obligations under any of the Loan Documents; or
any Liens granted in any of the Collateral shall be determined to be void,
voidable or invalid, are subordinated or are not given the priority contemplated
by this Agreement; or
(j) any Loan Document shall for any reason cease to create a valid and
perfected Lien on the Collateral purported to be covered thereby, of first
priority (except for Permitted Liens); or
(k) the Auditors for Borrower shall deliver a Qualified opinion on any
Financial Statement; or
(l) Borrower or any Guarantor (i) shall fail to pay any Indebtedness owing to
TBCC under any other agreement with TBCC or note or instrument in favor of TBCC,
when due (whether at scheduled maturity or by required prepayment, acceleration,
demand or otherwise), or (ii) shall otherwise be in breach of or default in any
of its obligations under any such agreement, note or instrument with respect to
any such Indebtedness; or
(m) Borrower or any Guarantor (i) shall fail to pay any Indebtedness in
excess of $50,000 * owing to any Person other than TBCC or any interest or
premium thereon, when due (whether at scheduled maturity or by required
prepayment, acceleration, demand or otherwise), or (ii) shall otherwise be in
breach or default in any of its obligations under any agreement with respect to
any such Indebtedness, if the effect of such breach, default or failure to pay
is to cause such Indebtedness to become due or redeemed or permit the holder or
holders of such Indebtedness (or a trustee or agent on behalf of such holder or
holders) to declare such Indebtedness due or require such Indebtedness to be
redeemed prior to its stated maturity; or
* $100,000
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<PAGE>
(n) the occurrence of any event or condition that, in TBCC's judgment,
could reasonably be expected to have a Material Adverse Effect.
TBCC may cease making any Loans hereunder during any of the above cure periods,
and thereafter if any Event of Default has occurred and is continuing.
7.2. Remedies. Upon the occurrence and during the continuance of an Event of
--------
Default, TBCC shall have all rights and remedies under applicable law and the
Loan Documents, and TBCC may do any or all of the following:
(a) Declare all Obligations to be immediately due and payable (except with
respect to any Event of Default with respect to Borrower set forth in Section
7.1(e), in which case all Obligations shall automatically become immediately due
and payable) without presentment, demand, protest or any other action or
obligation of TBCC;
(b) Cease making any Loans or other extensions of credit to Borrower of any
kind;
(c) Take possession of all documents, instruments, files and records
(including the copying of any computer records) relating to the Receivables or
other Collateral and use (at the expense of Borrower) such supplies or space of
Borrower at Borrower's places of business necessary to administer and collect
the Receivables and other Collateral;
(d) Accelerate or extend the time of payment, compromise, issue credits, or
bring suit on the Receivables and other Collateral (in the name of Borrower or
TBCC) and otherwise administer and collect the Receivables and other Collateral;
(e) Collect, receive, dispose of and realize upon any Investment Property,
including withdrawal of any and all funds from any securities accounts;
(f) Sell, assign and deliver the Receivables and other Collateral, with or
without advertisement, at public or private sale, for cash, on credit or
otherwise, subject to applicable law;
(g) Foreclose on the security interests created pursuant to the Loan
Documents by any available procedure, take possession of any or all of the
Collateral, with or without judicial process and enter any premises where any
Collateral may be located for the purpose of taking possession of or removing
the same; and
(h) Bid or become a purchaser at any sale, free from any right of
redemption, which right is expressly waived by Borrower, if permitted under
applicable law. If notice of intended disposition of any Collateral is required
by law, it is agreed that ten days' notice shall constitute reasonable
notification. Borrower will assemble the Collateral and make it available at
such locations as TBCC may specify, whether at the premises of Borrower or
elsewhere, and will make available to TBCC the premises and facilities of
Borrower for the purpose of TBCC's taking possession of or removing the
Collateral or putting the Collateral in salable form.
(i) Borrower recognizes that TBCC may be unable to make a public sale of any
or all of the Investment Property, by reasons of prohibitions contained in
applicable securities laws or otherwise, and expressly agrees that a private
sale to a restricted group of purchasers for investment and not with a view to
any distribution thereof shall be considered a commercially reasonable sale.
7.3. Receivables. Upon the occurrence and during the continuance of an Event
-----------
of Default, TBCC may (i) settle or adjust disputes or claims directly with
account debtors for amounts and upon terms which it considers advisable, and
(ii) notify account debtors on the Receivables and other Collateral that the
Receivables and Collateral have been assigned to TBCC, and that payments in
respect thereof shall be made directly to TBCC. If an Event of Default has
occurred and is continuing, Borrower hereby irrevocably authorizes and appoints
TBCC, or any Person TBCC may designate, as its attorney-in-fact, at Borrower's
sole cost and expense, to exercise, all of the following powers, which are
coupled with an interest and are irrevocable, until all of the Obligations have
been indefeasibly paid and satisfied in full in cash: (A) to receive, take,
endorse, sign, assign and deliver, all in the name of TBCC or Borrower, any and
all checks, notes, drafts, and other documents or instruments relating to the
Collateral; (B) to receive, open and dispose of all mail addressed to Borrower
and to notify postal authorities to change the address for delivery thereof to
such address as TBCC may designate; and (C) to take or bring,
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<PAGE>
in the name of TBCC or Borrower, all steps, actions, suits or proceedings deemed
by TBCC necessary or desirable to enforce or effect collection of Receivables
and other Collateral or file and sign Borrower's name on a proof of claim in
bankruptcy or similar document against any obligor of Borrower.
7.4. Right of Setoff. In addition to all rights of offset that TBCC may have
---------------
under applicable law, upon the occurrence and during the continuance of any
Event of Default, and whether or not TBCC has made any demand or the Obligations
of Borrower have matured, TBCC shall have the right to appropriate and apply to
the payment of the Obligations of Borrower all deposits and other obligations
then or thereafter owing by TBCC to or for the credit or the account of
Borrower. In the event that TBCC exercises any of its rights under this
Section, TBCC shall provide notice to Borrower of such exercise, provided that
the failure to give such notice shall not affect the validity of the exercise of
such rights.
7.5. License for Use of Software and Other Intellectual Property. After the
-----------------------------------------------------------
occurrence and during the continuance of an Event of Default, unless expressly
prohibited by any licensor thereof, TBCC is hereby granted a license to use all
computer software programs, data bases, processes, trademarks, tradenames and
materials used by Borrower in connection with its businesses or in connection
with the Collateral.
7.6. No Marshalling; Deficiencies; Remedies Cumulative. The net cash
-------------------------------------------------
proceeds resulting from TBCC's exercise of any of its rights with respect to
Collateral, including any and all Collections (after deducting all of TBCC's
reasonable expenses related thereto), shall be applied by TBCC to such of the
Obligations in such order as TBCC shall elect in its sole and absolute
discretion, whether due or to become due. Borrower shall remain liable to TBCC
for any deficiencies and TBCC shall remit to Borrower or its successor or
assign, any surplus resulting therefrom. The remedies specified in this
Agreement are cumulative, may be exercised in such order and with respect to
such Collateral as TBCC may deem desirable and are not intended to be exclusive,
and the full or partial exercise of any of them shall not preclude the full or
partial exercise of any other available remedy under this Agreement, under any
other Loan Document, at equity or at law.
7.7. Waivers. Borrower hereby waives any bonds, security or sureties
-------
required by any statute, rule or any other law as an incident to any taking of
possession by TBCC of any Collateral. Borrower also waives any damages (direct,
consequential or otherwise) occasioned by the enforcement of TBCC's rights under
this Agreement or any other Loan Document including the taking of possession of
any Collateral or the giving of notice to any account debtor or the collection
of any Receivable or other Collateral (other than damages that are the result of
acts or omissions constituting gross negligence or willful misconduct of TBCC).
These waivers and all other waivers provided for in this Agreement and the other
Loan Documents have been negotiated by the parties and Borrower acknowledges
that it has been represented by counsel of its own choice and has consulted such
counsel with respect to its rights hereunder.
7.8. Right to Make Payments. In the event that Borrower shall fail to
----------------------
purchase or maintain insurance required hereunder, or to pay any tax,
assessment, government charge or levy, except as the same may be otherwise
permitted hereunder, or in the event that any Lien prohibited hereby shall not
be paid in full or discharged, or in the event that Borrower shall fail to
perform or comply with any other covenant, promise or obligation to TBCC
hereunder or under any other Loan Document, TBCC may (but shall not be required
to) perform, pay, satisfy, discharge or bond the same for the account of
Borrower, and all amounts so paid by TBCC shall be treated as a Loan hereunder
to Borrower and shall constitute part of the Obligations.
8. ASSIGNMENTS AND PARTICIPATIONS.
------------------------------
8.1. Assignments. Borrower shall not assign this Agreement or any right or
-----------
obligation hereunder without the prior written consent of
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<PAGE>
TBCC. TBCC may assign (without the consent of Borrower) to one or more Persons
all or a portion of its rights and obligations under this Agreement and the
other Loan Documents. *
* Prior to the occurrence and continuance of an Event of Default only, TBCC
agrees not to sell or otherwise assign this Agreement to a competitor of
Borrower, as known to TBCC at the time; on and after the occurrence and during
the continuance of an Event of Default the foregoing restriction shall no longer
be effective.
8.2. Participations. TBCC may sell participations in or to all or a portion
--------------
of its rights and obligations under this Agreement (including, without
limitation, all or a portion of the Loans); provided, however, that TBCC's
obligations under this Agreement shall remain unchanged.
8.3. Disclosure. TBCC may, in connection with any permitted assignment or
----------
participation or proposed assignment or participation pursuant to this
Agreement, disclose to the assignee or participant or proposed assignee or
participant any information relating to Borrower furnished to TBCC by or on
behalf of Borrower *.
* provided that any such proposed assignee or participant shall agree to the
same confidentiality standards regarding such information to which TBCC agreed
in writing in connection therewith
9. DEFINITIONS.
------------
9.1. General Definitions. As used herein, the following terms shall have the
-------------------
meanings herein specified (to be equally applicable to both the singular and
plural forms of the terms defined):
(a) Affiliate means as to any Person, any other Person who directly or
---------
indirectly controls, is under common control with, is controlled by or is a
director or officer of such Person. As used in this definition, "control"
(including its correlative meanings, "controlled by" and "under common control
with") means possession, directly or indirectly, of the power to direct or cause
the direction of management or policies (whether through ownership of voting
securities or partnership or other ownership interests, by contract or
otherwise), provided that, in any event, any Person who owns directly or
indirectly twenty percent (20%) or more of the securities having ordinary voting
power for the election of the members of the board of directors or other
governing body of a corporation or twenty percent (20%) or more of the
partnership or other ownership interests of any other Person (other than as a
limited partner of such other Person) will be deemed to control such
corporation, partnership or other Person.
(b) Agreement means this Loan and Security Agreement, as amended,
---------
supplemented or otherwise modified from time to time.
(c) Auditors means Price Waterhouse Coopers or a nationally recognized firm
--------
of independent public accountants selected by Borrower and reasonably
satisfactory to TBCC.
(d) Bankruptcy Code means Title 11 of the United States Code entitled
---------------
"Bankruptcy," as that title may be amended from time to time, or any successor
statute.
(e) Borrowing means a borrowing of Loans.
---------
(f) Business Day means any day other than a Saturday, Sunday or any other
------------
day on which commercial banks in Chicago, Illinois or San Francisco, California
are required or permitted by law to close.
(g) Cash Equivalents means (i) securities issued, guaranteed or insured by
----------------
the United States or any of its agencies with maturities of not more than one
year from the date acquired; (ii) certificates of deposit with maturities of not
more than one year from the date acquired, issued by any U.S. federal or state
chartered commercial bank of recognized standing which has capital and
unimpaired surplus in excess of $100,000,000; (iii) investments in money market
funds registered under the Investment Company Act of 1940; and (iv) other
instruments, commercial paper or investments acceptable to TBCC in its sole
discretion.
-17-
<PAGE>
(h) Collateral means Receivables, Investment Property, Inventory, Equipment,
----------
and Other Property, and all additions and accessions thereto and substitutions
and replacements therefor and improvements thereon, and all proceeds (whether
cash or other property) and products thereof, including, without limitation, all
proceeds of insurance covering the same and all tort claims in connection
therewith, and all records, files, computer programs and files, data and
writings relating to the foregoing, and all equipment containing the foregoing
*.
* , subject to the qualifications regarding Collateral set forth in section
3.1 hereof
(i) Collections means all cash, funds, checks, notes, instruments, any other
-----------
form of remittance tendered by account debtors in respect of payment of
Receivables and any other payments received by Borrower with respect to any
other Collateral.
(j) Compliance Certificate means a certificate as to compliance with the
----------------------
Obligations, on TBCC's standard form (in effect from time to time).
(k) Contingent Obligation means any direct, indirect, contingent or non-
---------------------
contingent guaranty or obligation for the Indebtedness of another Person, except
endorsements in the ordinary course of business.
(l) Default means any of the events specified in Section 7.1, whether or not
-------
any of the requirements for the giving of notice, the lapse of time, or both, or
any other condition, has been satisfied.
(m) [Reserved]
----------
(n) Eligible Receivables means and includes only those Receivables which
--------------------
TBCC in its* deems eligible for borrowing, based on such considerations as TBCC
in its * may deem appropriate from time to time and less any such reserves as
TBCC, in its*, may require. Without limiting the fact that the determination of
which Receivables are eligible for borrowing is a matter of TBCC's*, the
following (the "Minimum Eligibility Requirements") are the minimum requirements
--------------------------------
for a Receivable to be an Eligible Receivable: (i) the Receivable must not be
outstanding for more than 60 days from its invoice date, (ii) the Receivable
must not represent progress billings, or be due under a fulfillment or
requirements contract with the account debtor, (iii) the Receivable must not be
subject to any contingencies (including Receivables arising from sales on
consignment, guaranteed sale or other terms pursuant to which payment by the
account debtor may be conditional), (iv) the Receivable must not be owing from
an account debtor with whom the Borrower has any dispute (whether or not
relating to the particular Receivable) **, (v) the Receivable must not be owing
from an Affiliate of Borrower, (vi) the Receivable must not be owing from an
account debtor which is subject to any insolvency or bankruptcy proceeding, or
whose financial condition is not acceptable to TBCC, or which, fails or goes out
of a material portion of its business, (vii) the Receivable must not be owing
from the United States or any department, agency or instrumentality thereof
(unless there has been compliance, to TBCC's satisfaction, with the United
States Assignment of Claims Act), (viii) the Receivable must not be owing from
an account debtor located outside the United States or Canada (unless pre-
approved by TBCC in its discretion in writing, or backed by a letter of credit
satisfactory to TBCC, or FCIA insured satisfactory to TBCC), (ix) the Receivable
must not be owing from an account debtor to whom Borrower is or may be liable
for goods purchased from such account debtor or otherwise ***, (x) the
Receivable must not violate any representation or warranty set forth in this
Agreement, and (xi) the Receivable must not be one in which TBCC does not have a
first-priority, valid, perfected Lien. Without limiting the generality of the
foregoing, Borrower must be in compliance with all requirements of the Loan
Documents regarding registration with the U.S. Copyright Office of any
copyrightable software in order for any Receivable arising from any
-18-
<PAGE>
licensing of such software to constitute an Eligible Receivable hereunder.
Receivables owing from one account debtor will not be deemed Eligible
Receivables to the extent they exceed 25% of the total eligible Receivables
outstanding. In addition, if more than 50% of the Receivables owing from an
account debtor are outstanding more than 90 days from their invoice date
(without regard to unapplied credits) or are otherwise not eligible Receivables,
then all Receivables owing from that account debtor will be deemed ineligible
for borrowing. TBCC may, from time to time, in its sole discretion, revise the
Minimum Eligibility Requirements, upon written notice to the Borrower.
* Good Faith business judgment
** (provided that such Receivable shall only be deemed ineligible for
borrowing under this clause to the extent of any such dispute)
*** (provided that such Receivable shall only be deemed ineligible for
borrowing under this clause to the extent of any amount owing to such account
debtor)
(o) Equipment means all machinery, equipment, furniture, fixtures, conveyors,
---------
tools, materials, storage and handling equipment, hydraulic presses, cutting
equipment, computer equipment and hardware, including central processing units,
terminals, drives, memory units, printers, keyboards, screens, peripherals and
input or output devices, molds, dies, stamps, vehicles, and other equipment of
every kind and nature and wherever situated now or hereafter owned by Borrower
or in which Borrower may have any interest as lessee or otherwise (to the extent
of such interest), together with all additions and accessions thereto, all
replacements and all accessories and parts therefor, all manuals, blueprints,
know-how, warranties and records in connection therewith, all rights against
suppliers, warrantors, manufacturers, sellers or others in connection therewith,
and together with all substitutes for any of the foregoing.
(p) Event of Default means the occurrence of any of the events specified in
----------------
Section 7.1.
(q) Financial Statements means the balance sheets, profit and loss
--------------------
statements, statements of cash flow, and statements of changes in intercompany
accounts, if any, for the period specified, prepared in accordance with GAAP and
consistent with prior practices.
(r) GAAP means generally accepted accounting principles set forth in the
----
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board that are applicable to the
circumstances as of the date of determination. Whenever any accounting term is
used herein which is not otherwise defined, it shall be interpreted in
accordance with GAAP.
(s) Good Faith means "good faith" as defined in the Uniform Commercial Code,
----------
from time to time in effect in the State of Illinois.
(t) Governing Documents means the articles or certificate of incorporation
-------------------
and by-laws of Borrower.
(u) Governmental Authority means any nation or government, any state or other
----------------------
political subdivision thereof or any entity exercising executive, legislative,
judicial, regulatory or administrative functions thereof or pertaining thereto.
(v) Guarantor means any present or future guarantor of any or all of the
---------
Obligations.
(w) Indebtedness means, with respect to any Person, as of the date of
------------
determination any indebtedness, liability or obligation of such Person
(including without limitation obligations under capital leases and Contingent
Obligations).
(x) Insolvency Event means, with respect to any Person, the occurrence of any
----------------
of the following: (a) such Person shall be adjudicated insolvent or bankrupt,
or shall generally fail to pay or admit in writing its inability to pay its
-19-
<PAGE>
debts as they become due, (b) such Person shall seek dissolution or
reorganization or the appointment of a receiver, trustee, custodian or
liquidator for it or a substantial portion of its property, assets or business
or to effect a plan or other arrangement with its creditors, (c) such Person
shall make a general assignment for the benefit of its creditors, or consent to
or acquiesce in the appointment of a receiver, trustee, custodian or liquidator
for a substantial portion of its property, assets or business, (d) such Person
shall file a voluntary petition under any bankruptcy, insolvency or similar law
or take any corporate or similar act in furtherance thereof, or (e) such Person,
or a substantial portion of its property, assets or business shall become the
subject of an involuntary proceeding or petition for its dissolution,
reorganization, and such proceeding is not dismissed or stayed within sixty
days, or the appointment of a receiver, trustee, custodian or liquidator, and
such receiver is not dismissed within sixty days.
(y) Inventory means all present and future goods intended for sale, lease or
---------
other disposition by Borrower including, without limitation, all raw materials,
work in process, finished goods and other retail inventory, goods in the
possession of outside processors or other third parties, goods consigned to
Borrower to the extent of its interest therein as consignee, materials and
supplies of any kind, nature or description which are or might be used in
connection with the manufacture, packing, shipping, advertising, selling or
finishing of any such goods, and all documents of title or documents
representing the same.
(z) Investment in any Person means, as of the date of determination thereof,
----------
any payment or contribution, or commitment to make a payment or contribution, by
any Person including, without limitation, property contributed or committed to
be contributed by any Person, on its account for or in connection with its
acquisition of any stock, bonds, notes, debentures, partnership or other
ownership interest or any other security of the Person in whom such Investment
is made or any evidence of indebtedness by reason of a loan, advance, extension
of credit, guaranty or other similar obligation for any debt, liability or
indebtedness of such Person in whom the Investment is made.
(aa) Investment Property means any and all investment property of Borrower,
-------------------
including all securities, whether certificated or uncertificated, security
entitlements, securities accounts, commodity contracts and commodity accounts,
and all financial assets held in any securities account or otherwise, wherever
located, and whether now existing or hereafter acquired or arising.
(bb) Lien means any lien, claim, charge, pledge, security interest,
----
assignment, hypothecation, deed of trust, mortgage, lease, conditional sale,
retention of title or other preferential arrangement having substantially the
same economic effect as any of the foregoing, whether voluntary or imposed by
law.
(cc) Loan Account has the meaning specified in Section 1.3.
------------
(dd) Loan Documents means this Agreement and all present and future documents
--------------
and instruments delivered or to be delivered by Borrower or any of its
Affiliates or any Guarantor under, in connection with or relating to this
Agreement, or any other present or future instrument or agreement between TBCC
and Borrower, as each of the same may be amended, supplemented or otherwise
modified from time to time.
(ee) Loans means the loans and financial accommodations made by TBCC
-----
hereunder.
(ff) Material Adverse Effect means (i) a material adverse effect on the
-----------------------
business, prospects, operations, results of operations, assets, liabilities or *
condition of Borrower, (ii) the impairment of Borrower's ability to perform its
obligations under the Loan Documents to which it is a party or of TBCC to
enforce the Obligations or realize upon the Collateral or (iii) a material
adverse effect on the value of the Collateral or the amount
-20-
<PAGE>
TBCC Loan and Security Agreement
- --------------------------------------------------------------------------------
which TBCC would be likely to receive (after giving consideration to delays in
payment and costs of enforcement) in the liquidation of the Collateral.
* financial
(gg) Material Contract means any contract or other arrangement to which
-----------------
Borrower is a party (other than the Loan Documents) for which breach,
nonperformance, cancellation or failure to renew could have a Material Adverse
Effect.
(hh) Obligations means and includes all loans (including the Loans),
-----------
advances, debts, liabilities, obligations, covenants and duties owing by
Borrower to TBCC of any kind or nature, present or future, whether or not
evidenced by any note, guaranty or other instrument, whether or not arising
under or in connection with, this Agreement, any other Loan Document or any
other present or future instrument or agreement, whether or not for the payment
of money, whether arising by reason of an extension of credit, opening,
guaranteeing or confirming of a letter of credit, loan, guaranty,
indemnification or in any other manner, whether direct or indirect (including
those acquired by assignment, purchase, discount or otherwise), whether absolute
or contingent, due or to become due, now due or hereafter arising and however
acquired (including without limitation all loans previously made by TBCC to
Borrower). The term includes, without limitation, all interest (including
interest accruing on or after an Insolvency Event, whether or not an allowed
claim), charges, expenses, commitment, facility, closing and collateral
management fees, letter of credit fees, reasonable attorneys' fees, and any
other sum properly chargeable to Borrower under this Agreement, the other Loan
Documents or any other present or future agreement between TBCC and Borrower.
(ii) Other Property means all present and future: instruments, documents,
--------------
documents of title, securities, bonds, notes, promissory notes, drafts,
acceptances, letters of credit and rights to receive proceeds of letters of
credit, deposit accounts, chattel paper, certificates, insurance policies,
insurance proceeds, leases, computer tapes, causes of action, judgments, claims
against third parties, leasehold rights in any personal property, books,
ledgers, files and records, general intangibles (including without limitation,
all contract rights, tax refunds, rights to receive tax refunds, patents, patent
applications, copyrights (registered and unregistered), royalties, licenses,
permits, franchise rights, authorizations, customer lists, rights of
indemnification, contribution and subrogation, computer programs, discs and
software, trade secrets, computer service contracts, trademarks, trade names,
service marks and names, logos, goodwill, deposits, choses in action, designs,
blueprints, plans, know-how, telephone numbers and rights thereto, credits,
reserves, and all forms of obligations whatsoever now or hereafter owing to
Borrower), all property at any time in the possession or under the control of
TBCC, and all security given by Borrower to TBCC pursuant to any other Loan
Document or agreement.
(ii-1) Permitted Investments means acquisitions by Borrower of stock or
---------------------
assets of another Person (A) where the consideration given is solely equity
securities of Borrower, (B) the stock or assets proposed to be acquired relate
to or complement Borrower's technology or product lines, (C) where the interest
acquired by the Borrower does not exceed 45% of the ownership interest in the
acquired Person, in the case of stock acquisitions, or 45% of the aggregate
value of the assets of the entity from whom the assets are intended to be
acquired, in the case of an asset acquisition, (D) no Default or Event of
Default is occurring when such transaction is consummated or would arise
thereafter and (E) provided that Borrower give TBCC prior written notice of such
proposed transactions.
(jj) Permitted Liens means such of the following as to which no
---------------
enforcement, collection, execution, levy or foreclosure proceeding shall have
been commenced and be continuing:
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<PAGE>
TBCC Loan and Security Agreement
- --------------------------------------------------------------------------------
(i) Liens for taxes, assessments and other governmental charges or levies or the
claims or demands of landlords, carriers, warehousemen, mechanics, laborers,
materialmen and other like Persons arising by operation of law in the ordinary
course of business for sums which are not yet due and payable *, (ii) deposits
or pledges to secure the payment of workmen's compensation, unemployment
insurance or other social security benefits or obligations, public or statutory
obligations, surety or appeal bonds, bid or performance bonds, or other
obligations of a like nature incurred in the ordinary course of business (but
nothing in this clause (ii) shall permit the creation of Liens on Receivables,
Investment Property, Inventory or Other Property), (iii) zoning restrictions,
easements, encroachments, licenses, restrictions or covenants on the use of
property which do not materially impair either the use of the property in the
operation of the business of Borrower or the value of the property, (iv) rights
of general application reserved to or vested in any municipality or other
governmental, statutory or public authority to control or regulate property, or
to use property in a manner which does not materially impair the use of the
property for the purposes for which it is held by Borrower, (v) state and
municipal Liens for personal property taxes which are not yet due and payable,
(vi) Purchase Money Liens **.
* or are being contested in good faith by appropriate proceedings, provided the
same have no priority over any of TBCC's security interests and provided that,
as to any federal tax liens, no notice of such lien has been filed of record
** (vii) liens existing as of the date hereof consisting of a lien in favor of
Silicon Valley Bank with respect to certain assets acquired by Anubis
Acquisition Corporation and subsequently transferred to the Borrower, provided
that the aggregate amount of indebtedness secured by lien shall not exceed
$15,000, (viii) leases or subleases granted in the ordinary course of Borrower's
business consistent with past business practices, (ix) licenses and sublicenses
in the ordinary course of Borrower's business consistent with past business
practices as otherwise permitted under the terms and conditions of this
Agreement, (x) Liens on assets (including the proceeds thereof and accessions
thereto) that existed at the time such assets were acquired by Borrower,
provided such Liens are not granted in contemplation of or in connection with
- --------
the acquisition of such asset by Borrower, provided, further, that TBCC consents
-------- -------
in writing to such Liens, (xi) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payments of customs duties in connection
with the importation of goods, (xii) Liens on insurance proceeds in favor of
insurance companies granted solely as security for financed premiums provided
that the aggregate amount of premiums so financed shall not exceed $10,000 and
(xiii) Liens incurred in connection with the extension, renewal or refinancing
of the indebtedness secured by Liens of the type described in clauses (i) -
(xii) above, provided that any extension, renewal or replacement Lien shall be
limited to the property encumbered by the existing Lien and the principal amount
of the indebtedness being extended, renewed or refinanced does not increase.
(kk) Person means any individual, sole proprietorship, partnership, joint
------
venture, limited liability company, trust, unincorporated organization, joint
stock company, association, corporation, institution, entity, party or
government (including any division, agency or department thereof) or any other
legal entity, whether acting in an individual, fiduciary or other capacity, and,
as applicable, the successors, heirs and assigns of each.
(ll) Plan means any employee benefit plan, program or arrangement maintained
----
or contributed to by Borrower or with respect to which it may incur liability.
(mm) Purchase Money Lien means a Lien on any item of Equipment created
-------------------
substantially simultaneously with the acquisition of such
-22-
<PAGE>
TBCC Loan and Security Agreement
- --------------------------------------------------------------------------------
Equipment for the purpose of financing such acquisition, provided that such Lien
shall attach only to the Equipment acquired.
(nn) Qualification or Qualified means, with respect to any report of Auditors
------------- ---------
covering Financial Statements, a material qualification to such report (i)
resulting from a limitation on the scope of examination of such Financial
Statements or the underlying data, (ii) as to the capability of Borrower to
continue operations as a going concern or (iii) which could be eliminated by
changes in Financial Statements or notes thereto covered by such report (such as
by the creation of or increase in a reserve or a decrease in the carrying value
of assets) and which if so eliminated by the making of any such change and after
giving effect thereto would result in a Default or an Event of Default.
(oo) Receivables means all present and future accounts and accounts
-----------
receivable, together with all security therefor and guaranties thereof and all
rights and remedies relating thereto, including any right of stoppage in
transit.
(pp) Requirement of Law means (a) the Governing Documents, (b) any law,
------------------
treaty, rule, regulation, order or determination of an arbitrator, court or
other Governmental Authority or (c) any franchise, license, lease, permit,
certificate, authorization, qualification, easement, right of way, right or
approval binding on Borrower or any of its property.
(qq) Schedule means the Schedule to this Agreement being signed concurrently
--------
by Borrower and TBCC, as amended from time to time.
(rr) Solvent means when used with respect to any Person that as of the date as
-------
to which such Person's solvency is to be measured: (a) the fair salable value of
its assets is in excess of the total amount of its liabilities (including
contingent liabilities as valued in accordance with applicable law) as they
become absolute and matured; (b) it has sufficient capital to conduct its
business; and (c) it is able to meet its debts as they mature.
(ss) Subsidiary means, as to any Person, a corporation or other entity in
----------
which that Person directly or indirectly owns or controls shares of stock or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or appoint other managers of such corporation or other
entity.
9.2. Accounting Terms and Determinations. Unless otherwise defined or
-----------------------------------
specified herein, all accounting terms used in this Agreement shall be construed
in accordance with GAAP, applied on a basis consistent in all material respects
with the Financial Statements delivered to TBCC on or before the date of this
Agreement. All accounting determinations for purposes of determining compliance
with this Agreement shall be made in accordance with GAAP as in effect on the
date of this Agreement and applied on a basis consistent in all material
respects with the audited Financial Statements delivered to TBCC on or before
the date of this Agreement. The Financial Statements required to be delivered
hereunder, and all financial records, shall be maintained in accordance with
GAAP. If GAAP shall change from the basis used in preparing the audited
Financial Statements delivered to TBCC on or before the date of this Agreement,
the Compliance Certificates required to be delivered pursuant to this Agreement
shall include calculations setting forth the adjustments necessary to
demonstrate how Borrower is in compliance with the Financial Covenants (if any)
based upon GAAP as in effect on the date of this Agreement.
9.3. Other Terms; Headings; Construction. Unless otherwise defined herein,
-----------------------------------
terms used herein that are defined in the Uniform Commercial Code, from time to
time in effect in the State of Illinois, shall have the meanings set forth
therein. Each of the words "hereof," "herein," and "hereunder" refer to this
Agreement as a whole. The term "including", whenever used in this Agreement,
shall mean "including (but not limited to)". An Event of Default shall
"continue" or be "continuing" unless and until such Event of Default has been
waived or cured
-23-
<PAGE>
TBCC Loan and Security Agreement
- --------------------------------------------------------------------------------
within the grace period specified therefor under Section 7.1. References to
Articles, Sections, Annexes, Schedules, and Exhibits are internal references to
this Agreement, and to its attachments, unless otherwise specified. The headings
and any Table of Contents are for convenience only and shall not affect the
meaning or construction of any provision of this Agreement. This Agreement has
been fully reviewed and negotiated between the parties and no uncertainty or
ambiguity in any term or provision of this Agreement shall be construed strictly
against TBCC or Borrower under any rule of construction or otherwise.
10. GENERAL PROVISIONS.
-------------------
10.1. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
-------------
AGREEMENT AND THE OTHER LOAN DOCUMENTS AND ANY DISPUTE ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, WHETHER
SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE GOVERNED BY THE
INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS.
10.2. SUBMISSION TO JURISDICTION. ALL DISPUTES BETWEEN THE BORROWER AND TBCC,
--------------------------
WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED ONLY
BY STATE AND FEDERAL COURTS LOCATED IN CHICAGO, ILLINOIS, AND THE COURTS TO
WHICH AN APPEAL THEREFROM MAY BE TAKEN; PROVIDED, HOWEVER, THAT TBCC SHALL HAVE
THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST THE
BORROWER OR ITS PROPERTY IN ANY LOCATION REASONABLY SELECTED BY TBCC IN GOOD
FAITH TO ENABLE TBCC TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR
OTHER COURT ORDER IN FAVOR OF TBCC. THE BORROWER WAIVES ANY OBJECTION THAT IT
MAY HAVE TO THE LOCATION OF THE COURT IN WHICH TBCC HAS COMMENCED A PROCEEDING,
INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
FORUM NON CONVENIENS.
10.3. SERVICE OF PROCESS. THE BORROWER HEREBY IRREVOCABLY DESIGNATES CT
------------------
CORPORATION SYSTEM, 1209 ORANGE STREET, WILMINGTON, DELAWARE 19801, AS THE
DESIGNEE AND AGENT OF THE BORROWER TO RECEIVE, FOR AND ON BEHALF OF THE
BORROWER, SERVICE OF PROCESS IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT. IT IS UNDERSTOOD THAT A COPY OF SUCH
PROCESS SERVED ON SUCH AGENT AT ITS ADDRESS WILL BE PROMPTLY FORWARDED BY MAIL
TO THE BORROWER, BUT THE FAILURE OF THE BORROWER TO RECEIVE SUCH COPY SHALL NOT
AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS. NOTHING HEREIN SHALL AFFECT THE
RIGHT OF THE LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
10.4. LIMITATION OF LIABILITY. TBCC SHALL HAVE NO LIABILITY TO THE BORROWER
-----------------------
(WHETHER SOUNDING IN TORT, CONTRACT, OR OTHERWISE) FOR LOSSES SUFFERED BY THE
BORROWER IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO THE
TRANSACTIONS OR RELATIONSHIPS CONTEMPLATED BY THIS AGREEMENT, OR ANY ACT,
OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS DETERMINED BY
A FINAL AND NONAPPEALABLE JUDGMENT OR COURT ORDER BINDING ON TBCC THAT THE
LOSSES WERE THE RESULT OF ACTS OR OMISSIONS CONSTITUTING GROSS NEGLIGENCE OR
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TBCC Loan and Security Agreement
- --------------------------------------------------------------------------------
WILLFUL MISCONDUCT OF TBCC. THE BORROWER HEREBY WAIVES ALL FUTURE CLAIMS AGAINST
TBCC FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES.
10.5. Delays; Partial Exercise of Remedies. No delay or omission of TBCC to
------------------------------------
exercise any right or remedy hereunder shall impair any such right or operate as
a waiver thereof. No single or partial exercise by TBCC of any right or remedy
shall preclude any other or further exercise thereof, or preclude any other
right or remedy.
10.6. Notices. Except as otherwise provided herein, all notices and
-------
correspondence hereunder shall be in writing and sent by certified or registered
mail, return receipt requested, by overnight delivery service, with all charges
prepaid, or by telecopier followed by a hard copy sent by regular mail, to the
parties at their addresses set forth in the heading to this Agreement. All such
notices and correspondence shall be deemed given (i) if sent by certified or
registered mail, three Business Days after being postmarked, (ii) if sent by
overnight delivery service, when received at the above stated addresses or when
delivery is refused and (iii) if sent by telecopier transmission, when receipt
of such transmission is acknowledged. Borrower's and TBCC's telecopier numbers
for purpose of notice hereunder are set forth in the Schedule; each party's
number may be changed by written notice to the other party.
10.7. Indemnification; Reimbursement of Expenses of Collection. Borrower
--------------------------------------------------------
hereby indemnifies and agrees, whether or not any of the transactions
contemplated by this Agreement or the other Loan Documents are consummated, to
defend and hold harmless (on an after-tax basis) TBCC, its successors and
assigns and their respective directors, officers, agents, employees, advisors,
shareholders, attorneys and Affiliates (each, an "Indemnified Party") from and
-------------------
against any and all losses, claims, damages, liabilities, deficiencies,
obligations, fines, penalties, actions (whether threatened or existing),
judgments, suits (whether threatened or existing) or * expenses (including,
without limitation, reasonable fees and disbursements of counsel, experts,
consultants and other professionals) incurred by any of them (collectively,
"Claims") (except, in the case of each Indemnified Party, to the extent that any
- --------
Claim is determined in a final and non-appealable judgment by a court of
competent jurisdiction to have directly resulted from such Indemnified Party's
gross negligence or willful misconduct) arising out of or by reason of (i) any
litigation, investigation, claim or proceeding which arises out of or is related
to (A) Borrower, or this Agreement, any other Loan Document or the transactions
contemplated hereby or thereby, (B) any actual or proposed use by Borrower of
the proceeds of the Loans, or (C) TBCC's entering into this Agreement or any
other Loan Document or any other agreements and documents relating hereto,
including, without limitation, amounts paid in settlement, court costs and the
reasonable fees and disbursements of counsel incurred in connection with any
such litigation, investigation, claim or proceeding, (ii) any remedial or other
action taken by Borrower in connection with compliance by Borrower, or any of
its properties, with any federal, state or local environmental laws, rules or
regulations, and (iii) any pending, threatened or actual action, claim,
proceeding or suit by any shareholder or director of Borrower or any actual or
purported violation of Borrower's charter, by-laws or any other agreement or
instrument to which Borrower is a party or by which any of its properties is
bound. In addition and without limiting the generality of the foregoing,
Borrower shall, upon demand, pay to TBCC all reasonable costs and expenses
incurred by TBCC (including the reasonable fees and disbursements of counsel and
other professionals) in connection with the preparation, execution, delivery,
administration, modification and amendment of the Loan Documents, and pay to
TBCC all reasonable costs and expenses (including the reasonable fees and
disbursements of counsel and other professionals) paid or incurred by TBCC in
order to enforce or defend
-25-
<PAGE>
TBCC Loan and Security Agreement
- --------------------------------------------------------------------------------
any of its rights under or in respect of this Agreement, any other Loan Document
or any other document or instrument now or hereafter executed and delivered in
connection herewith, collect the Obligations or otherwise administer this
Agreement, foreclose or otherwise realize upon the Collateral or any part
thereof, prosecute actions against, or defend actions by, account debtors;
commence, intervene in, or defend any action or proceeding; initiate any
complaint to be relieved of the automatic stay in bankruptcy; file or prosecute
any probate claim, bankruptcy claim, third-party claim, or other claim; examine,
audit, copy, and inspect any of the Collateral or any of Borrower's books and
records; protect, obtain possession of, lease, dispose of, or otherwise enforce
TBCC's security interest in, the Collateral; and otherwise represent TBCC in any
litigation relating to Borrower. Without limiting the generality of the
foregoing, Borrower shall pay TBCC a fee with respect to each wire transfer in
the amount of $15 plus all bank charges and a fee of $15 for all returned checks
plus all bank charges. If either TBCC or Borrower files any lawsuit against the
other predicated on a breach of this Agreement, the prevailing party in such
action shall be entitled to recover its reasonable costs and attorneys' fees,
including (but not limited to) reasonable attorneys' fees and costs incurred in
the enforcement of, execution upon or defense of any order, decree, award or
judgment. If and to the extent that the Obligations of Borrower hereunder are
unenforceable for any reason, Borrower hereby agrees to make the maximum
contribution to the payment and satisfaction of the Obligations which is
permissible under applicable law. Borrower's obligations under Section 2.4 and
this Section shall survive any termination of this Agreement and the other Loan
Documents and the payment in full of the Obligations, and are in addition to,
and not in substitution of, any of the other Obligations.
* reasonable
10.8. Amendments and Waivers. Any provision of this Agreement or any other
----------------------
Loan Document may be amended or waived if, but only if, such amendment or waiver
is in writing and signed by Borrower and TBCC and then any such amendment or
waiver shall be effective only to the extent set forth therein. The failure of
TBCC at any time or times to require Borrower to strictly comply with any of the
provisions of this Agreement or any other present or future agreement between
Borrower and TBCC shall not waive or diminish any right of TBCC later to demand
and receive strict compliance therewith. Any waiver of any default shall not
waive or affect any other default, whether prior or subsequent, and whether or
not similar. None of the provisions of this Agreement or any other agreement
now or in the future executed by Borrower and delivered to TBCC shall be deemed
to have been waived by any act or knowledge of TBCC or its agents or employees,
but only by a specific written waiver signed by an authorized officer of TBCC
and delivered to Borrower.
10.9. Counterparts; Telecopied Signatures. This Agreement and any waiver or
-----------------------------------
amendment hereto may be executed in counterparts and by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but both of which shall together constitute one and the same
instrument. This Agreement and each of the other Loan Documents and any notices
given in connection herewith or therewith may be executed and delivered by
telecopier or other facsimile transmission all with the same force and effect as
if the same was a fully executed and delivered original manual counterpart.
10.10. Severability. In case any provision in or obligation under this
------------
Agreement or any other Loan Document 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.
-26-
<PAGE>
TBCC Loan and Security Agreement
- --------------------------------------------------------------------------------
10.11. Joint and Several Liability. If Borrower consists of more than one
---------------------------
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
10.12. Maximum Rate. Notwithstanding anything to the contrary contained
------------
elsewhere in this Agreement or in any other Loan Document, the parties hereto
hereby agree that all agreements between them under this Agreement and the other
Loan Documents, whether now existing or hereafter arising and whether written or
oral, are expressly limited so that in no contingency or event whatsoever shall
the amount paid, or agreed to be paid, to TBCC for the use, forbearance, or
detention of the money loaned to Borrower and evidenced hereby or thereby or for
the performance or payment of any covenant or obligation contained herein or
therein, exceed the maximum non-usurious interest rate, if any, that at any time
or from time to time may be contracted for, taken, reserved, charged or received
on the Obligations, under the laws of the State of Illinois (or the laws of any
other jurisdiction whose laws may be mandatorily applicable notwithstanding
other provisions of this Agreement and the other Loan Documents), or under
applicable federal laws which may presently or hereafter be in effect and which
allow a higher maximum non-usurious interest rate than under the laws of the
State of Illinois (or such other jurisdiction), in any case after taking into
account, to the extent permitted by applicable law, any and all relevant
payments or charges under this Agreement and the other Loan Documents executed
in connection herewith, and any available exemptions, exceptions and exclusions
(the "Highest Lawful Rate"). If due to any circumstance whatsoever, fulfillment
of any provisions of this Agreement or any of the other Loan Documents at the
time performance of such provision shall be due shall exceed the Highest Lawful
Rate, then, automatically, the obligation to be fulfilled shall be modified or
reduced to the extent necessary to limit such interest to the Highest Lawful
Rate, and if from any such circumstance TBCC should ever receive anything of
value deemed interest by applicable law which would exceed the Highest Lawful
Rate, such excessive interest shall be applied to the reduction of the principal
amount then outstanding hereunder or on account of any other then outstanding
Obligations and not to the payment of interest, or if such excessive interest
exceeds the principal unpaid balance then outstanding hereunder and such other
then outstanding Obligations, such excess shall be refunded to Borrower. All
sums paid or agreed to be paid to TBCC for the use, forbearance, or detention of
the Obligations and other indebtedness of Borrower to TBCC shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of such indebtedness, until payment in full thereof, so
that the actual rate of interest on account of all such indebtedness does not
exceed the Highest Lawful Rate throughout the entire term of such indebtedness.
The terms and provisions of this Section shall control every other provision of
this Agreement, the other Loan Documents and all other agreements between the
parties hereto.
10.13. Entire Agreement; Successors and Assigns. This Agreement and the other
----------------------------------------
Loan Documents constitute the entire agreement between the parties, supersede
any prior written and verbal agreements between them, and shall bind and benefit
the parties and their respective successors and permitted assigns. There are
---------
no oral understandings, oral representations or oral agreements between the
- ---------------------------------------------------------------------------
parties which are not set forth in this Agreement or in other written agreements
- --------------------------------------------------------------------------------
signed by the parties in connection herewith.
- --------------------------------------------
-27-
<PAGE>
TBCC Loan and Security Agreement
- --------------------------------------------------------------------------------
10.14. MUTUAL WAIVER OF JURY TRIAL. TBCC AND BORROWER EACH HEREBY WAIVE THE
---------------------------
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO: (i) THIS AGREEMENT; OR (ii) ANY OTHER PRESENT OR
FUTURE INSTRUMENT OR AGREEMENT BETWEEN TBCC AND BORROWER; OR (iii) ANY CONDUCT,
ACTS OR OMISSIONS OF TBCC OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH TBCC OR
BORROWER; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT
OR OTHERWISE.
Borrower:
PERSONIFY INCORPORATED
By______________________________________
Title___________________________________
TBCC:
TRANSAMERICA BUSINESS CREDIT CORPORATION
By /s/ Richard Vinchesi
--------------------------------------
Title Chief Financial Officer
-----------------------------------
Form-10
Version: -3
-28-
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE
--------
<PAGE>
- --------------------------------------------------------------------------------
TBCC
Schedule to
Loan and Security Agreement
Borrower: Personify Incorporated
Address: 425 Battery Street, Suite 450B
Francisco, California 94111
Date: March 31, 2000
This Schedule is an integral part of the Loan and Security Agreement between
TRANSAMERICA BUSINESS CREDIT CORPORATION (TBCC) and the above borrower
(Borrower) of even date.
1. CREDIT LIMIT (Section 1.1):
An amount (the "Credit Limit") not to exceed the lesser
of $4,000,000 (the "Overall Dollar Limit") OR the sum
of (i) and (ii) below:
(i) Loans (each a "Revolving Loan and collectively
referred to herein as the "Revolving Loans") in an
amount not to exceed the lesser of (a) $1,000,000
at any time outstanding, or (b) 85% of the amount
of Borrower's Eligible Receivables (as defined in
Section 9.1(n) of the Loan and Security
Agreement); plus
----
(ii) Loans (each a "Term Loan" and collectively
referred to herein as the "Term Loans"), in an
aggregate amount not to exceed $3,000,000, and
which Loans shall be subject, in all respects, to
the Equipment Loan Rider of even date herewith
that is attached hereto and made a part hereof
(the "Equipment Rider").
Term Loans. Term Loans shall be disbursed in
----------
disbursements of no less than $100,000 each. All
unpaid Term Loans and all sums due in connection
therewith shall be due in full on any termination of
this Agreement for any reason. Term Loans shall also
be subject to the additional terms of the Equipment
Rider. Further, Term Loans may relate to equipment
acquired by Borrower on and after January 1, 2000.
<PAGE>
TBCC Schedule to Loan and Security Agreement
- --------------------------------------------------------------------------------
2. INTEREST. (Section 2.1): With respect to Revolving Loans, the interest
rate in effect throughout each calendar month
during the term of this Agreement shall be the
highest "Base Rate" in effect during such month,
plus 2.00% per annum. Interest shall be
calculated on the basis of a 360-day year for
the actual number of days elapsed. "Base Rate"
---------
shall mean the higher of (a) the highest prime,
base or equivalent rate of interest announced
from time to time by Citibank, N.A., First
National Bank of Chicago and Bank of America
National Trust and Savings Association (which
may not be the lowest rate of interest charged
by such bank) and (b) the published annualized
rate for 90-day dealer commercial paper which
appears in the "Money Rates" section of The Wall
--------
Street Journal.
--------------
Interest with respect to the Term Loans shall be as is set forth in the
Equipment Rider and the Term Notes.
3. FEES:
Loan Fee (Section 2.2): $10,000, payable concurrently herewith.
----------------------
Termination Fee (Section 1.6(b)): See Section 9 below.
--------------------------------
4. MATURITY DATE (Section 1.6):
See Section 9 below.
5. REPORTING (Section 5.10): Borrower shall provide TBCC with the following
reports:
(a). Monthly Financial Statements. Monthly unaudited financial statements, as
----------------------------
soon as available, and in any event within 30 days after the end of each
month.
(b). Monthly Receivable Agings. Monthly Receivable agings, aged by invoice
-------------------------
date, within 10 days after the end of each month.
(c). Monthly Payable Agings. Monthly accounts payable agings, aged by invoice
----------------------
date, and outstanding or held check registers within 10 days after the end
of each month.
(d). Monthly Compliance Certificates. As soon as available, but not later than
-------------------------------
thirty days after the end of each month, a Compliance Certificate, with an
attached schedule of calculations demonstrating compliance or indicating
non-compliance with any Financial Covenants.
(e). Quarterly Financial Statements. Quarterly unaudited financial statements,
------------------------------
as soon as available, and in any event within 30 days after the end of each
fiscal quarter of Borrower.
(f). Annual Financial Statements. As soon as available, but not later than 90
---------------------------
days after the end of the Borrower's fiscal year, (A) Borrower's annual
audited Financial Statements; (B) a comparison in reasonable detail to the
prior year's audited Financial Statements; (C) the Auditors' opinion
-2-
<PAGE>
TBCC Schedule to Loan and Security Agreement
- --------------------------------------------------------------------------------
without Qualification, a Management Letter and a statement indicating that
the Auditors have not obtained knowledge of the existence of any Default or
Event of Default during their audit; (D) a narrative discussion of
Borrower's financial condition and results of operations and the liquidity
and capital resources for such fiscal year.
6. BORROWER INFORMATION:
(a) Prior Names of Borrower (Section 4.11): Affinicast;
Anubis Solutions
(b) Prior Trade Names of Borrower (Section 4.11): None
(c) Existing Trade Names of Borrower (Section 4.11): None
(d) Other Places of Business and Locations of Collateral
(Section 4.2): See Representations and Warranties dated
March 13, 2000 submitted to TBCC by Borrower
7. FACSIMILE NUMBERS:
Borrower: (415) 544-0318, Attention: Ryan Maynard
TBCC: (860)-677-6766
8. CLOSING DEADLINE (Section 1.8): March 31, 2000
9. OF REVOLVING LOAN FACILITY AND TERM OF AGREEMENT.
(a) Term of Revolving Loan Facility. The period during
-------------------------------
which Revolving Loans will be made (the "Revolving Loan
Period") shall be from the date of this Agreement to
March 31, 2001 (the "Revolving Loan Maturity Date"),
unless sooner terminated in accordance with the terms
of this Agreement, provided that the Revolving Loan
Maturity Date shall automatically be extended for
successive additional terms of one year each, unless
one party gives written notice to the other, not less
than sixty days prior to the next Revolving Loan
Maturity Date, that such party elects to terminate this
Agreement effective on the next Revolving Loan Maturity
Date. On the Revolving Loan Maturity Date or on any
earlier termination of this Agreement, no further
Revolving Loans will be made, and Borrower shall pay in
full all outstanding Revolving Loans.
(b) Early Termination of Revolving Loan Facility at
-----------------------------------------------
Borrower's Option. The Revolving Loan Period may be
-----------------
terminated prior to the Revolving Loan Maturity Date by
Borrower, effective three
-3-
<PAGE>
TBCC Schedule to Loan and Security Agreement
- --------------------------------------------------------------------------------
Business Days after written notice of termination is
given by Borrower to TBCC.
(c) Term of Agreement. The term of this Agreement shall be
-----------------
from the date of this Agreement to the later of the
following (the "Maturity Date"): (i) the termination of
the Revolving Loan Period, or (ii) the latest date the
last installment of principal on any Term Loan is due.
On the Maturity Date or on any earlier termination of
this Agreement Borrower shall pay in full all
Obligations, and notwithstanding any termination of
this Agreement all of TBCC's security interests and all
of TBCC's other rights and remedies shall continue in
full force and effect until payment and performance in
full of all Obligations.
(d) Early Termination of Agreement. This Agreement may be
------------------------------
terminated prior to the Maturity Date as follows: (i)
by Borrower, effective three business days after
written notice of termination is given to TBCC; or (ii)
by TBCC at any time after the occurrence and during the
continuance of an Event of Default, without notice,
effective immediately.
(e) Termination Fee. If the Revolving Loan Period is
---------------
terminated by Borrower under Section 9(b) above, or if
this Agreement is terminated by Borrower or by TBCC
under Section 9(d) above, then Borrower shall pay to
TBCC a termination fee (the "Termination Fee") in an
amount equal to $7,500 multiplied by each month (or
portion thereof) from the effective date of termination
to the next Revolving Loan Maturity Date, which
Termination Fee shall be payable on the date of
termination.
(f) Payment of Obligations. Notwithstanding anything
----------------------
herein to the contrary, Borrower shall have no right to
terminate this Agreement at any time that any principal
of, or interest on any of the Loans or any other
monetary Obligations are outstanding, except upon
prepayment of all Obligations and the satisfaction of
all other conditions set forth in the Loan Documents.
10. ADDITIONAL PROVISIONS:
(a) Warrants. The Borrower shall provide TBCC with five-
--------
year warrants to purchase 22,000 shares of the common
stock of the Borrower, at a price per share and subject
to such other terms and conditions as are set forth in
the Warrant to Purchase Stock and related documents
being executed concurrently with this Agreement.
(a) Copyright Agreement. Prior to the making of any Revolving Loans,
-------------------
Borrower shall execute and deliver to TBCC a Security Agreement in
Copyrighted Works, in form acceptable to TBCC.
-4-
<PAGE>
TBCC Schedule to Loan and Security Agreement
- --------------------------------------------------------------------------------
(b) Patent/Trademark Security Agreement. Prior to the making of any
-----------------------------------
Revolving Loans, Borrower shall execute and deliver to TBCC a Patent
and Trademark Security Agreement.
(c) Perfection of Security Interest. Prior to the making of any Revolving
-------------------------------
Loans, Borrower shall take such actions and execute such instruments
and documentation as TBCC determines are reasonably necessary in order
to perfect its security interest in the Collateral, with the
understanding that TBCC shall perfect its security interest in
financed equipment and related property upon the making of any and all
Term Loans.
(d) Anubis Acquisition Corporation. Borrower represents and warrants to
------------------------------
TBCC that its subsidiary, Anubis Acquisition Corporation, has no
material assets and will not acquire any material assets in the future
without prior written notification to TBCC. The ownership of all
assets that Anubis Acquisition Corporation recently acquired has been
transferred to the Borrower and Borrower shall supply documentary
evidence to TBCC of such transfer within 30 days of the date hereof.
Borrower: TBCC:
PERSONIFY INCORPORATED TRANSAMERICA BUSINESS CREDIT CORPORATION
By_______________________________ By_______________________________
President or Vice President Title____________________________
Form-10
Version: -3
-5-
<PAGE>
TBCC
Equipment Loan Rider to
Loan and Security Agreement
Borrower: Personify Incorporated
Address: 425 Battery Street, Suite 450B
San Francisco, California 94111
Date: March 31, 2000
This Equipment Loan Rider is an integral part of the Loan and Security Agreement
between TRANSAMERICA BUSINESS CREDIT CORPORATION (TBCC) and the above borrower
(Borrower) of even date (the Loan Agreement). Nothing herein limits any of the
other terms or provisions of the Loan Agreement.
1. Term Loans.
(e) Each Term Loan shall be in an amount not less than $100,000 and at least
$100,000 of Term Loans shall be borrowed by April 10, 2000 No Term Loans
will be made after March 31, 2001.
(f) Each Term Loan shall be repaid in 36 equal monthly installments of
principal and interest, commencing on the first day of the first month
following the date of disbursement of the Term Loan; provided that (i)
the first and last monthly installments on each Term Loan shall be due
and payable on the date of disbursement of the Term Loan, (ii) an
additional interim payment, in an amount equal to the daily equivalent of
the monthly installment for each day from the date of disbursement of the
Term Loan to the first day of the first month following the date of
disbursement of the Term Loan, shall be payable on the date of
disbursement of the Term Loan, and (iii) at the maturity of each Term
Loan Borrower shall pay TBCC an additional payment in an amount equal to
10% of the original principal amount of the Term Loan. Each monthly
payment shall be in an amount equal to 3.12066% (the "Monthly Payment
Percentage") of the original principal amount of each Term Loan.
(g) TBCC shall have the right to increase the Monthly Payment Percentage
applicable to a Term Loan, as of the date such Term Loan is made,
proportionally to any change in the weekly average of the interest rates
of like-term U.S. Treasury Securities (as published in the Wall St.
Journal) from the week ending January 14, 2000 to the week preceding the
date of disbursement of such Term Loan.
<PAGE>
(h) Notwithstanding anything herein to the contrary, all unpaid Term Loans
and all sums due in connection therewith shall be due in full on any
termination of the Loan Agreement.
(i) Prior to each disbursement of a Term Loan, Borrower shall (i) execute
and deliver a Term Note on TBCC's standard form, evidencing such Term
Loan, and (ii) provide TBCC with a Schedule of the Equipment related to
such Term Loan (the "Specified Equipment"), which Equipment and
Schedule shall be reasonably satisfactory to TBCC and its counsel,
TBCC's security interests in the Specified Equipment shall have been
duly perfected and shall constitute a first priority Lien, all
Equipment shall be located in the continental United States and
Equipment-related property such as software and tenant improvements,
and other similar items of property as so classified by TBCC in its
discretion, shall be determined to be acceptable to TBCC in its
discretion, shall not exceed 20% of the aggregate amount of all Term
Loans outstanding from time to time and shall also not exceed $600,000
in the aggregate at any one time outstanding, and (iii) execute and
deliver to TBCC a UCC-1 Financing Statement with respect to the
Specified Equipment in form suitable for filing in the appropriate
governmental office.
2. Representations. Borrower represents and warrants to TBCC that (i) each
Schedule of Equipment shall set forth the true and correct location, model
number and serial number of each item of Specified Equipment referred to
therein, (ii) the cost of each item of Specified Equipment does not exceed
the fair and usual price for such type of equipment purchased in like
quantity and reflects all discounts, rebates and allowances for the
Specified Equipment (including, without limitation, discounts for
advertising, prompt payment, testing, or other services) given to the
Borrower by the manufacturer, supplier, or any other person.
3. Use of Equipment; Licenses; Repair. All Equipment shall be operated by
competent, qualified personnel in connection with the Borrower's business
purposes, for the purpose for which the Equipment was designed and in
accordance with applicable operating instructions, laws, and government
regulations, and the Borrower shall use every reasonable precaution to
prevent loss or damage to the Equipment and other Collateral from fire and
other hazards. The Borrower shall procure and maintain in effect all orders,
licenses, certificates, permits, approvals, and consents required by
federal, state, or local laws or by any governmental body, agency, or
authority in connection with the delivery, installation, use, and operation
of the Equipment and other Collateral. The Borrower shall keep all of the
Equipment in a satisfactory state of repair and satisfactory operating
condition in accordance with industry standards, and will make all repairs
and replacements when and where necessary and practical. The Borrower will
not waste or destroy any of the Equipment or other Collateral, and will not
be negligent in the care or use thereof.
4. No Disposition of Specified Equipment. The Borrower will not in any way
hypothecate or create or permit to exist any Lien on or other interest in
any of the Specified Equipment, except for the security interest of TBCC and
Permitted Liens which are junior to the security interest of TBCC.
Notwithstanding the foregoing, none of the Specified Equipment shall be
subject to any Purchase Money Lien in favor of any Person other than TBCC.
The Borrower
-2-
<PAGE>
will not sell, transfer, assign, pledge, collaterally assign, exchange, or
otherwise dispose of any of the Specified Equipment.
Borrower: TBCC:
Personify Incorporated TRANSAMERICA BUSINESS CREDIT CORPORATION
By_______________________________ By_______________________________
President or Vice President Title____________________________
Form-10
Version: -1
-3-
<PAGE>
EXHIBIT 10.10
- --------------------------------------------------------------------------------
REVOLVING CREDIT NOTE
$1,000,000 Chicago, Illinois March 31, 2000
FOR VALUE RECEIVED, PERSONIFY INCORPORATED, a California corporation having
its chief executive office and principal place of business at 425 Battery
Street, Suite 450B, San Francisco, California 94111 (the "Borrower"), hereby
unconditionally and absolutely promises to pay to the order of TRANSAMERICA
BUSINESS CREDIT CORPORATION, a Delaware corporation ("TBCC"), on the Maturity
Date, at TBCC's office at 9399 West Higgins Road, Suite 600, Rosemont, Illinois
60018, or at such other location as TBCC may from time to time designate, in
lawful money of the United States of America and in immediately available funds,
the principal amount equal to $1,000,000 or such greater or lesser amount as
represents the aggregate unpaid principal amount of all Loans made by TBCC to
the Borrower under the revolving credit facility made available pursuant to the
Loan and Security Agreement between TBCC and Borrower dated March 31, 2000 (the
"Loan Agreement"). The Borrower further promises to pay interest in like money
and funds at TBCC's office specified above (or at such other location as TBCC
may from time to time designate) on the unpaid principal amount hereof from time
to time outstanding from and including the date hereof until paid in full (both
before and after judgment) at the rates and on the dates set forth in the Loan
Agreement. All capitalized terms used herein which are not defined herein shall
have the meanings ascribed to such terms in the Loan Agreement.
The holder of this Note is authorized to record the date and amount of each
Loan evidenced by this Note, the date and amount of each payment or prepayment
of principal hereof and the interest rate with respect thereto on a schedule
attached hereto, or on a continuation of such schedule attached hereto and made
a part hereof, and any such notation shall be conclusive and binding for all
purposes absent manifest error; provided, however, that the failure of TBCC to
-------- -------
make any such recordation or endorsement shall not affect the obligations of the
Borrower hereunder or under the Loan Agreement.
Whenever any payment to be made hereunder shall be stated to be due on a
day that is not a Business Day, the payment may be made on the next succeeding
Business Day and such extension of time shall be included in the computation of
the amount of interest due hereunder.
This Note is entitled to the benefit of all terms and conditions of, and
the security of all security interests, liens, mortgages, deeds of trust and
rights granted pursuant to, the Loan Agreement and the other Loan Documents, and
is subject to optional and mandatory prepayment as provided therein.
Upon the occurrence of any one or more Events of Default, all amounts then
remaining unpaid on this Note may be declared to be or may automatically become
immediately due and payable as provided in the Loan Agreement.
The Borrower acknowledges that the holder of this Note may assign, transfer
or sell all or a portion of its rights and interests to and under this Note to
one or more Persons as provided in the Loan Agreement and that such Persons
shall thereupon become vested with all of the rights and benefits of TBCC in
respect hereof as to all or that portion of this Note which is so assigned,
transferred or sold.
In the event of any conflict between the terms hereof and the terms and
provisions of the Loan Agreement, the terms and provisions of the Loan Agreement
shall control.
<PAGE>
TBCC Revolving Credit Note
- --------------------------------------------------------------------------------
The Borrower and all other parties that at any time may be liable hereupon
in any capacity, jointly or severally, waive presentment, demand for payment,
protest and notice of dishonor of this Note and authorize the holder hereof,
without notice, to increase or decrease the rate of interest on any amount owing
under this Note in accordance with the Loan Agreement. The Borrower further
waives promptness, diligence, notice of acceptance and any other notice with
respect to any of the Obligations and any requirement that TBCC exhaust any
rights or take any action against any other Person or any collateral. The
Borrower further hereby waives notice of or proof of reliance by TBCC upon this
Note, and the Obligations shall conclusively be deemed to have been created,
contracted, incurred, renewed, extended, amended or waived in reliance upon this
Note. The Borrower shall make all payments hereunder and under the Loan
Agreement without defense, offset or counterclaim. No failure to exercise and
no delay in exercising any rights hereunder on the part of the holder hereof
shall operate as a waiver of such rights. This Note may not be changed orally,
but only by an agreement in writing, which is signed by the party or parties
against whom enforcement of any waiver, change, modification or discharge is
sought.
THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS NOTE AND THE OTHER
LOAN DOCUMENTS AND ANY DISPUTE ARISING OUT OF OR IN CONNECTION WITH THIS NOTE,
WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE GOVERNED BY
THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAW PROVISIONS) AND DECISIONS
OF THE STATE OF ILLINOIS.
ALL DISPUTES ARISING UNDER OR IN CONNECTION WITH THIS NOTE AND ANY OTHER
LOAN DOCUMENT BETWEEN THE BORROWER AND TBCC, WHETHER SOUNDING IN CONTRACT, TORT,
EQUITY OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE AND FEDERAL COURTS LOCATED
IN CHICAGO, ILLINOIS, AND THE COURTS TO WHICH AN APPEAL THEREFROM MAY BE TAKEN;
PROVIDED, HOWEVER, THAT TBCC SHALL HAVE THE RIGHT, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, TO PROCEED AGAINST THE BORROWER OR ITS PROPERTY IN ANY LOCATION
REASONABLY SELECTED BY TBCC IN GOOD FAITH TO ENABLE TBCC TO REALIZE ON SUCH
PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF TBCC. THE
BORROWER WAIVES ANY OBJECTION THAT THE BORROWER MAY HAVE TO THE LOCATION OF THE
COURT IN WHICH TBCC HAS COMMENCED A PROCEEDING, INCLUDING, WITHOUT LIMITATION,
ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON FORUM NON CONVENIENS.
THE BORROWER HEREBY IRREVOCABLY DESIGNATES CT CORPORATION SYSTEM, 1209
ORANGE STREET, WILMINGTON, DELAWARE 19801 AS THE DESIGNEE AND AGENT OF THE
BORROWER TO RECEIVE, FOR AND ON BEHALF OF THE BORROWER SERVICE OF PROCESS IN ANY
LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS NOTE OR ANY OTHER LOAN DOCUMENT.
IT IS UNDERSTOOD THAT A COPY OF SUCH PROCESS SERVED ON SUCH AGENT AT ITS ADDRESS
WILL BE PROMPTLY FORWARDED BY MAIL TO THE BORROWER, BUT THE FAILURE OF THE
BORROWER TO RECEIVE SUCH COPY SHALL NOT AFFECT IN ANY WAY THE SERVICE OF SUCH
PROCESS. NOTHING HEREIN SHALL AFFECT THE RIGHT OF TBCC TO SERVE LEGAL PROCESS
IN ANY OTHER MANNER PERMITTED BY LAW.
-2-
<PAGE>
TBCC Revolving Credit Note
- --------------------------------------------------------------------------------
THE BORROWER AND, BY ITS ACCEPTANCE HEREOF, TBCC EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO: (i) THIS NOTE; OR (ii) ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN TBCC AND BORROWER; OR (iii) ANY CONDUCT, ACTS OR
OMISSIONS OF TBCC OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH TBCC OR BORROWER; IN
EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
PERSONIFY INCORPORATED
By: /s/ Richard Vinchesi
-------------------------------
Title: Chief Financial Officer
------------------------
-3-
<PAGE>
EXHIBIT 10.11
CORPORATE RESOLUTION TO BORROW
RESOLVED, that this corporation, PERSONIFY INCORPORATED, a California
corporation, borrow from TRANSAMERICA BUSINESS CREDIT CORPORATION ("TBCC"), from
time to time, such sum or sums of money as, in the judgment of the officers
hereinafter authorized, this corporation may require.
RESOLVED FURTHER, that any officer of this corporation (hereinafter
"authorized officers") be, and they hereby are authorized, directed and
empowered, in the name of this corporation, to execute and deliver to TBCC, and
TBCC is requested to accept, the loan agreements, security agreements, notes,
financing statements, and other documents and instruments evidencing and/or
securing the indebtedness of this corporation for the monies so borrowed, or to
be borrowed, with interest thereon, and said authorized officers are authorized
from time to time to execute renewals, extensions and/or amendments of said loan
agreements, security agreements, and other documents and instruments.
RESOLVED FURTHER, that said authorized officers be and they are hereby
authorized, directed and empowered, as security for any notes or any other
indebtedness of this corporation to TBCC, whether arising pursuant to this
resolution or otherwise, to grant, transfer, pledge, mortgage, assign, or
otherwise hypothecate to TBCC, or deed in trust for its benefit, any property of
any and every kind, belonging to this corporation, including, but not limited
to, any and all real property, accounts, inventory, equipment, general
intangibles, instruments, documents, chattel paper, notes, money, deposit
accounts, furniture, fixtures, goods and all other property, of every kind, and
to execute and deliver to TBCC any and all grants, transfers, trust receipts,
loan or credit agreements, pledge agreements, mortgages, deeds of trust,
financing statements, security agreements and other hypothecation agreements,
which said instruments and the note or notes and other instruments referred to
in the preceding paragraph may contain such provisions, covenants, recitals and
agreements as TBCC may require and said authorized officers may approve, and the
execution thereof by said authorized officers shall be conclusive evidence of
such approval.
RESOLVED FURTHER, that any and all acts of the authorized officers of this
corporation done or made heretofore in connection with the borrowing of money
from TBCC, including, but not limited to: the execution of all instruments
evidencing the indebtedness of this corporation for monies so borrowed and
renewals or extensions thereof, and the grant, transfer, pledge, mortgage,
assignment, or any other hypothecation, or deed in trust of any property
belonging to this corporation as security for the indebtedness of this
corporation, to TBCC and the delivery of all instruments related thereto to
TBCC, are hereby ratified, approved and confirmed.
RESOLVED FURTHER, that any bank, banker or trust company be and it hereby
is, authorized and requested to receive for deposit to the credit of TBCC
without further inquiry, all checks, drafts and other instruments for the
payment of money payable to this corporation or its order, and that said bank,
banker, or trust company shall be under no liability to this corporation
<PAGE>
for the disposition which TBCC may or shall make of said instruments or the
proceeds thereof, and that any officer or agent of TBCC is hereby authorized and
empowered to endorse the name of this corporation to any and all checks, drafts,
and other instruments payable to this corporation or its order.
Warrants
- --------
RESOLVED FURTHER, that, in connection with the foregoing loans, this
corporation shall issue to TBCC Funding Trust II, a Delaware business trust
seven-year warrants to purchase 22,000 shares of common stock of this
corporation, at a price per share and on such other terms and provisions of
TBCC's standard form Warrant to Purchase Stock and related documents, with such
changes therein as TBCC and this corporation shall agree; any officer of this
corporation is hereby authorized to execute and deliver such Warrant to Purchase
Stock and related documents, and all documents and instruments relating thereto,
in such form and containing such additional provisions as said authorized
officers may approve, and the execution thereof by said authorized officers
shall be conclusive evidence of such approval.
RESOLVED FURTHER, that TBCC is authorized to act upon this resolution until
written notice of its revocation is delivered to, and actually received by,
TBCC, and that the authority hereby granted shall apply with equal force and
effect to the successors in office of the officers herein named.
I, Secretary of PERSONIFY INCORPORATED, a corporation, incorporated under
and by virtue of the laws of the State of California, do hereby certify that the
foregoing is a full, true and correct copy of resolutions duly and regularly
adopted by the Board of Directors of said corporation as required by law, and by
the by-laws of said corporation.
I further certify that said resolutions are still in full force and effect
and have not been in any way modified, repealed, rescinded, amended or revoked,
and that the following are the names and specimen signatures of the officers and
agents of said corporation:
Name Office Signature
- ---- ------ ---------
___________________ ________________________ ____________________
___________________ ________________________ ____________________
___________________ ________________________ ____________________
___________________ ________________________ ____________________
IN WITNESS WHEREOF, I have hereunto set my hand as such Secretary and
affixed the corporate seal of said corporation on March 31, 2000.
Richard Vinchesi
-----------------------------------
Secretary of Said Corporation
-2-
<PAGE>
EXHIBIT 10.12
TBCC
STREAMLINED FACILITY AGREEMENT
March 31, 2000
Personify Incorporated
425 Battery Street, Suite 450B
San Francisco, California 94111
Ladies and Gentlemen:
This Streamlined Facility Agreement (this "Agreement") is entered into
between Transamerica Business Credit Corporation ("TBCC"), and Personify
Incorporated ("Borrower"), in connection with the Loan and Security Agreement
between TBCC and Borrower dated March 31, 2000 (the "Loan Agreement"). (This
Agreement, the Loan Agreement, and all other written documents and agreements
between TBCC and Borrower are referred to herein collectively as the "Loan
Documents". Capitalized terms used but not defined in this Agreement, shall
have the meanings set forth in the Loan Agreement.)
This will confirm our agreement that the following provisions (the
"Streamlined Provisions") shall apply, effective on the date hereof, until
terminated as provided below:
1. Borrower will provide TBCC with a monthly Borrowing Base Certificate,
in such form as TBCC shall from time to time specify, within 10 days after the
end of each month, and TBCC shall not require more frequent schedules of
Receivables or other Collateral reporting with respect to the Receivables,
except for the information required in connection with an advance request. In
the event, as of the end of any month, the total of all Loans and all other
Obligations exceeds the Credit Limit, Borrower shall immediately pay the amount
of the excess to TBCC.
2. Delivery of the proceeds of Receivables within one Business Day after
receipt, as called for by Section 1.4 of the Loan Agreement, will not be
required.
3. TBCC will also not require any Depository Account Agreement or Blocked
Account Agreement, as called for by Section 1.8 of the Loan Agreement. In
addition, Borrower will not be required to provide TBCC with copies of invoices
to customers or shipping and delivery receipts, as called for by Section 3.3(a)
of the Loan Agreement, or to report customer credits, returns and recoveries of
merchandise as called for by Section 3.3(b) of the Loan Agreement.
The Streamlined Provisions shall immediately terminate upon the occurrence
of any Default or Event of Default. Upon any termination of the Streamlined
Provisions, without limiting TBCC's other rights and remedies, Borrower shall,
then and thereafter, provide TBCC with such other or additional reporting of
Receivables as TBCC shall request under Section 3.3(a) of the Loan Agreement,
comply in all respects with Section 3.3(b), and deliver all proceeds of
Receivables to TBCC, within one Business Day after receipt, as called for by
Section
<PAGE>
1.4 of the Loan Agreement. Additionally, Borrower and its bank shall execute and
deliver a Blocked Account Agreement or Depository Account Agreement (as TBCC
shall designate), in form and substance satisfactory to TBCC.
Please confirm your agreement to the foregoing by signing the enclosed copy
of this Agreement and returning it to us.
Sincerely yours,
Transamerica Business Credit Corporation
By: /s/ Robert D. Pomeroy, Jr.
-------------------------------------
Title:
----------------------------------
Acknowledged and Agreed.
Personify Incorporated
By: /s/ Richard Vinchesi
---------------------------
Title: Chief Financial Officer
------------------------
- -2
-2-
<PAGE>
EXHIBIT 10.13
[Form of Term Note]
-------------------
PROMISSORY NOTE
---------------
$_______________ Date: ____________
FOR VALUE RECEIVED, the undersigned promises to pay to the order of
Transamerica Business Credit Corporation or its assigns (the "Payee") at its
office located at Riverway II, West Office Tower, 9399 West Higgins Road,
Rosemont, Illinois 60018, or at such other place as the Payee or the holder
hereof may designate in writing, the principal amount of $____________ received
by the undersigned, plus interest, in lawful money of the United States and in
immediately available funds. This Note shall be payable commencing with a first
installment of $_________ payable on the date hereof and thereafter in 36
consecutive equal monthly installments of principal and interest of $_________
each commencing __________ and a final installment payable on _________ of
$_________ together with the unpaid balance of the Note. No amount of principal
paid or prepaid hereunder may be reborrowed.
This Note is one of the Notes referred to in the Equipment Loan Rider to
the Loan and Security Agreement dated as of March 31, 2000 (as amended,
supplemented or otherwise modified from time to time, the "Agreement"), between
the undersigned and the Payee and is subject and entitled to all provisions and
benefits thereof. Capitalized terms used but not defined herein shall have the
meanings set forth in the Agreement.
If any installment of this Note is not paid within five days after its due
date, the undersigned agrees to pay on demand, in addition to the amount of such
installment, an amount equal to 5% of such installment, but only to the extent
permitted by Applicable Law.
The undersigned shall have the right to prepay this Note at any time on or
after the first anniversary of the date hereof, on thirty days' prior written
notice to the Payee. On the date of any such prepayment, the undersigned shall
pay an amount equal to the present value of the remaining payments (principal
and interest) due hereunder discounted at 6% simple interest per annum, together
--- -----
with all interest, fees and other amounts payable on the amount so prepaid or in
connection therewith to the date of such prepayment. Any prepayments shall be
applied to the installments hereof in the inverse order of maturity.
Upon the maturity of this Note or the acceleration of the maturity of this
Note in accordance with the terms of the Agreement, the entire unpaid principal
amount on this Note, together with all interest, fees and other amounts payable
hereon or in connection herewith, including, without limitation, any and all
prepayment fees and all other applicable fees as set forth in this Note and
otherwise shall be immediately due and payable without further notice or demand,
with interest on all such amounts at a rate not to exceed the lawful limit, from
the date of such maturity or acceleration, as the case may be, until all such
amounts have been paid.
If any payment on this Note becomes payable on a day other than a Business
Day, the maturity thereof shall be extended to the next succeeding Business Day.
<PAGE>
The undersigned hereby waives diligence, demand, presentment, protest and
notice of any kind, and assents to extensions of the time of payment, release,
surrender or substitution of security, or forbearance or other indulgence,
without notice. The undersigned agrees to pay all amounts under this Note
without offset, deduction, claim, counterclaim, defense or recoupment, all of
which are hereby waived.
The Payee, the undersigned and any other parties to the Loan Documents
intend to contract in strict compliance with applicable usury law from time to
time in effect. In furtherance thereof such Persons stipulate and agree that
none of the terms and provisions contained in the Loan Documents shall ever be
construed to create a contract to pay, for the use, forbearance or detention of
money, interest in excess of the maximum amount of interest permitted to be
charged by Applicable Law from time to time in effect. Neither the undersigned
nor any present or future guarantors, endorsers, or other Persons hereafter
becoming liable for payment of any Obligation shall ever be liable for unearned
interest thereon or shall ever be required to pay interest thereon in excess of
the maximum amount that may be lawfully charged under Applicable Law from time
to time in effect, and the provisions of this paragraph shall control over all
other provisions of the Loan Documents which may be in conflict or apparent
conflict herewith. The Payee expressly disavows any intention to charge or
collect excessive unearned interest or finance charges in the event the maturity
of any Obligation is accelerated. If (a) the maturity of any Obligation is
accelerated for any reason, (b) any Obligation is prepaid and as a result any
amounts held to constitute interest are determined to be in excess of the legal
maximum, or (c) the Payee or any other holder of any or all of the Obligations
shall otherwise collect amounts which are determined to constitute interest
which would otherwise increase the interest on any or all of the Obligations to
an amount in excess of that permitted to be charged by Applicable Law then in
effect, then all sums determined to constitute interest in excess of such legal
limit shall, without penalty, be promptly applied to reduce the then outstanding
principal of the related Obligations or, at the Payee's or such holder's option,
promptly returned to the undersigned upon such determination. In determining
whether or not the interest paid or payable, under any specific circumstance,
exceeds the maximum amount permitted under Applicable Law, the Payee and the
undersigned (and any other payors thereof) shall to the greatest extent
permitted under Applicable Law, (i) characterize any non-principal payment as an
expense, fee or premium rather than as interest, (ii) exclude voluntary
prepayments and the effects thereof, and (iii) amortize, prorate, allocate, and
spread the total amount of interest through the entire contemplated term of this
Note in accordance with the amount outstanding from time to time thereunder and
the maximum legal rate of interest from time to time in effect under Applicable
Law in order to lawfully charge the maximum amount of interest permitted under
Applicable Law. As used herein, "Applicable Law" means the laws of the State of
Illinois (or any other jurisdiction whose laws are mandatorily applicable
notwithstanding the parties' choice of Illinois law) or the laws of the United
States of America, whichever laws allow the greater interest, as such laws now
exist or may be changed or amended or come into effect in the future.
This Note may not be changed, modified or terminated orally, but only by an
agreement in writing signed by the undersigned and the Payee or any holder
hereof.
-2-
<PAGE>
The undersigned shall, upon demand, pay to the Payee all costs and expenses
incurred by the Payee (including the fees and disbursements of counsel and other
professionals) in connection with the preparation, execution and delivery of
this Note and all other Loan Documents, and in connection with the
administration, modification and amendment of the Loan Documents, and pay to the
Payee all costs and expenses (including the fees and disbursements of counsel
and other professionals) paid or incurred by the Payee in (A) enforcing or
defending its rights under or in respect of this Note or any of the other Loan
Documents, (B) collecting any of the liabilities by the undersigned to the Payee
or otherwise administering the Loan Documents, (C) foreclosing or otherwise
collecting upon any collateral and (D) obtaining any legal, accounting or other
advice in connection with any of the foregoing.
This Note shall be binding upon the successors and assigns of the
undersigned and inure to the benefit of the Payee and its successors, endorsees
and assigns. If any term or provision of this Note shall be held invalid,
illegal or unenforceable, the validity of all other terms and provisions hereof
shall in no way be affected thereby.
EACH OF THE UNDERSIGNED AND, BY ITS ACCEPTANCE HEREOF, THE PAYEE HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES (TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW) ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE
ARISING UNDER OR RELATING TO THIS NOTE AND AGREES THAT ANY SUCH DISPUTE SHALL BE
TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
Personify Incorporated
By:___________________________
Name:
Title:
Form17
-3-
<PAGE>
EXHIBIT 10.14
March 28, 2000
Diana Kreer
Assistant Property Manager
Seagate Properties, Inc.
980 Fifth Avenue
San Rafael, California 94901
VIA FACSIMILE 415-453-2892, AND OVERNIGHT DELIVERY
- --------------------------------------------------
RE: Lease Agreement: 425 Battery Street, Suite 450 B, San Francisco
Dear Diana:
Thank you again for your professional courtesy and your prompt attention to my
questions. Working with you is a pleasure.
As we have discussed, Personify is sending to you a check for $32,200.00. This
amount covers our lease payments for April and May 2000, for the property at 425
Battery Street, Suite 450B. This satisfies our payment obligations for the
remainder of the term, through the end of May 2000. In depositing this check,
you agree that Personify shall occupy this space through May 31, 2000.
As we have agreed, Personify may elect to occupy this space beyond May 31, 2000,
by agreeing to a month-to-month tenancy under the same terms and conditions as
the current lease agreement. In that event, we would extend the current lease
agreement on a monthly basis.
You requested our current insurance certificate, which I am also sending to you.
If you need BTW III listed as "additional insured", I will be happy to have that
done promptly.
If this letter comports with your understanding of our discussions, please
acknowledge your agreement by signing below and returning to me via facsimile.
Thank you again for your assistance. Please contact me if I may provide any
further information.
Best regards,
Laura Wilson
AGREED TO BY: Signature ________________________
Name _____________________________
Title ____________________________
Company __________________________
Date _____________________________
<PAGE>
MONTH TO MONTH RENTAL AGREEMENT
THIS MONTH TO MONTH RENTAL AGREEMENT (hereinafter, the "Agreement") is
entered into this 28th day of February, 2000 between BTW III INC., A DELAWARE
CORPORATION, ("Lessor"), and PERSONIFY, INC. ("Lessee"), for approximately 6900
rentable square feet of space designated as Suite 450 (the "Short Term
Premises"), as more fully described in Exhibit A attached and incorporated
herein by this reference. It is specifically understood that Lessee is
responsible for the care, maintenance and repair any damage to the Short Term
Premises caused by Lessee of the Short Term Premises. This Agreement shall
commence and be effective on MARCH 1, 2000, and shall continue on a month to
month basis for a maximum of three (3) months. The rental of this space, which
is based on the above square footage, is made in consideration of Sixteen
-------
Thousand One Hundred ($16,100) Dollars per month, payable one month in advance.
- --------------------------------------
Thereafter, all rental payments shall be payable in advance on the first day of
each month. If any installment of rent or other sums due from Lessee is not
received by Lessor when due, Lessee shall pay to Lessor an additional sum equal
to five percent (5%) plus interest, of the amount due as a late charge. Lessee
will deposit with Lessor the sum of Seventeen Thousand ($17,000) Dollars as a
------------------------------------
Security Deposit. If Lessee is not in default or has not damaged the Short Term
Premises at the termination of this Agreement, Lessor shall, as soon as is
practicable after the termination of this Agreement, return the deposit to
Lessee, less such amounts as are reasonably necessary to remedy Lessee's
defaults. The Short Term Premises shall be used for general office and
administrative use and for no other purpose without Lessor's prior written
consent.
EXCESS UTILITIES AND SERVICES. Lessee shall pay for all telephone, alarm,
security and other services not typically provided in Landlord's normal full
service office lease; and for all services that are over and above those
furnished to the Premises during the period from 7AM to 6PM ("Business Hours")
Monday through Friday (except public holidays) ("Business Days").
INSURANCE. Lessee shall maintain comprehensive general liability insurance
against liability for: (1) bodily injury in an amount not less than $2 million
per occurrence, and (2) property damage in an amount not less than $2 million
per occurrence. All insurance shall be with companies licensed to do business
with the Insurance Commissioner of the State of California. A certificate of
all such insurance shall be delivered to the Lessor prior to occupancy and shall
certify that the policy: (1) names Lessor as an additional insured, and (2)
shall not be cancelled or altered without thirty (30) days' prior written notice
to Lessor.
ATTORNEY'S FEES. If Lessor sues Lessee due to the default of Lessee, Lessor
shall be entitled to full reimbursement of its reasonable attorney's fees.
INSPECTION. Lessor shall have the right to any and all reasonable times to
enter and inspect the Short Term Premises.
MODIFICATION. Lessee shall have no rights under this Agreement to alter or
modify the Short Term Premises without Landlord's prior written consent. Lessee
agrees to abide by the Rules and Regulations which are attached and incorporated
herein by this reference. Lessee shall not keep or
<PAGE>
store on the Short Term Premises chemicals in quantities, amounts,
concentrations or type which are in excess of those permitted by local, state or
federal laws, regulations or ordinances.
HAZARDOUS MATERIALS. Subject to the remaining provision so this paragraph,
Lessee shall be entitled to use and store only those Hazardous Materials
(defined below), that are necessary for Lessee's business, provided that such
usage and storage is in full compliance with all applicable local, state and
federal statutes, orders, ordinances, rules and regulations (as interpreted by
judicial and administrative decisions). Lessor shall have the right at all
times during the term of this Agreement to (i) inspect the Short Term Premises,
(ii) conduct tests and investigations to determine whether Lessee is in
compliance with the provisions of this paragraph, and (iii) request lists of all
Hazardous Materials used, stored or located on the Short Term Premises; the cost
of all such inspections, test and investigations to be borne by Lessee, if
Lessor reasonably believes they are necessary. Lessee shall give to Lessor
immediate verbal and follow-up written notice of any spills, releases or
discharges of Hazardous Materials on the Short Term Premises, or in any common
areas or parking lots (if not considered part of the Short Term Premises),
caused by the acts or omissions of Lessee, or its agents, employees,
representatives, invitees, licensees, subtenants, customers or contractors.
Lessee covenants to investigate, clean up and otherwise remediate any spill,
release or discharge of Hazardous Materials caused by the acts or omissions of
Lessee, or its agents, employees, representatives, invitees, licensees,
subtenants, customers or contractors at Lessee's cost and expense; such
investigation, clean up and remediation to be performed after Lessee has
obtained Lessor's written consent. Lessee shall indemnify, defend and hold
Lessor harmless from and against any and all claims, judgments, damages,
penalties, fines, liabilities, losses, suits, administrative proceedings and
costs (including, but not limited to, attorneys' and consultant fees) arising
from or related to the use, presence, transportation storage, disposal, spill,
release or discharge of Hazardous Materials on or about the Premises caused by
the acts or omissions of Lessee, its agents, employees, representatives,
invitees, licensees, subtenants, customers or contractors. Lessee shall not be
entitled to install any tanks under, on or about the Short Term Premises for the
storage of Hazardous Materials without the express written consent of Lessor,
which may be given or withheld in Lessor's sole discretion. As used herein, the
term Hazardous Materials shall mean (i) any hazardous or toxic wastes, materials
or substances, and other pollutants or contaminants, which are or become
regulated by all applicable local, state and federal laws; (ii) petroleum; (iii)
asbestos; (iv) polychlorinated biphenyls; and (v) radioactive materials. The
provisions of this paragraph shall survive the termination of this Agreement.
Personify has not, and does not, use and/or store Hazardous Materials at this
site.
COMMUNICATIONS AND COMPUTER LINES. Tenant may, in a manner consistent with the
provisions and requirements of this Lease, install, maintain, replace, remove or
use any communications or computer wires, cables and related devices
(collectively the "Lines") at the Building in or serving the Short Term
Premises, provided: (a) Tenant shall obtain Landlord's prior written consent,
which consent may be conditioned as required by Landlord, (b) if Tenant at any
time uses any equipment that may create an electromagnetic field exceeding the
normal insulation ratings of ordinary twisted pair riser cable or cause
radiation higher than normal background radiation, the Lines therefor (including
riser cables) shall be appropriately insulated to prevent such excessive
electromagnetic fields or radiation, and (c) Tenant shall pay all costs in
connection therewith. Landlord reserves the right to require that Tenant remove
any Lines which are installed in violation of these provisions.
-2-
<PAGE>
NEW LINES. Landlord may (but shall not have the obligation to): (a) install
new Lines at the Property, and (b) create additional space for Lines at the
Property, and adopt reasonable and uniform rules and regulations with respect to
the Lines.
LINE PROBLEMS. Notwithstanding anything to the contrary contained in this
Lease, Landlord reserves the right to require that Tenant remove any or all
Lines installed by or for Tenant within or serving the Short Term Premises.
Tenant shall not, without the prior written consent of Landlord in each
instance, grant to any third party a security interest or lien in or on the
Lines, and any such security interest or lien granted without Landlord's written
consent shall be null and void. Except to the extent arising from the
intentional or negligent acts of Landlord or Landlord's agents or employees,
Landlord shall have no liability for damages arising from, and Landlord does not
warrant that Tenant's use of any Lines will be free from the following,
(collectively called "Line Problems"): (a) any eavesdropping or wire-tapping by
unauthorized parties, (b) any failure of any Lines to satisfy Tenant's
requirements, or (c) any shortages, failures, variations, interruptions,
disconnections, loss or damage caused by the installation, maintenance,
replacement, use or removal of Lines by or for other tenants or occupants at the
Property. Under no circumstances shall any Line Problems be deemed an actual or
constructive eviction of Tenant, render Landlord liable to Tenant for abatement
of Rent, or relieve Tenant from performance of Tenant's obligations under this
Lease. Landlord in no event shall be liable for damages by reason of loss of
profits, business interruption or other consequential damage arising from any
Line Problems.
INDEMNIFICATION OF LANDLORD. Lessee shall save and hold Lessor harmless and
indemnify Lessor against all liabilities, charges, expenses (including
reasonable attorney's fees, costs of court and expenses necessary in the
prosecution or defense of any litigation) by reason of injury to person or
property, from whatever cause, while in or on the leased Premises, or in any way
connected with the leased Premises with the improvements or personal property
therein, including any liability for injury to person or property of Lessee, his
agents and agents and employees or third persons.
ASSIGNMENT AND SUBLETTING. Lessee shall not assign or transfer this Agreement
nor sublet all or any portion of the Short Term Premises without the prior
written consent of Lessor, which consent may be withheld at Landlord's sole and
absolute discretion.
EARLY TERMINATION. Lessor may, at any time, exercise its right to terminate
this agreement by giving the Lessee thirty (30) days written notice to the
Premises defined herein.
HOLDOVER. If Lessee holds possession of the Short Term Premises after the
expiration or termination of this Agreement, by lapse of time or otherwise,
Lessee shall become a tenant at sufferance, except as to the Lease Term and
Rent. During such holdover period Lessee shall pay to Lessor a monthly rental
equivalent to two hundred percent (200%) of the rent payable by Lessee to Lessor
with respect to the last month of the term of this Agreement.
Lessor and Lessee hereby waive any rights each may have against the other on
account of any loss or damage occasioned to the Lessor or the Lessee or to Short
Term Premises or its contents which may arise from any risk generally covered by
fire and extended coverage insurance in forms approved for use in California.
The parties shall obtain from their respective insurance companies insuring the
-3-
<PAGE>
Short Term Premises and/or its contents a waiver of any right of subrogation
which such insurance company may have against the Lessor or the Lessee.
Upon vacating the Short Term Premises, Lessee hereby agrees to return same in
good repair and condition acceptable to Lessor's designated representative.
IN WITNESS WHEREOF, this Agreement is executed on the date and year first
above written by and between BTW III INC., A DELAWARE corporation and PERSONIFY,
INC.
LESSOR LESSEE
BTW III INC., A DELAWARE CORPORATION PERSONIFY, INC.
By:_________________________________ By:________________________________
Name:_______________________________ Name:______________________________
Title:______________________________ Title:_____________________________
-4-
<PAGE>
EXHIBIT A
FLOOR PLAN OF PREMISES
<PAGE>
EXHIBIT B
RULES AND REGULATIONS
1. The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors or halls shall not be obstructed or used for any purpose
other than ingress and egress. The halls, passages, entrances, elevators,
stairways, balconies and roof are not for the use of the general public, and
Landlord shall in all cases retain the right to control or prevent access
thereto by all persons whose presence in the judgment of Landlord shall be
prejudicial to the safety, character, reputation or interests of Landlord and
its tenants, provided that nothing herein contained shall be to prevent such use
by persons with whom the tenant normally deals in the ordinary course of its
business unless such persons are engaged in illegal activities. No tenant and no
employees of any tenant shall go upon the roof of the Building without the
written consent of Landlord.
2. No awnings or other projections shall be attached to the outside walls or
surfaces of the Building nor shall the interior or exterior of any windows be
coated without the prior written consent of Landlord. Except as otherwise
specifically approved by Landlord, all electrical ceiling fixtures hung in
offices or spaces within the Building must be fluorescent and of quality, type,
design and bulb color approved by Landlord. Tenant shall not place anything or
allow anything to be placed near the glass of any window, door, partition or
wall which may appear unsightly from outside the Premises.
3. No sign, picture, plaque, advertisement, notice or other material shall be
exhibited, painted, inscribed or affixed by any tenant or any part of, or so as
to be seen from the outside of, the Premises or the Building without the prior
written consent of Landlord. In the event of the violation of the foregoing by
any tenant, Landlord may remove the same without any liability, and may charge
the expense incurred in such removal to the tenant violating this rule.
Interior signs on doors and the directory tablet shall be inscribed, painted or
affixed for each tenant by Landlord at the expense of such tenant, and shall be
of a size, color and style acceptable to Landlord.
4. The toilets and wash basins and other plumbing fixtures shall not be used
for any purpose other than those for which they were constructed, and no
sweepings, rubbish, rags or other substances shall be thrown therein. All damage
resulting from any misuse of the fixtures shall be borne by the tenant who, or
whose servants, employees, agents, visitors or licensees, shall have caused the
same.
5. No tenant or its officers, agents, employees or invitees shall mark, paint,
drill into, or in any way deface any part of the Premises or the Building. No
boring, cutting or stringing of wires or laying of linoleum or other similar
floor coverings shall be permitted except with the prior written consent of
Landlord and as Landlord may direct.
6. No bicycles, vehicles or animals of any kind shall be brought into or kept
in or about the Premises and no cooking shall be done or permitted by any tenant
on the Premises except that microwave cooking in a UL-approved microwave oven
and the preparation of coffee, tea, hot
<PAGE>
chocolate and similar items for the tenant and its employees and business
visitors shall be permitted. Tenant shall not cause or permit any unusual or
objectionable odors to escape from the Premises.
7. The Premises shall not be used for manufacturing or for the storage of
merchandise except as such storage may be incidental to the use of the Premises
for general office purposes. No tenant shall engage or pay any employees on the
Premises except those actually working for such tenant on the Premises nor
advertise for laborers giving an address at the Premises. The Premises shall
not be used for lodging or sleeping or for any immoral or illegal Purposes.
8. No tenant or its officers, agents, employees or invitees shall make, or
permit to be made any unseemly or disturbing noises, sounds or vibrations or
disturb or interfere with occupants of this or neighboring buildings or Premises
or those having business with them whether by the use of any musical instrument,
radio, phonograph, unusual noise, or in any other way.
9. No tenant or its officers, agents, employees or invitees shall throw
anything out of doors, balconies or down the passageways.
10. Tenant shall not maintain armed security in or about the Premises nor
possess any weapons, explosives, combustibles or other hazardous devices in or
about the Building and/or Premises.
11. No tenant or its officers, agents, employees or invitees shall at any time
use, bring or keep upon the Premises any flammable, combustible, explosive, foul
or noxious fluid, chemical or substance, or do or permit anything to be done in
the leased Premises, or bring or keep anything therein, which shall in any way
increase the rate of fire insurance on the Building, or on the property kept
therein, or obstruct or interfere with the rights of other tenants, or in any
way injure or annoy them, or conflict with the regulations of the Fire
Department or the fire laws, or with any insurance policy upon the Building, or
any part thereof, or with any rules and ordinances established by the Board of
Health or other governmental authority.
12. No additional locks or bolts or any kind shall be placed upon any of the
doors or windows by any tenant, nor shall any changes by made in existing locks
or the mechanism thereof. Each tenant must, upon the termination of this
tenancy, restore to Landlord all keys of stores, offices, and toilet rooms,
either furnished to, or otherwise procured by, such tenant, and in the event of
the loss of any keys so furnished, such tenant shall pay to Landlord the cost of
replacing the same or of changing the lock or locks opened by such lost key if
Landlord shall deem it necessary to make such change.
13. All removals, or the carrying in or out of any safes, freight, furniture,
or bulky matter of any description must take place during the hours which
Landlord may determine from time to time. The moving of safes or other or bulky
matter of any kind must be made upon previous notice to the manager of the
Building and under his and her supervision, and the persons employed by any
tenant for such work must be acceptable to Landlord. Landlord reserves the
right to inspect all safes, freight or other bulky articles to be brought into
the Building and to exclude from the Building all safes, freight or other bulky
articles which violate any of these Rules and Regulations or the Lease of which
these Rules and Regulations are a part. Landlord reserves the right to prohibit
or impose conditions upon the installation on the Premises of heavy objects
which might overload the building floors. Landlord will not be responsible for
loss of or damage to any safes, freight, bulky articles or
-2-
<PAGE>
other property from any cause, and all damage done to the Building by moving or
maintaining any such safe or other property shall be repaired at the expense of
the tenant.
14. No tenant shall purchase or otherwise obtain for use in the Premises water,
ice, towel, vending machine, janitorial, maintenance or other like services, or
accept barbering or bootblacking services, except from persons authorized by
Landlord, and at hours and under regulations fixed by Landlord.
15. Landlord shall have the right to prohibit any advertising by any tenant
which, in Landlord's opinion, tends to impair the reputation of the Building or
its desirability as an office building and upon written notice from Landlord any
tenant shall refrain from or discontinue such advertising.
16. Landlord reserves the right to exclude from the Building between the hours
of 10:00 p.m. and 7:00 a.m. and at all hours of Saturdays, Sundays and legal
holidays all persons who do not present a pass signed by Landlord. Landlord
shall furnish passes to persons for whom any tenant requests in writing. Each
tenant shall be responsible for all persons for whom he requests passes and
shall be liable to Landlord for all acts of such persons. Landlord shall in no
case be liable for damages for any error with regard to the admission to or
exclusion from the Building of any person. In the case of invasion, mob, riot,
public excitement or other commotion, Landlord reserves the right to prevent
access to the Building during the continuance of the same, by the closing of the
gates and doors or otherwise, for the safety of the tenants and others and the
protection of the Building and the property therein.
17. Any outside contractor employed by any tenant shall, while in the Building,
be subject to the prior written approval of Landlord and subject to the Rules
and Regulations of the Building. Tenant shall be responsible for all acts of
such persons and Landlord shall not be responsible for any loss or damage to
property in the Premises, however occurring.
18. All doors opening onto public corridors shall be kept closed, except when
in use for ingress and egress, and left locked when not in use.
19. The requirements of tenants will be attended to only upon application to
the Office of the Building.
20. Canvassing, soliciting and peddling in the Building are prohibited and each
tenant shall cooperate to prevent the same.
21. All office equipment of any electrical or mechanical nature shall be placed
by tenants in the Premises in settings approved by Landlord, to absorb or
prevent any vibration, noise or annoyance.
22. No air conditioning unit or other similar apparatus shall be installed or
used by any tenant without the written consent of Landlord.
23. There shall not be used in any space, or in the public halls of the
Building either by any tenant or others, any hand trucks except those equipped
with rubber tires and side guards.
-3-
<PAGE>
24. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires or
stringing of wires will be allowed without written consent of Landlord. The
location of telephones, call boxes and other office equipment affixed to the
Premises shall be subject to the approval of Landlord. All such work shall be
effected pursuant to permits issued by all applicable governmental authorities
having jurisdiction.
25. No vendor with the intent of selling such goods shall be allowed to
transport or carry beverages, food, food containers, etc., on any passenger
elevators. The transportation of such items shall be via the service elevators
in such manner as prescribed by Landlord.
26. Tenants shall cooperate with Landlord in the conservation of energy used in
or about the Building, including without rotation, cooperating with Landlord in
obtaining maximum effectiveness of the cooling system by closing drapes or other
window coverings when the sun's rays fall directly on windows of the Premises,
and closing windows and doors to prevent heat loss. Tenant shall not obstruct,
alter, or in any way impair the efficient operation of Landlord's heating,
lighting, ventilating and air conditioning system and shall not place bottles,
machines, parcels, or any other articles on the induction unit enclosure so as
to interfere with air flow. In addition, Tenant shall not obstruct, alter, or
in any way impair the proper circulation and regular maintenance and repair of
the induction unit by placing furniture less than 18 inches from the induction
unit. Tenant shall not tamper with or change the setting of any thermostats or
temperature control valves, and shall in general use heat, gas, electricity, air
conditioning equipment and heating equipment in a manner compatible with sound
energy conservation practices and standards.
27. All parking ramps and areas, pedestrian walkways, plazas, and other public
areas forming a part of the Building shall be under the sole and absolute
control of Landlord with the exclusive right to regulate and control these
areas. Tenant agrees to conform to the rules and regulations that may be
established by Landlord for these areas from time to time.
28. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgment of Landlord, is intoxicated or under the influence
of liquor or drugs, or who shall in any manner do any act in violation of any of
the rules and regulations of the Building.
29. Tenant and its employees, agents, subtenants, contractors and invitees
shall comply with all applicable "nonsmoking" ordinances and, irrespective of
such ordinances, shall not smoke or permit smoking of cigarettes, cigars or
pipes outside of Tenant's Premises (including plaza areas) in any portions of
the Building except areas specifically designated as smoking areas by Landlord.
If required by applicable ordinances, Tenant shall provide smoking areas within
Tenant's Premises.
-4-
<PAGE>
EXHIBIT 10.15
[LETTERHEAD OF PERSONIFY, INC.]
October 7, 1999
Jack Tam
Team 7 International
425 Battery Street, Suite 288
San Francisco, CA 94111
Subject: Letter of Intent
Dear Mr. Tam:
The following is a summary of our intent to sublease space in your office at 425
Battery Street, Suite 288:
Term of sublease: October 7, 1999 - May 7, 2000
Payment per month: $4,800 (12 workstations @$400/month/each) for a
total of $33.600 ($57.600/year)
Monthly sublease amount includes: all utilities; 12 workstations with lamps and
chairs; 11 two-drawer file cabinets; access and normal use of common areas; and,
access and use of 70 square feet of open shelved storage. Personify will
provide its own telephone and data lines. Personify will have access to Team
7's copier and fax machine. Team 7 will keep a log of copies and fax calls and
will invoice Personify monthly for these costs.
Personify agrees that the plotter at the back of the subleased area may continue
to be used and not relocated by Team 7.
Personify further agrees to leave the premises as found at the end of the
sublease term.
If you are in agreement with the terms of this preliminary letter of intent,
please sign and acknowledge where indicated below.
Sincerely,
PERSONIFY, INC.
/s/ ROCHELLE J. SCHWARTZ
Rochelle J. Schwartz
Office Manager
Acknowledged and accepted:
/s/ JACK TAM 07/0ct/99
- ------------------------------ ---------------------------
Signature Date
Print Name: Jack Tam
-------------------
<PAGE>
[DIAGRAM OF GENERAL OFFICE LAYOUT]
<PAGE>
EXHIBIT 10.16
SUBLEASE
--------
THIS SUBLEASE ("Sublease") is made this February 1, 2000, by and between RICHARD
E. BROWN, STEVEN A. FABRO, RANDALL H. SCARLETT, and the LAW FIRM OF BROWN, FABRO
& SCARLETT, a law partnership ("Sublandlord") and PERSONIFY ("Subtenant").
RECITALS
--------
A. Sublandlord, as Tenant, is leasing from BTW III INC., a Delaware
corporation, as successor in interest to URBAN SITE VENTURES III, LTD.,
("Landlord") those certain premises located at 425 Battery Street, San
Francisco, California ("Premises") pursuant to that certain lease dated
December 11, 1996, ("Master Lease"). Subtenant acknowledges having received
and reviewed a copy of the Master Lease. A true and complete copy of the
Master Lease is attached hereto as Exhibit B.
B. Sublandlord desires to lease to Subtenant and Subtenant desires to lease
from Sublandlord a portion of the Premises consisting of approximately
5,000 square feet (the "Sublease Premises") as shown on Exhibit A attached
hereto, on the terms an conditions set forth in this Sublease.
NOW, THEREFORE, the parties hereto agree as follows:
1. PREMISES
Sublandlord leases to Subtenant and Subtenant hires from Sublandlord the
Sublease Premises together with the appurtenances thereto.
2. INCORPORATION OF MASTER LEASE
This Sublease is subject to all the terms and conditions of the Master
Lease and Subtenant hereby accepts and agrees to perform all the
obligations of Sublandlord as Tenant under the Master Lease to the extent
such provisions are incorporated by reference into this Sublease and all of
the terms and conditions of this Sublease (with each reference therein to
landlord and Tenant to be deemed to refer to Sublandlord and Subtenant,
respectively) are incorporated, herein, except the following sections which
are not incorporated herein: 1,2,3,4,5,6, and Lease Addendum One. In the
event of any conflict (express or implied) between this Sublease and the
Master Lease, as between Sublessor and Sublessee the terms and conditions
of this Sublease shall control.
In the event of the termination for any reason of Sublandlord's interest as
Tenant under the Master Lease, then this Sublease shall terminate therewith
without any liability of Sublandlord to Subtenant; except that if this
Sublease terminates as a result of a default of one of the parties hereto,
whether under this Sublease, the master Lease, or both, the defaulting
party shall be liable to the non-defaulting party for all damages suffered
by the non-defaulting party resulting from such termination.
Sublandlord (i) represents to Subtenant that, as of the date of this
Sublease, Sublandlord is not in default of its obligations under the Master
Lease nor does there exist any state of facts which with notice, he passage
of time, or both would constitute a default by Sublandlord of its
obligations under the Master Lease, (ii) shall perform all of its
obligations under the Master Lease, and (iii) shall not take any action to
terminate the Master Lease without prior written consent of Subtenant,
which shall not be unreasonably withheld. Sublandlord shall not amend or
modify the Master Lease in such a manner as to materially adversely affect
Subtenant's use of the Sublease Premises or increase the obligations or
decrease the rights of Subtenant hereunder.
1
<PAGE>
3. TERM
The term of this sublease shall be or a period of four months commencing on
February 1, 2000, and ending on May 31, 2000. Notwithstanding the
foregoing, the term of this Sublease (and Subtenant's obligation to pay
rent shall not commence until Sublandlord has delivered possession of the
Premises to Subtenant and the Landlord under the Master Lease has given its
consent to this Sublease. Sublandlord shall use its best efforts to
deliver the premises partially vacant and as agreed ready for Subtenant's
occupancy by February 1, 2000. Notwithstanding anything to the contrary
contained herein, if Sublandlord has not obtained the consent of the
landlord, or delivered the Sublease Premises to Subtenant on or before
March 1 2000, then Subtenant shall have the right thereafter to cancel this
------------
Sublease, and upon such cancellation, Sublandlord shall return all sums
theretofore deposited by Subtenant with Sublandlord, and neither party
shall have any further liability to the other.
4. USE
Subtenant shall use the Sublease Premises for general office use and for no
other purpose.
5. RENTAL
(a) Subtenant shall pay to Sublandlord as rent for the Sublease Premises,
in advance, on the first day of each calendar month of the term of this
Sublease, without deduction, offset, prior written notice or demand; in
lawful money of the United States, the sum of Twelve Thousand Dollars
($12,000.00). If the commencement and/or termination date is not the first
day of the month, a prorated monthly installment shall be paid at the then
current rate for the fractional month during which the Sublease commences
and/or terminates. Notwithstanding Paragraph 2 of this Sublease, Subtenant
shall not be responsible for the shall not pay to Sublandlord any
utilities, building direct expenses or other charges imposed by the Master
Lease on the Sublandlord. The rent specified in this section shall be the
entire expense obligation of the Subtenant to the Sublandlord. Sublandlord
shall remit its required payment to the Master Landlord as scheduled in the
Master Lease without exceptions as to preserve the Subtenant's rights in
the Sublease.
(b) Sublandlord acknowledges receipt from Subtenant, on the execution
hereof, of he sum of Twenty Four Thousand Dollars ($24.000.00) to be
applied against rent for the first and last full month of the term.
6. SURRENDER AT END OF TERM
Subtenant agrees to surrender the Sublease Premises on expiration or
earlier termination of the term hereof, in the same condition received,
reasonable wear and tear excepted. In no event shall Subtenant be required
to remove or replace any alterations or improvements that were not
constructed by Subtenant.
7. LANDLORD'S WRITTEN CONSENT
This Sublease is conditioned upon and effective only upon obtaining the
written consent of Landlord. The parties acknowledge that the effectiveness
of this Sublease is conditioned upon Sublandlord obtaining the consent of
Landlord, as required pursuant to Section 19 entitled "Assignments and
Subletting" of the Master Lease, in substantially the form attached hereto
(including the waiver of subrogation).
8. NOTICES
All notices and demands of any kind required to be given by Sublandlord or
Subtenant hereunder shall be in writing and effective three (3) business
days after depositing same in Federal Express overnight delivery, postage
prepaid, and addressed to Sublandlord or Subtenant, as the case may be,
2
<PAGE>
at the address set forth below their respective signature or at such other
address as they may designate from time to time.
9. INSURANCE
Insurance requirements pertaining to Sublandlord as Tenant under Paragraph
11 of the Master Lease shall also apply to Subtenant.
10. Notwithstanding anything to the contrary in this Sublease: (I) Sublessee's
repair obligations hereunder shall not include the making of any capital
repairs or improvements to the Sublease Premises unless, and to the extent,
required due to Sublessee's negligence or willful misconduct; and (ii)
Sublessee shall not be responsible for compliance with any laws, codes,
ordinances or other governmental directives where such compliance would is
not related specifically to Tenant's use and occupancy of the Subleased
Premises or triggered by Sublessee's alterations or improvements to the
Sublease Premises.
SUBLANDLORD SUBTENANT
By: By: /s/ RICHARD VINCHESI
------------------------- -------------------------
Name: Name: Rich Vinchesi
----------------------- -----------------------
Title: Title: CFO
---------------------- ----------------------
Date: Date: 3-2-00
----------------------- -----------------------
By: By:
------------------------- -------------------------
Name: Name:
----------------------- -----------------------
Title: Title:
---------------------- ----------------------
Date: Date:
----------------------- -----------------------
Address: Address:
----------------------- --------------------
------------------------------- ----------------------------
------------------------------- ----------------------------
3
<PAGE>
ADDENDUM TO SUBLEASE 4TH FLOOR 425 BATTERY
------------------------------------------
1. Sublandlord will make available for exclusive occupancy by Subtenant the
following office areas on the Fourth Floor of 425 Battery Street on or
about February 14, 2000: Areas and Rooms 5, 10, 23, 24, 25, 25A, 26 and 43;
Areas 1, 11 and 27 to be shared.
The monthly rental rate for the February term shall be prorated to
EightThousand Dollars ($8,000). Every month thereafter the monthly rental
rate will be paid in full on or before the first day of the month.
2. Sublandlord will remove furniture and equipment from the following areas on
or before February 14, 2000: Room 25 - shelving; Room 27 - wall mounted
photograph; and, all furniture and equipment from Area 43.
Sublandlord will leave the furniture and equipment in the following rooms
and areas to be used by Subtenant and Sublandlord until the termination of
the Subtenancy or before said date at the Sublandlord's election: Room 27
- table, chairs and books; Area 41 - shelving and books; Room 25A - tables
and chairs; and, Rooms 10, 23, 24 - desks.
3. Sublandlord will make available for exclusive occupancy by Subtenant the
following office areas on the Fourth Floor of 425 Battery on or before
March 6, 2000: Areas and Rooms 2, 6, 7, 8, 9, 22, 22A, 21.
4. Sublandlord will remove furniture and equipment from the following areas on
or before March 6, 2000: Areas 22, 22A - desks, chairs and filing cabinets;
Area 2-bookshelves, desks, chairs and tables; Room 21 - tables and filing
cabinets.
Sublandlord will leave the furniture and equipment in the following room and
areas to be used by Subtenant until the termination of the Subtenancy or before
said date at the Sublandlord's election: Room 21 - desk.
Dated: Dated:
/s/ RICHARD VINCHESI
_____________________________ _____________________________
Authorized Agent, Subtenant Authorized Agent, Sublandlord
Richard Vinchesi
Chief Financial Officer
Personify, Inc.
<PAGE>
[DIAGRAM OF PERSONIFY SUITE 400 FLOOR PLAN]
<PAGE>
EXHIBIT 10.18
March 27, 2000
Barry Wright
1660 Orvieto Court
Pleasanton, CA 94566
Dear Barry,
We are very excited to offer to you the position of President of Personify, Inc.
reporting directly to the CEO and responsible for managing Sales, Marketing,
Business Development and International functions of the company.
This letter outlines the proposed terms of employment with Personify. Your total
target cash compensation will be $800,000 with no cap. Your base monthly salary
will be 16,666.67, which is $200,000 annually. You will be paid twice monthly
and will have a yearly performance review. Your start date will be April 24,
2000.
In addition to your base salary, you will be rewarded for performance with
additional bonuses: At $22 million of bookings signed in FY '00, you will
be rewarded with $200,000. At $44 million of bookings signed in FY '00 you will
receive an additional $200,000. At $66 million of bookings signed in FY '00 you
will receive an additional $200,000. For every additional $5.5 million of
bookings signed in FY '00, you will receive an additional $50,000
We will recommend that you will be granted an option to purchase 250,000 shares
of stock. This grant is subject to approval by the board of directors. Starting
April 24, 2000 your options would vest monthly over four years and would be
governed by the terms set forth in Personify's standard form of stock-option
agreement. As an additional bonus, we will grant you 10,000 options which shall
vest 100% upon the first anniversary of your employment. This arrangement is
unconventional, but is in recognition of how we view your potential
contributions to our business. The purchase price for each of the shares covered
by the option will be the closing price of Personify's common stock on the date
that the board approves the grant.
In the event of Change of Control of the Company, the lesser of 24 months of
unvested stock options or any remaining unvested stock options will immediately
vest. Change of Control shall be defined as (a) a merger or consolidation in
which the Company is not the surviving corporation and the stockholders of the
Company own less than 50% of the outstanding voting stock of the surviving
corporation, or (b) the sale or transfer of substantially all of the assets of
the Company to an unaffiliated, bona fide third party corporation in which the
stockholders of the Company own less than 50% of the outstanding voting stock of
the surviving corporation. Change of Control will not include any transactions
effected solely for financial engineering purposes, such as leveraged
recapitalizations, leveraged buyouts, and the like or for the purpose of
changing the domicile of the Company.
Personify will provide to you the health, holiday, vacation, and other benefits
that it affords all its key officers.
This is a binding employment agreement for the term of one year, starting April
24, 2000. If Personify terminates your employment for any reason other than
cause, the company shall owe you $200,000 and any additional cash bonuses
accrued to you. Should you choose to terminate your employment prior to April
23, 2001, you would lose rights to any future cash, stock, unvested options, or
bonus related income from the company.
As a Personify employee, you will be required to sign and comply with the
attached Proprietary Information Agreement, which prohibits unauthorized use or
disclosure of Personify proprietary information.
This letter, together with your Proprietary Information and Inventions
Agreement, forms the complete and exclusive statement of your employment
agreement with Personify. The employment terms in this letter supersede any
other agreements or promises made to you by anyone, whether oral or written. As
required by law, this offer is subject to satisfactory proof of your right to
work in the United States.
Barry, we look forward to your joining Personify soon, and we look forward to a
mutually rewarding relationship. Please sign below and return to us.
Sincerely,
/s/ Love Goel
Love Goel
Chief Executive Officer
I accept your offer of employment pursuant to the terms and conditions set forth
in this letter.
Name /s/ Barry Wright Date April 15th, 2000
------------------------------- ----------------
Barry Wright
<PAGE>
Exhibit 21.1
List of Personify, Inc. Subsidiaries
1. Anubis Solutions Incorporated, a California corporation (wholly-owned
subsidiary)
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1
of our reports dated March 24, 2000 relating to the financial statements and
financial statement schedules of Anubis Solutions, Inc., which appear in such
Registration Statement. We also consent to the references to us under the
headings "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
San Francisco, California
May 23, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 9,919
<SECURITIES> 0
<RECEIVABLES> 2,544
<ALLOWANCES> 146
<INVENTORY> 0
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28,011
0
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</TABLE>
