<PAGE>
As filed with the Securities and Exchange Commission on March 31, 1999
Registration No. 333-72437
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------------
MPATH INTERACTIVE, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
Delaware 7310 94-3217317
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification No.)
Organization)
</TABLE>
665 Clyde Avenue
Mountain View, CA 94043
(650) 429-3900
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
---------------------
LINDA R. PALMOR
Chief Financial Officer
MPATH INTERACTIVE, INC.
665 Clyde Avenue
Mountain View, California 94043
(650) 429-3900
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
---------------------
Copies to:
<TABLE>
<CAPTION>
<S> <C>
Joshua L. Green Nora L. Gibson
Jeffrey Y. Suto Lindsay C. Freeman
Heather A. Harlan BROBECK, PHLEGER & HARRISON LLP
David T. Sobota Spear Street Tower
VENTURE LAW GROUP One Market
A Professional Corporation San Francisco, CA 94105
2800 Sand Hill Road
Menlo Park, CA 94025
</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
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<CAPTION>
=============================================================================
Proposed
Class of Each Class Of Securities Maximum Aggregate Amount of
To Be Registered Offering Price(1) Registration Fee
- -----------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $.00005 per
share ............................... $49,450,000 $13,748(2)
=============================================================================
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act.
(2) $12,788 of this registration fee was previously paid.
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 this registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
================================================================================
<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 these 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 MARCH 31, 1999
[LOGO OF MPATH APPEARS HERE]
3,900,000 Shares
Common Stock
Mpath Interactive, Inc. is offering 3,900,000 shares of its common stock.
This is our initial public offering, and no public market currently exists for
our shares. We have applied to have the shares we are offering approved for
quotation on the Nasdaq National Market under the symbol "MPTH." We anticipate
that the initial public offering price will be between $10.00 and $12.00 per
share. Some of our existing stockholders and/or their affiliates have indicated
to us that they intend to purchase, at the initial public offering price, $3.0
million of our common stock in this offering, which they are prohibited from
selling for 90 days.
---------------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 6.
---------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price........................................... $ $
Underwriting Discounts and Commissions.......................... $ $
Proceeds to Mpath............................................... $ $
</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 585,000
additional shares of our common stock.
---------------
BancBoston Robertson Stephens
Thomas Weisel Partners LLC
Warburg Dillon Read LLC
Wit Capital Corporation
as e-Manager(TM)
---------------
The date of this prospectus is , 1999.
<PAGE>
[INSIDE FRONT COVER]
Title: "Mpath Interactive, Inc., Leading Technology Solutions for Live Internet
Communities"
Block of text on left side:
"Mpath Interactive, Inc., develops, licenses and operates technologies that
enable Internet sites to create and manage live Internet communities. These
communities are characterized by real-time interaction among multiple
simultaneous users. Mpath operates leading live communities, such as HearMe.com
and Mplayer.com, serving over 3 million registered users."
Overlaying the images described below is an arrow leading from "Conventional
Communities," going through "Technologies for Live Communities," ending on top
of "Live Communities," and pointing at "Benefits of Live Communities."
Graphics on left side bottom:
Four small graphic images creating a circle around the phrase "Conventional
Communities." The images include:
1. Image of an envelope with text "Email"
2. Image of a memo with text "Bulletin Boards"
3. Image of hands shaking with text "Text Chat"
4. Image of globe with text "Web Hosting"
Text and Graphics on right side bottom:
"Technologies for Live Communities. POP.X allows you to deploy and operate
multi-participant Internet applications quickly and easily." POP.X logo.
Graphics on right side center:
Five small graphic images creating a circle around the phrase "Live
Communities." The images include:
1. Image of two people talking to each other with text "Real-time Audio Chat
(with text and instant messaging)"
2. Image of a gavel and a block of wood with text "Live Auctions"
3. Image of race car with text "Multi-participant Games"
4. Image of microphone with text "Live Music Events"
5. Image of computer with text "Help Desk Applications"
Block of text on right side top:
"Benefits of Live Communities:
. Highly engaging experiences
. Lengthy member session times
. Rich media advertising
. Integrated, targeted advertising
. High leverage of member-created content"
<PAGE>
[GATE 1]
Title:
"Live Communities" with text centered below title reading: "Live Communities
reach millions of people, offering them the ability to interact in real-time,
while utilizing rich media tools such as audio chat, game play, graphics, text
chat and instant messaging and paging."
Text and graphics on left side of page:
Mplayer.com logo with text "Internet Multi-Participant Entertainment
Communities" and "www.mplayer.com." Five images of Mplayer.com Web pages that
show visitors to the site the steps involved in utilizing Mplayer.com's
services. The text associated with such images of Mplayer.com's Web pages is as
follows:
"1. Becoming a member of Mplayer.com takes a few simple steps and begins at the
www.mplayer.com site."
"2. To get started, sign up and download the Mplayer.com software. It's free
and installs automatically. Then choose a member name and password. Other
Mplayer.com members will know you by your member name."
"3. Log-on to the Mplayer.com Service. Click on the `Games' navigation button
and it will take you to the Main Menu. There are dozens of games to choose
from. You can visit one of the many chat rooms by clicking on the title."
"4. Once you have entered a Game Lobby, you may enter a Game Room and join in
the fun, or create your own room and invite others to join you. There are a
variety of tournaments, events, contests, sweepstakes and drawings in which to
participate. There are also many prizes to win, some awarded for skill, others
at random."
"5. Members can choose to participate in Mplayer.com's premium service, which
offers Ratings and Rankings that display an icon next to the player's name to
demonstrate their ranking in a particular game. Premium service also includes
special events, contests, magazine subscriptions, special features and exclusive
games."
Text and graphics on right side of page:
HearMe.com logo with text "Live Internet Audio Communities" and
"www.hearme.com." Five images of HearMe.com Web pages that show visitors to the
site the steps involved in utilizing HearMe.com's services. The text associated
with such images of HearMe.com's Web pages is as follows:
"1. Joining the Live Audio Communities on HearMe.com involves a few quick steps
and the process begins by visiting www.hearme.com."
"2. To start, download the free HearMe.com self-installing software. It will
allow you to enter live audio chat rooms. You'll only need to download the
first time you join."
"3. Now you can select a Lobby to enter. There are several communities to
choose from to suit all tastes."
"4. Inside the Lobby, join a specific audio room that suits your mood or create
you own room. Using your PC microphone and speakers, you can hold personal
conversations or conference calls with friends and family. These private live
audio communities allow you to lock or password protect your chat. Musically-
inclined members are invited to the On Stage community to perform or to sit back
and listen."
"5. You can use the HearMe.com pager to see if your friends and family are on
the service and page them to join you in an audio room You can also send them
instant messages if they're on the service or a telegram will be waiting for
them the next time they sign on."
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary................................................................. 3
Risk Factors............................................................ 7
Risks related to our business......................................... 7
Risks related to our industry......................................... 12
Risks related to the offering ........................................ 14
You Should Not Rely on Forward-Looking Statements Because They Are
Inherently Uncertain................................................... 17
How We Intend to Use the Proceeds from this Offering.................... 17
Dividend Policy......................................................... 17
Other Information....................................................... 17
Capitalization.......................................................... 18
Dilution................................................................ 19
Selected Consolidated Financial Data.................................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 21
Business................................................................ 30
Management.............................................................. 48
Certain Transactions.................................................... 56
Principal Stockholders.................................................. 59
Description of Capital Stock............................................ 61
Shares Eligible for Future Sale......................................... 63
Underwriting............................................................ 65
Legal Matters........................................................... 67
Experts................................................................. 67
Additional Information.................................................. 67
Index to Financial Statements........................................... F-1
</TABLE>
We own or have rights to trademarks or tradenames that we use in conjunction
with the sale of our products and services. Mpath Interactive and Mplayer are
registered trademarks owned by us. Mpath, the Mpath logo, Mplayer.com, the
Mplayer.com logo, hearme, HearMe.com, the HearMe.com logo, and POP.X are
trademarks that are owned by us. XOOM.com is a trademark of XOOM.com. This
prospectus also makes reference to trademarks of other companies.
2
<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 shares of our common stock. This prospectus assumes that
the underwriters have not exercised their option to purchase additional shares
and that all shares of preferred stock have been automatically converted into
shares of common stock.
Our Company
Mpath develops, licenses and operates technologies that enable Internet sites
to create and manage live communities. Live communities are gathering places on
the Internet where multiple users interact with each other in real-time. Real-
time interaction means that the communication, activity and related responses
shared among users occurs almost immediately. We also operate our own leading
live communities serving over 3 million registered users with over 80,000
unique daily visitors generating over 300 minutes of average monthly usage per
visitor, as of March 1999. Our technology allows users to communicate with one
another using graphics, text and sound, such as voice and music, over the
Internet. In addition, our technology can be deployed across a vast network,
such as the Internet, and can support thousands of users at the same time. We
license our proprietary technology, which we call POP.X, to third party Web
site operators, and we provide services for building live communities that may
be self-managed by the third party or by us. People who visit live communities
meet other people with similar interests and backgrounds. This reinforces their
desire to return to a site and spend long periods of time participating in a
number of activities with other people they meet. As a result, our technologies
offer Internet advertisers an opportunity to reach targeted audiences
participating in absorbing, memorable activities and to do so with message
formats that go beyond traditional Web advertisements that are often sold as
banners appearing at the top of Web pages. We believe we deliver high value
solutions that significantly enhance the impact of a broad range of Internet
marketing and Web site management efforts.
The Internet has become an important medium for communications, content and
commerce. According to International Data Corporation, the number of Web users
worldwide will grow from 97 million at the end of 1998 to 320 million by the
year 2002. Industry analysts believe the Internet represents the fastest
growing form of media in history. The Internet is increasingly being used as a
medium for direct communication as well as a rapidly growing sales and
marketing channel. Jupiter Communications estimates that total online
advertising revenue in the U.S. will increase from $1.9 billion in 1998 to $7.7
billion by 2002. As the Internet has grown, so too have the efforts to
commercialize the Internet for business purposes, such as selling products and
services to people who visit Web sites. Although sites representative of the
early stages of Internet commercialization provide valuable services, they did
not initially enable Web users to interact or communicate with other
individuals. As a result, Internet communities have emerged to satisfy user
demand for interaction and communication. We believe an opportunity exists to
create, operate and enable higher quality Internet communities characterized by
real-time interaction among multiple users, which we call live communities.
Creating successful live communities presents numerous technological
challenges, requiring high standards of performance, accessibility, ease-of-
use, security, content management and the ability to support thousands of users
at the same time. Given the attractiveness of live communities to users,
advertisers and Internet retailers, and given the time and effort required to
build such communities, we believe a significant opportunity exists for
delivering proven online technologies and services that enable rapid creation
and management of full-featured live communities on the Internet.
Through our Mpath Foundation business unit, we derive revenue by licensing
our proprietary POP.X technology and by providing services for a fee to a
growing customer base of online companies seeking to
3
<PAGE>
create and operate live communities on the Internet. We offer our customers
broad technological expertise in networks, operations, information systems,
integration technologies, and the customer support capabilities necessary to
deploy live community applications rapidly and manage large Internet
communities. Customers of Mpath Foundation consist of a growing base of leading
online entertainment companies such as:
.CSK Sega;
.Electronic Arts;
.Fujitsu;
. GTECH; and
. LG Internet.
Through our Live Communities business unit, we have developed and operate two
services, Mplayer.com and HearMe.com. We generate the substantial majority of
revenues from Live Communities by selling advertisements. While our services
are free to all registered members, users may also pay subscription fees to us
in exchange for access to premium services. In October 1996, we launched
Mplayer.com, a premier live entertainment service on the Internet. The
Mplayer.com service now consists of three active communities that are built
around common interests and offers over 100 of the most popular online multi-
participant games. Total usage time on Mplayer.com exceeds 200 million user
minutes per month, as of January 1999, compared to 67 million user minutes per
month as of January 1998. After less than two years of operations, Mplayer.com
has become the tenth largest Internet site in terms of total usage time per
month according to our usage data. In January 1999, we launched HearMe.com, our
second live community service. HearMe.com is currently comprised of seven live
communities, making live audio interaction available to people whose interests
extend beyond entertainment. We intend to build the HearMe.com services through
relationships with Web sites that want to offer live audio communities to their
members. We intend to continue to expand this business unit by creating
additional services and live communities.
To maintain our leadership position in providing enabling technologies for
companies seeking to build live communities on the Internet and in operating
our own premier live communities, we have adopted the following strategies:
. expand our sales and marketing efforts;
. maintain and extend technology leadership and expertise;
. promote membership growth and usage;
. maximize value for advertisers and Internet retailers; and
. pursue multiple revenue streams.
We have assembled an impressive group of corporate partners who bring
capital, brand recognition, promotional strength and technology expertise to
our service offering and facilitate the growth of our overall business. These
partners include:
.Infoseek;
.XOOM.com;
.Intel;
.Yahoo!;
.Excite;
.Macromedia;
.GTECH;
.Sega; and
.Cox Enterprises.
4
<PAGE>
Our principal executive offices are located at 665 Clyde Avenue, Mountain
View, California 94043. Our telephone number at that location is (650) 429-
3900. Information contained on our Web sites at http://www.mpath.com,
http://www.mplayer.com and http://www.hearme.com does not constitute part of
this prospectus.
Unless otherwise indicated, the information in this prospectus, irrespective
of the date referenced, assumes:
. the sale and subsequent automatic conversion of 3,035,306 shares of
preferred stock in January 1999;
. the exercise and subsequent automatic conversion into common stock of
warrants to purchase 77,422 shares of preferred stock at an exercise
price of $6.60 per share;
. the repayment of $1,500,000 in notes payable upon the sale of preferred
stock in January 1999;
. the automatic conversion of each outstanding share of preferred stock
into one share of common stock upon the closing of this offering; and
. no exercise of the underwriters' option to purchase additional shares.
The Offering
<TABLE>
<C> <S>
Common stock offered by Mpath...................... 3,900,000 shares
Common stock to be outstanding after the offering.. 21,264,158 shares(1)
Use of proceeds.................................... Working capital and
general corporate
purposes(2)
Proposed Nasdaq National Market symbol............. MPTH
</TABLE>
- --------
(1) Based on the number of shares outstanding as of December 31, 1998.
Excludes:
. shares issuable upon conversion of a promissory note, in the principal
amount of $1,864,000 that is convertible in the discretion of the note
holder upon this offering or our sale;
. 1,673,410 shares subject to outstanding options under our 1995 Stock
Option/Stock Issuance Plan at a weighted average exercise price of $1.34
per share;
. 1,986,282 shares subject to outstanding warrants at a weighted average
exercise price of $6.97 per share; and
. an aggregate of 3,550,000 shares reserved for issuance under our stock
plans. See "Management--Stock Plans" and the notes to our consolidated
financial statements.
(2) Please see "How We Intend to Use the Proceeds from this Offering."
5
<PAGE>
Summary Consolidated Financial Information
(in thousands, except per share data)
In the following summary consolidated financial data, the consolidated
statement of operations data for the years ended December 31, 1996, 1997 and
1998 and consolidated balance sheet data as of December 31, 1998 are derived
from and qualified in their entirety by the annual consolidated financial
statements of Mpath. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Statement of Operations Data:
Net revenues:
Live Communities.............................. $ 12 $ 686 $ 3,022
Foundation.................................... 112 2,041 5,005
-------- -------- --------
Total revenues.............................. 124 2,727 8,027
Cost of net revenues:
Live Communities.............................. 35 1,808 2,221
Foundation.................................... 90 620 790
-------- -------- --------
Total cost of revenues...................... 125 2,428 3,011
-------- -------- --------
Gross profit (loss)....................... (1) 299 5,016
Operating expenses.............................. 25,334 13,859 16,854
Loss from operations............................ (25,335) (13,560) (11,838)
Net loss........................................ $(25,045) $(13,654) $(11,951)
Pro forma basic and diluted net loss per share.. $ (0.95)
Number of shares used in the pro forma
calculation.................................... 12,643
<CAPTION>
December 31,
----------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Selected Non-Financial Data:
Total registered users.......................... -- 317 2,340
Total user minutes per month.................... -- 45,917 181,341
</TABLE>
The Pro Forma column in the Balance Sheet Data below reflects:
. the sale and subsequent automatic conversion of 3,035,306 shares of
preferred stock we sold in January 1999 for an aggregate purchase price
of approximately $20.0 million;
. the proceeds of approximately $511,000 from the exercise of warrants to
purchase 77,422 shares of preferred stock that will be exercised
effective as of the closing of this offering;
. the repayment of $1,500,000 in notes payable upon the sale of preferred
stock in January 1999; and
. the automatic conversion of each outstanding share of preferred stock
into one share of common stock upon the closing of this offering.
The Pro Forma As Adjusted column gives effect to the sale of the shares of
common stock in this offering at an assumed initial public offering price of
$11.00 per share, after deducting estimated underwriting discounts and
commissions and estimated offering expenses. Please see "How We Intend to Use
the Proceeds from this Offering" and "Capitalization."
<TABLE>
<CAPTION>
December 31, 1998
----------------------------
Pro Pro Forma
Actual Forma As Adjusted
------- ------- -----------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.......................... $ 1,114 $20,158 $59,058
Working capital (deficit).......................... (2,067) 18,477 57,377
Property and equipment, net........................ 1,878 1,878 1,878
Total assets....................................... 6,177 25,221 64,121
Long term notes payable............................ 1,864 1,864 1,864
Stockholders' equity (deficit)..................... (2,130) 18,414 57,314
</TABLE>
6
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision in our company. In addition, you should keep in mind that
the risks described below are not the only risks that we face. Additional risks
not presently known to us, or risks that we currently believe are immaterial,
may also impair our business operations. Moreover, you should refer to the
other information contained in this prospectus for a better understanding of
our business.
Our business, financial condition, or results of operations could be
adversely affected by any of the following risks. If we are adversely affected
by such risks, then the trading price of our common stock could decline, and
you could lose all or part of your investment.
---------------------
Risks related to our business
We have a limited operating history upon which to base your investment decision
We were founded in January 1995 and have a limited operating history. Due to
our limited operating history, it is difficult or impossible for us to predict
future results of operations. As a result, you should not expect future revenue
growth to be comparable to our recent revenue growth. We believe that comparing
different periods of our operating results is not meaningful, as you should not
rely on the results for any period as an indication of our future performance.
We did not begin generating advertising or licensing revenues until October
1996. For the year ended December 31, 1997, we generated revenues of $2.7
million, and for the year ended December 31, 1998, we generated revenues of
$8.0 million. As an investor in our common stock, you should consider the risks
and difficulties that we face as an early stage company in a new and rapidly
evolving market. Some of the specific risks we face include our:
. ability to maintain and to increase levels of traffic on our live
communities;
. ability to develop and extend the Mplayer.com and HearMe.com brands; and
. ability to increase demand for our products and services.
We have had a history of losses that may continue in the future
We have had substantial losses since our inception and our operating losses
may increase in the future. Accordingly, we cannot assure you that we will ever
become or remain profitable. If our revenues fail to grow at anticipated rates,
our operating expenses increase without a commensurate increase in our revenues
or we fail to adjust operating expense levels accordingly, our business,
results of operations and financial condition will be adversely affected. As of
December 31, 1998, we had an accumulated deficit of $53.0 million, which
includes a write-off of $14.5 million of goodwill and in-process research and
development expenses incurred in connection with our acquisition of Catapult
Entertainment in 1996. Although we have experienced growth in net revenues,
members, customers and Internet reach in recent periods, we cannot be certain
that our growth rates will continue at their current levels or increase in the
future.
We have not yet become profitable on a quarterly or annual basis, and we
anticipate that we will continue to incur net losses for the foreseeable
future. The extent of these losses will be contingent, in part, on the amount
of growth in our revenues from advertising, licensing, commerce and premium
subscription fees. We expect our operating expenses to increase significantly,
especially in the areas of engineering, sales and marketing and brand
promotion, and, as a result, we will need to generate increased quarterly
revenues to become profitable.
The sales and implementation cycle(s) for our Mpath Foundation products and
services is long, which makes it difficult to predict our results of
operations
Our Mpath Foundation customers often take a long time to evaluate our
products and services, and many people are involved in the sales process. The
long sales and implementation cycles for our products and
7
<PAGE>
services and the timing of these sales may cause license and service revenues
and operating results to vary significantly from period to period. We spend a
lot of time educating and providing information to our prospective customers
regarding the use and benefits of our products and services. Even after
deciding to license our products, our customers tend to deploy our products
slowly and deliberately depending on the skill set of the customer, the size of
deployment, the complexity of the customer's system architecture, the quantity
of hardware involved, and the degree of hardware and software configuration
necessary to deploy our products.
We depend on advertising contracts and most of these contracts are short-term,
which makes it difficult to predict our results of operations
We derive a significant portion of our revenues from the sale of advertising.
If customers cancel or defer existing advertising or commerce contracts or if
we fail to obtain new contracts in any quarter, our business, results of
operations and financial condition for that quarter and future periods will be
adversely affected. A significant number of these advertising sales are made
under short-term contracts that average two to three months in length.
Consequently, many of our advertising customers can cease advertising on our
Web site quickly and without penalty. As a result, our quarterly revenues and
operating results depend heavily on advertising revenues from contracts entered
into within the quarter and on our ability to adjust spending in a timely
manner to compensate for any unexpected revenue shortfall.
Furthermore, our advertising revenues are based in part on the amount of
traffic on Mplayer.com and HearMe.com. Accordingly, if the amount of traffic on
our live communities falls below our expectations or those of existing or
potential advertisers, we may lose advertising customers. In addition,
substantially all of our advertising contracts require us to guarantee a
minimum number of impressions. In the event that we fail to deliver the minimum
number of impressions, we could be required to provide credit for additional
impressions and we may have to reduce advertising rates in order to maintain
existing advertisers and attract new advertisers.
The unpredictability of our quarterly results may adversely affect the trading
price of our common stock
Our operating results may fluctuate significantly in the future as a result
of a variety of factors, many of which are outside of our control. These
fluctuations may adversely affect the trading price of our common stock. These
factors include:
. demand for and market acceptance of our products and services and Web-
based advertising;
. budgeting cycles of advertisers;
. amount and timing of capital expenditures and other costs relating to
the expansion of our operations and future acquisitions;
. engineering or development fees that we may pay for new Web site
development and publishing tools; and
. general economic conditions.
As a strategic response to changes in the competitive environment, we may
from time to time make certain pricing, service or marketing decisions or
business combinations that could have a material adverse effect on our
business, results of operations and financial condition. In order to accelerate
the promotion of the Mplayer.com and HearMe.com brands, we intend to
significantly increase our marketing budget. Such an increase in marketing
expenditures may adversely affect our results of operations for a number of
quarterly periods.
Due to our relatively short operating history we have limited meaningful
historical financial data upon which to base our planned operating expenses.
Accordingly, our expense levels are based in part on our expectations as to
future revenues from advertising, software licensing fees, commerce revenue-
sharing
8
<PAGE>
arrangements, premium membership service fees and our anticipated growth in
memberships and to a large extent are fixed. We cannot be certain that we will
be able to accurately predict our revenues, particularly in light of the
intense competition for the sale of Web-based advertisements, revenue-sharing
opportunities and new members, our limited operating history and the
uncertainty as to the broad acceptance of the Web as an advertising and
commerce medium. If we fail to accurately predict revenues in relation to
fixed-expense levels, our business, results of operations and financial
condition could be adversely affected.
We rely on our ability to maintain and develop strategic relationships and the
termination of a strategic relationship could have an adverse effect on us
Although we view our strategic relationships as a key factor in our overall
business strategy, we cannot be certain that we will be successful in
developing new strategic relationships or that our strategic partners will view
such relationships as significant to their own business or that they will
continue their commitment to us in the future. Our business, results of
operations and financial condition, and our stock price may be materially
adversely affected if any strategic partner discontinues its relationship with
us for any reason. Additionally, any party to a strategic agreement with us may
fail to perform its contractual obligations and we cannot be certain that we
could enforce any such agreement. We do not generally establish minimum
performance requirements for our strategic partners but instead rely on their
voluntary efforts. In addition, most of these agreements may be terminated by
either party with little notice. Therefore, we cannot be certain that these
relationships will be successful.
Our Mpath Foundation business unit has a limited number of customers upon whom
we rely, and any decrease in revenue could have an adverse effect on us
Mpath Foundation revenues have accounted for the majority of our revenues to
date. Historically, we have received a significant portion of our Mpath
Foundation revenues from a limited number of sales and license agreements.
Therefore, any downturn in the business of these customers or potential
customers could have a material adverse effect on our revenues and quarterly
results of operations. We believe that a customer's decision to license our
technology is relatively discretionary and, for large-scale users, often
involves a significant long-term commitment of resources. We currently have
eight Mpath Foundation customers. Revenues from significant Mpath Foundation
customers as a percentage of total revenues are as follows:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
CSK/Sega......................................................... 35% 23%
Sony............................................................. 11% 12%
Electronic Arts.................................................. -- 10%
</TABLE>
One of these customers has informed us that it is withholding payment of
approximately $350,000 that was invoiced in December 1998. The customer claims
that certain contractual issues must be resolved before it will make payment.
We believe that we are entitled to payment in full and are in discussions with
the customer. However, we have taken a reserve as to the full amount in
question for the three months ended March 31, 1999. We do not anticipate that
this customer will account for a material amount of revenue in the future.
We rely on advertising revenue and our results of operations could be adversely
affected if the Web does
not continue its development as an effective advertising medium
We have derived a significant portion of our revenues to date from the sale
of advertisements and intend to continue to do so in the future. If the Web
does not continue its development as an effective advertising medium, this
could have a material adverse effect on our business, financial condition and
results of operations. Intense competition in the sale of advertising on the
Web has resulted in a wide variety of pricing models, rate quotes and
advertising services, making it difficult to project future levels of
advertising revenues and rates. It is also difficult to predict which pricing
models, if any, will achieve broad acceptance among advertisers. Our strategy
is to continue to emphasize advertising as a method of generating revenues. Our
current business
9
<PAGE>
model is therefore highly dependent on the amount of traffic on our Web site.
This type of business model, however, is relatively unproven. The Internet as
an advertising medium has not been available for a sufficient period of time to
gauge our effectiveness as compared with traditional advertising media. Many of
our advertisers have only limited experience with the Web as an advertising
medium, have not yet devoted a significant portion of their advertising budgets
to Web-based advertising and may not find such advertising to be effective for
promoting their products and services relative to traditional print and
broadcast media. For 1998, advertising on the Web represented a nominal portion
of overall advertising revenues in the United States. Our ability to generate
significant advertising revenues will also depend on, among other things, our
ability to provide advertisers with a large base of users possessing
demographic characteristics attractive to advertisers as well as our ability to
develop or acquire effective advertising delivery and measurement systems.
Our inability to effectively manage advertising within our live communities Web
sites could affect our advertising revenue and have a material adverse effect
on us
The process of managing advertising within a large, high-traffic Web site
such as ours is an increasingly important and complex task. Any extended
failure of, or material difficulties encountered in connection with, our
advertising management system may expose us to "make good" obligations with our
advertisers, which, by decreasing saleable advertising inventory would reduce
revenues and have a material adverse effect on our business, results of
operations and financial condition. We license our advertising sales and
management system from NetGravity. Any replacement of this system could disrupt
our ability to manage our advertising operations for a period of time. In
addition, to the extent that we encounter system failures or material
difficulties in the operation of this system, we could be unable to deliver
banner advertisements and sponsorships through our Web site.
We rely on our intellectual property and proprietary rights and may be unable
to protect these rights
Our success depends in part on our ability to protect our proprietary
software and other intellectual property. In addition, we may be sued over
intellectual property rights. These lawsuits, or our inability to protect our
intellectual property rights, could have a material adverse effect on our
business, results of operations and financial condition. See "Business--
Proprietary Rights."
We will need to manage our expanding business effectively in order to meet
investor expectations
We have experienced and may continue to experience rapid growth, which has
placed, and could continue to place, a significant strain on our managerial,
financial and operational resources. If we cannot manage our growth
effectively, it is likely that our results of operations will not meet investor
expectations. We are required to manage multiple relationships with our
strategic partners, technology licensors, members, POP.X licensees, advertisers
and other third parties.
These requirements will be exacerbated in the event of our further growth or
in the number of third-party relationships, and we cannot be certain that our
systems, procedures or controls will be adequate to support our operations or
that our management will be able to manage any growth effectively. To
effectively manage our potential growth, we must continue to implement and
improve our operational, financial and management information systems and to
expand, train and manage our employee base. As of December 31, 1998, we had
grown to 111 full-time employees from 97 as of December 31, 1997, and we
anticipate that the number of our employees will increase significantly in the
next 12 months.
We depend on our key personnel to manage our business effectively in a rapidly
changing market
Our performance is substantially dependent on the performance of our senior
management and other key employees. Our failure to successfully manage our
personnel requirements would have a material adverse effect on our business,
results of operations and financial condition. We have experienced difficulty
from time to time in hiring and retaining the personnel necessary to support
the growth of our business, and we may experience
10
<PAGE>
similar difficulty in the future. Three members of the management team have
only been employed by us for less than five months. We do not currently have
"key person" life insurance policies on any of our employees. The loss of the
services of any of our executive officers or other key employees could have a
material adverse effect on the business, results of operations and financial
condition. Competition for senior management, experienced media sales and
marketing personnel, software developers, qualified engineers and other
employees is intense, and we cannot be certain that we will be successful in
attracting and retaining the personnel that we need. The importance of our
personnel is especially heightened in the Internet field, and at a time when
many companies are seeking to expand rapidly their operations.
Any acquisitions we make could adversely affect us
As part of our business strategy, we review acquisition prospects that would
complement our existing business or enhance our technological capabilities.
Future acquisitions by us could result in potentially dilutive issuances of
equity securities, large and immediate write-offs, the incurrence of debt and
contingent liabilities or amortization expenses related to goodwill and other
intangible assets, any of which could materially and adversely affect our
results of operations. Furthermore, acquisitions entail numerous risks and
uncertainties, including:
. difficulties in the assimilation of operations, personnel, technologies,
products and the information systems of the acquired companies;
. diversion of management's attention from other business concerns;
. risks of entering geographic and business markets in which we have no or
limited prior experience; and
. potential loss of key employees of acquired organizations.
We cannot be certain that we would be able to successfully integrate any
businesses, products, technologies or personnel that might be acquired in the
future, and our failure to do so could have a material adverse effect on our
business, results of operations and financial condition. Although we do not
currently have any agreement with respect to any material acquisitions, we may
make acquisitions of complementary businesses, products or technologies in the
future. However, we may not be able to locate suitable acquisition
opportunities. Except for our acquisition of Catapult, we have not made any
material acquisitions in the past.
We depend on access to commercial content and must pay for that access
Our future success depends in large part upon our ability to aggregate and
deliver compelling content over the Internet. If we fail to aggregate and
deliver compelling third-party content to our users, Web traffic to our site
might decrease and, as a result, advertising revenue might decrease. This
could have a material adverse effect on our business, results of operations
and financial condition. Although we create some of our own content such as
poker and chess, we also rely on third-party content providers, such as game
developers, for entertaining content. Our ability to aggregate and deliver
compelling content provided by third parties may be adversely impacted by a
number of factors, including the following:
. third-parties may increase the price of the content they provide;
. many of our third-party content providers compete with us for members
and advertising and may decide not to provide us with content;
. our contracts with third-party content providers are usually short-term
and may be canceled if we do not fulfill our obligations; and
. our competitors and many of our third-party content providers provide
content that is similar or the same as our content and may do so at a
lower cost.
11
<PAGE>
System failure may cause interruption of our services
The performance of our server and networking hardware and software
infrastructure is critical to our business and reputation and our ability to
attract Web users, advertisers, new members and commerce partners to our live
communities. If system failures were sustained or repeated, our advertising
revenues, our reputation and the attractiveness of our brand name could be
impaired. Because we have incorporated third-party software into our systems
and we depend upon Internet service providers to provide consumers with access
to our products and services, we are limited in our ability to prevent system
failures. We have sustained system failures for significant periods of time and
may experience similar failures in the future. Users have also occasionally
experienced difficulties due to system failures unrelated to our systems. These
system failures caused an interruption in our live community services resulting
in less traffic.
Our disk storage is configured to survive multiple drive failures without
data loss. To ensure backup and restoration of all production data, our system
is comprised of several dedicated servers and tape libraries that have the
capacity to backup the Mpath live communities sites every 24 hours. We rotate
backup media into offsite archives to ensure data integrity should catastrophic
events occur onsite.
We are subject to patent litigation that costs money and occupies management
time
In 1996, we acquired Catapult Entertainment, Inc. In connection with this
acquisition, we are involved in litigation with respect to patent licenses that
were held by Catapult. We must pay legal fees and our management could be
distracted by this litigation. See "Business--Legal Proceedings."
We will increasingly depend on distributors for our Mpath Foundation products
and services, and their failure to properly distribute our products and
services could adversely affect us
We currently sell the vast majority of our Mpath Foundation products and
services through our internal sales staff. If demand for our products and
services increases, however, we will need to enter into reseller arrangements
with Web development firms, enterprise applications resellers and OEM partners
to distribute our products and technologies. If we do not adequately develop
and maintain a network of resellers and OEMs, our business, results of
operations and financial condition could be adversely impacted. Resellers and
OEMs frequently have exclusive sales territories pursuant to individually
negotiated contracts, which may limit our ability to build and expand our
network of resellers and OEMs. In addition, some resellers and OEMs may offer
products of one or more of our competitors, and they may emphasize our
competitors' products at the expense of our products.
Risks related to our industry
We face intense competition that could adversely affect our business
Our Live Communities business unit competes with other companies for Internet
users and advertisers. Our Mpath Foundation business unit competes with
companies marketing software and services for the Internet. Both our business
units are subject to competition that is expected to intensify in the future.
We may not be able to compete successfully against our current or future
competitors, which would have a material adverse effect on our business,
results of operations and financial condition. See "Business--Competition."
We could face liability or regulation of the personal identifying information
obtained from people using
our Web site
The Federal Trade Commission is considering the adoption of regulations
regarding the collection and use of personal identifying information obtained
from individuals, including children, when accessing Web sites. These
developments could have an adverse effect on our ability to target product
offerings and attract advertisers and would have a material adverse effect on
our business, results of operations and financial condition. These regulations
may include a requirement that companies establish procedures to:
. give adequate notice to consumers regarding information collection and
disclosure practices;
12
<PAGE>
. provide consumers with the ability to have personal identifying
information deleted from a company's database;
. clearly identify affiliations or a lack of affiliations with third
parties which may collect information or sponsor activities on a
company's Web site; and
. obtain express parental consent prior to collecting and using personal
identifying information obtained from children under 13 years of age.
While we have implemented or intend to implement programs designed to
enhance the protection of the privacy of our members, including children, we
cannot be certain that such programs will conform with any regulation adopted
by the FTC. Moreover, even in the absence of regulation, the FTC has begun
investigations into the privacy practices of companies that collect
information on the Internet. One investigation by the FTC has resulted in a
consent decree pursuant to which the Internet company has agreed to establish
programs to implement the four principles noted above. We may become subject
to an investigation by the FTC, and the FTC's regulatory and enforcement
efforts may adversely affect our ability to collect demographic and personal
information from members.
In addition, at the international level, the European Union has adopted a
directive that will impose restrictions on the collection and use of personal
data. Such directive could affect U.S. companies that collect information over
the Internet from individuals in European Union member countries, and may
impose restrictions that are more stringent than current Internet privacy
standards in the United States. We cannot be certain that this directive will
not adversely affect the activities of entities such as us that engage in data
collection from users in European Union member countries.
We may be vulnerable to unauthorized access, computer viruses and other
disruption problems that could adversely affect us
Despite the implementation of security measures, our networks may be
vulnerable to unauthorized and illegal access, computer viruses and other
disruptive problems. Eliminating computer viruses and alleviating other
security problems may require interruptions, delays or cessation of service to
users accessing our Web sites, which could have a material adverse effect on
our business, results of operations and financial condition. A party who is
able to circumvent security measures could misappropriate proprietary
information or cause interruptions in our Internet operations. Internet
service providers and online service providers have in the past experienced,
and may in the future experience, interruptions in service as a result of the
accidental or intentional actions of Internet users, current and former
employees or others. We may be required to expend significant capital or other
resources to protect against the threat of security breaches or to alleviate
problems caused by breaches. Although we intend to continue to implement
industry-standard security measures, we cannot be certain that measures
implemented by us will not be circumvented in the future.
Our products are new and face rapid technological changes and if we do not
respond appropriately, we would be adversely affected
Our future success depends upon our ability to enhance our current products
and services and to develop and introduce new products and services that will
achieve market acceptance. If we do not adequately respond to the need to
develop and introduce new products or services, then our business, operating
results and financial condition will be adversely affected.
The market for our products is characterized by:
. rapid technological advances;
. evolving standards in the Internet and software markets;
. changes in customer requirements; and
. frequent new product and service introductions and enhancements.
13
<PAGE>
We strive to incorporate new technology into the Mpath live communities and
our Mpath Foundation products for the benefit of our members, visitors,
licensees and advertising and commerce partners. Introducing new technology
into our systems involves numerous technical challenges, substantial amounts of
personnel resources and often times takes many months to complete. We cannot be
certain that we will be successful at integrating new technology into the Mpath
live communities and our Mpath Foundation products on a timely basis. In
addition, the integration of new technology may degrade the responsiveness and
speed of the Mpath live communities and our Mpath Foundation products and we
cannot be certain that, once integrated, the new technology will function as
expected.
Major product enhancements and new products and services often require long
development and testing periods to achieve market acceptance. In addition, our
software products are complex and, despite vigorous testing and quality control
procedures, may contain undetected errors or "bugs" when first introduced or
updated. Any inability to timely deliver quality products and services could
have a material adverse effect on our business, results of operations and
financial condition. See "--We may be sued for product liability claims and our
products may contain defects."
We may be sued for product liability claims and our products may contain
defects
By licensing and supporting our products, we run the risk of product
liability and related claims. Although our license agreements typically contain
provisions that are designed to limit our exposure to claims, there can be no
assurance that these provisions will be enforceable in all jurisdictions where
we license and service our products. We currently have products liability
insurance coverage in the amount of $6,000,000, which covers claims resulting
from bodily injury or property damage. To the extent that any claims are not
covered by insurance, we may be adversely affected.
In addition, the computer software and hardware environment is characterized
by a wide variety of non-standard configurations that make pre-release testing
for programming or compatibility errors very difficult and time-consuming.
Despite testing by us and by our customers, there can be no assurance that
errors will not be found in new products or enhancements. The occurrence of any
errors in our products could result in adverse publicity, loss of or delay in
market acceptance, or claims by customers against us, any of which could have
an adverse effect upon our business, operating results and financial condition.
See "--Our products are new and face rapid technological changes and if we do
not respond appropriately, we would be adversely affected."
We face a number of unknown risks associated with trying to become Year 2000
compliant
Many currently installed computer systems and software products are coded to
accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. We have just begun to
identify measures to address the issues arising from Year 2000 requirements and
therefore the risks associated with being Year 2000 compliant are unknown. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Compliance." As a result, computer systems and software
used by many companies and governmental agencies may need to be upgraded to
comply with Year 2000 requirements or risk system failure or miscalculations
causing disruptions of normal business activities.
Risks related to the offering
Insiders will continue to have substantial control over Mpath after the
offering that could delay or prevent a change in our corporate control
After completion of this offering, our executive officers and directors and
their affiliates beneficially own approximately 48.9% of the shares of common
stock, or 47.7% if the underwriters exercise the over-allotment option in full.
As a result, our officers, directors and their affiliates will have the ability
to influence the election of our Board of Directors and the outcome of
corporate actions requiring stockholder approval. Such
14
<PAGE>
concentration of ownership may have the effect of delaying or preventing a
change in our corporate control. See "Principal Stockholders."
There has been no prior market for our common stock and we expect the price of
our common stock to
be volatile
Prior to this offering, you could not buy or sell our common stock publicly.
An active public market for our common stock may not develop or be sustained
after the offering, and the market price might fall below the initial public
offering price. The initial public offering price may bear no relationship to
the price at which the common stock will trade upon completion of this
offering. The initial public offering price will be determined based on
negotiations between us and the representatives of the underwriters, based on
factors that may not be indicative of future market performance. The market
price of the common stock may fluctuate significantly in response to a number
of factors, some of which are beyond our control, including:
. quarterly variations in operating results;
. changes in financial estimates by securities analysts;
. changes in market valuation of software and Internet companies;
. announcements by us of significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
. loss of a major customer or failure to complete significant license
transactions;
. additions or departures of key personnel;
. any shortfall in revenue or net income or any increase in losses from
levels expected by securities analysts;
. future sales of common stock; and
. stock market price and volume fluctuations, which are particularly
common among highly volatile securities of Internet and software
companies.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation.
Securities litigation could result in substantial costs and divert
management's attention and resources, which could have a material adverse
effect on our business, operating results and financial condition.
We have broad discretion in how we use the proceeds from this offering in ways
with which you may not agree
Our management can spend most of the proceeds from this offering in ways
with which the stockholders may not agree. See "How We Intend to Use the
Proceeds from this Offering."
We may have substantial sales of our common stock after the offering that
could result in dilution
Sales of a substantial number of shares of common stock after the offering
could adversely affect the market price of the common stock and could impair
our ability to raise capital through the sale of additional equity securities.
On completion of this offering, we will have 21,264,158 shares of common stock
outstanding or subject to currently exercisable options, with 21,849,158
shares if the underwriters' option to purchase additional shares is exercised
in full. The 3,900,000 shares sold in this offering, which would be 4,485,000
shares if the underwriter's option to purchase additional shares is exercised
in full, will be freely tradable without restriction or further registration
under the Federal securities laws unless purchased by our "affiliates" as that
term is defined in Rule 144. The remaining 17,718,739 shares of common stock
outstanding on completion of the offering will be "restricted securities" as
that term is defined in Rule 144.
15
<PAGE>
Our stock and option holders are subject to agreements that limit their
ability to sell common stock. These securityholders cannot sell or otherwise
dispose of any shares of common stock for a period of at least 180 days after
the date of this prospectus without the prior written approval of BancBoston
Robertson Stephens. When these agreements expire, these shares and the shares
underlying the options will become eligible for sale, in some cases only
pursuant to the volume, manner of sale and notice requirements of Rule 144. See
"Management--1995 Stock Option/Stock Issuance Plan."
Certain provisions of our charter documents may have anti-takeover effects that
could prevent a change in our control
Certain provisions of our Amended and Restated Certificate of Incorporation
and bylaws could make it more difficult for a third party to acquire us, even
if a change of control would be beneficial to our stockholders. For more
information, see "Description of Capital Stock."
16
<PAGE>
YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS BECAUSE THEY ARE INHERENTLY
UNCERTAIN
This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future," "intends" and similar expressions to identify forward-
looking statements. This prospectus also contains forward-looking statements
attributed to third parties relating to their estimates regarding the growth of
Internet use and Internet advertising. You should not place undue reliance on
these forward-looking statements, which apply only as of the date of this
prospectus. Our actual results could differ materially from those anticipated
in these forward-looking statements for many reasons, including the risks faced
by us and described in the preceding pages and elsewhere in this prospectus.
HOW WE INTEND TO USE THE PROCEEDS FROM THIS OFFERING
Our net proceeds from the sale of the 3,900,000 shares of common stock we are
offering are estimated to be $38.9 million, or $44.9 million if the
underwriters' option to purchase additional shares is exercised in full,
assuming an offering price of $11.00 per share and after deducting the
underwriting discounts and commissions and estimated offering expenses. We
currently expect to use the net proceeds primarily for working capital and
general corporate purposes, including approximately $5.0 million for funding
product development and approximately $5.0 million for expanding our sales and
marketing organization. In addition, we may use a portion of the net proceeds
for further development of our product lines through acquisitions of products,
technologies and businesses. Accordingly, although we have no present
commitments or agreements with respect to any such acquisitions, management
will have significant discretion in applying the net proceeds of this offering.
Pending such uses, we will invest the net proceeds in short-term, investment
grade, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock or
preferred stock and anticipate that all future earnings, if any, will be
retained for development of our business. The payment of dividends will be at
the discretion of our Board of Directors and will depend upon factors such as
future earnings, capital requirements, the financial condition of Mpath, and
general business conditions.
OTHER INFORMATION
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 our common stock.
This prospectus includes statistical data regarding the Internet industry.
The statistical data that we used was taken or derived from information
published by sources including Jupiter Communications, LLC, a media research
firm that focuses on the Internet industry, and International Data Corporation,
a firm that provides market and strategic information to the information
technology industry. Although we believe that the statistical data we used was
generally indicative of the matters for which we used it, statistical data is
inherently imprecise, and you are cautioned not to place undue reliance on the
statistical data regarding the Internet industry that we used in this
prospectus.
17
<PAGE>
CAPITALIZATION
The Actual column in the following table sets forth Mpath's actual
capitalization as of December 31, 1998. The Pro Forma column in the following
table gives effect to:
. the filing of an amendment to Mpath's Certificate of Incorporation to
provide for authorized capital stock of 50,000,000 shares of common
stock and 2,000,000 shares of undesignated preferred stock;
. the sale of 3,035,306 shares of preferred stock in January 1999;
. the exercise and subsequent automatic conversion into common stock of
warrants to purchase 77,422 shares of preferred stock; and
. the automatic conversion of each outstanding share of preferred stock
into one share of common stock upon the closing of this offering.
The Pro Forma As Adjusted column gives effect to the sale of the shares of
common stock in this offering at an assumed initial public offering price of
$11.00 per share, after deducting estimated underwriting discounts and
commissions and estimated offering expenses. Please see "How We Intend to Use
the Proceeds from this Offering" and notes to our consolidated financial
statements. The Pro Forma and Pro Forma As Adjusted information set forth below
is unaudited and should be read in conjunction with Mpath's consolidated
financial statements and notes.
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- ----------- -----------
(unaudited) (unaudited)
(in thousands)
<S> <C> <C> <C>
Long term notes payable, less current
portion..................................... $ 1,864 $ 1,864 $ 1,864
Long term capital lease obligations, less
current portion............................. 326 326 326
Stockholders' equity (deficit):
Preferred stock, $0.00005 par value;
16,294,986 shares authorized actual,
10,416,615 shares issued and outstanding,
actual; 2,000,000 shares authorized, no
shares issued or outstanding pro forma
and pro forma as adjusted................ 1 -- --
Common stock warrants...................... 2 2 2
Common stock, $0.00005 par value,
25,000,000 shares authorized actual,
50,000,000 shares authorized pro forma
and pro forma as adjusted; 3,834,815
shares issued and outstanding actual;
17,364,158 shares issued and outstanding
pro forma and 21,264,158 shares issued
and outstanding pro forma as adjusted.... -- 1 1
Additional paid in capital................. 63,155 83,699 122,599
Deferred stock based compensation.......... (11,263) (11,263) (11,263)
Notes receivable from stockholders......... (1,020) (1,020) (1,020)
Accumulated deficit........................ (53,005) (53,005) (53,005)
-------- -------- --------
Total stockholders' equity (deficit)..... (2,130) 18,414 57,314
-------- -------- --------
Total capitalization................... $ 60 $ 20,604 $59,504
======== ======== ========
</TABLE>
The information in the table above excludes:
. shares issuable upon conversion of a promissory note, in the principal
amount of $1,864,000 that is convertible at the discretion of the note
holder upon this offering or our sale;
. 1,673,410 shares subject to outstanding options under our 1995 Stock
Option/Stock Issuance Plan at a weighted average exercise price of
$1.34;
. 1,986,282 shares subject to outstanding warrants at a weighted average
exercise price of $6.97; and
. an aggregate of 3,550,000 shares reserved for issuance under our stock
plans. See "Management--Stock Plans" and the notes to our consolidated
financial statements.
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<PAGE>
DILUTION
Mpath's pro forma net tangible book value as of December 31, 1998 was
approximately $18.4 million or $1.06 per share of common stock. "Net tangible
book value" per share represents the amount of our total tangible assets
reduced by the amount of our total liabilities and divided by the total number
of shares of common stock outstanding. After giving effect to the sale of the
3,900,000 shares of common stock offered by us at an assumed initial public
offering price of $11.00 per share, and the adjustments set forth above, our
pro forma net tangible book value as of December 31, 1998 would have been $57.3
million or $2.70 per share of common stock. This represents an immediate
increase in net tangible book value of $1.64 per share to existing stockholders
and an immediate dilution of $8.30 per share to new investors. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $11.00
Pro forma net tangible book value per share before the offering... $1.06
Increase attributable to new investors............................ 1.64
-----
Pro forma net tangible book value after the offering............... 2.70
------
Dilution per share to new investors................................ $ 8.30
======
</TABLE>
The following table summarizes on a pro forma basis, as of December 31, 1998,
the differences between the existing stockholders, as adjusted, and new
investors with respect to the number of shares of common stock purchased from
us, the total consideration paid to us, and the average price per share paid.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ -------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.... 17,364,158 81.7% $ 67,744,000 61.2% $ 3.90
New investors............ 3,900,000 18.3 42,900,000 38.8 11.00
---------- ----- ------------ -----
Totals................. 21,264,158 100.0% $110,644,000 100.0%
========== ===== ============ =====
</TABLE>
The information presented with respect to existing stockholders assumes no
exercise of warrants to purchase 1,986,282 shares that were outstanding on
February 11, 1999 and no exercise of outstanding options under the 1995 Stock
Option/Stock Issuance Plan. As of February 11, 1999:
. options to purchase 1,673,410 shares were outstanding under our 1995
Stock Option/Stock Issuance Plan;
. 124,694 shares were reserved for issuance upon exercise of options that
may be granted subsequent to February 11, 1999 under the 1995 Stock
Option/Stock Issuance Plan; and
. an aggregate of 3,550,000 shares are reserved for issuance under our
stock plans.
The issuance of common stock under these plans will result in further
dilution to new investors. See "Management--Stock Plans" and the notes to our
consolidated financial statements. These figures also include 3,035,306 shares
of preferred stock (which will automatically be converted into 3,035,306 shares
of common stock upon the closing of this offering) and the exercise and
subsequent conversion into common stock of a warrant to purchase 77,422 shares
of preferred stock issued after December 31, 1998 in a private placement to
investors.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and notes to our
consolidated financial statements and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," which are included
elsewhere in this prospectus. The consolidated statements of operations data
for the years ended December 31, 1996, 1997 and 1998, and the consolidated
balance sheet data at December 31, 1997 and 1998, are derived from audited
consolidated financial statements included elsewhere in this prospectus. The
consolidated statement of operations data for the period from inception to
December 31, 1995 and the consolidated balance sheet data as of December 31,
1995 and 1996 are derived from audited financial statements not included in
this prospectus.
<TABLE>
<CAPTION>
Period from
January 9,
1995
(inception) to Year Ended December 31,
December 31, ---------------------------------
1995 1996 1997 1998
-------------- -------- -------------- --------
Statement of operations Data (in thousands, except for per share data)
<S> <C> <C> <C> <C>
Net revenues:
Live Communities................ $ -- $ 12 $ 686 $ 3,022
Foundation...................... -- 112 2,041 5,005
------- -------- -------- --------
Total revenue.................. -- 124 2,727 8,027
Cost of net revenues:
Live Communities................ -- 35 1,808 2,221
Foundation...................... -- 90 620 790
------- -------- -------- --------
Total cost of revenues......... -- 125 2,428 3,011
------- -------- -------- --------
Gross profit (loss).......... -- (1) 299 5,016
Operating expenses:
Research and development........ 1,502 5,261 2,436 3,132
Sales and marketing............. 171 3,937 6,906 7,847
General and administrative...... 746 2,877 2,841 3,274
Stock based compensation........ 34 383 1,676 2,601
Write-off of acquired
intangibles.................... -- 12,876 -- --
------- -------- -------- --------
Total operating expenses....... 2,453 25,334 13,859 16,854
------- -------- -------- --------
Loss from operations............. (2,453) (25,335) (13,560) (11,838)
Interest and other income
(expense), net................. 99 291 (93) (111)
------- -------- -------- --------
Loss before provision for income
taxes........................... (2,354) (25,044) (13,653) (11,949)
Provision for income taxes...... (1) (1) (1) (2)
------- -------- -------- --------
Net loss......................... $(2,355) $(25,045) $(13,654) $(11,951)
======= ======== ======== ========
Basic and diluted net loss per
share........................... $(23.55) $ (33.80) $ (7.81) $ (5.39)
Weighted average shares
outstanding used in basic and
diluted net loss per-share
calculation..................... 100 741 1,749 2,217
Pro forma basic and diluted loss
per share....................... -- -- -- $ (0.95)
Number of shares used in the pro
forma calculation............... -- -- -- 12,643
<CAPTION>
December 31,
------------------------------------------------
1995 1996 1997 1998
-------------- -------- -------------- --------
<S> <C> <C> <C> <C>
Balance Sheet Data: (in thousands)
Cash and cash equivalents........ $ 3,548 $ 5,511 $ 9,132 $ 1,114
Working capital (deficit)........ 3,169 4,006 7,580 (2,067)
Total assets..................... 4,333 8,142 12,356 6,177
Long term notes payable.......... -- 2,756 1,864 1,864
Stockholders' equity (deficit)... 3,580 2,762 7,141 (2,130)
<CAPTION>
December 31,
---------------------------------
1996 1997 1998
-------- -------------- --------
Selected Non-Financial Data: (in thousands)
<S> <C> <C> <C> <C>
Total registered users.......................... -- 317 2,340
Total user minutes per month.................... -- 45,917 181,341
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
Mpath develops, licenses and operates technologies that enable Internet sites
to create and manage live communities. We were incorporated and commenced
operations in January 1995. From inception through September 1996, our
activities primarily consisted of recruiting employees and raising capital,
performing product and technology development, engaging in marketing activities
and negotiating strategic relationships. In November 1995, we entered into an
agreement with PSINet, Inc. for the deployment of a low-latency network, which
provided a platform for launching and operating the Mplayer.com service.
Testing of the Mplayer.com service began in February 1996 and the service was
launched commercially in October 1996. In April 1996, we licensed our live
community software and network services to SegaSoft Networks, Inc., which
occurred concurrently with an equity investment by affiliates of SegaSoft's
parent, CSK Corporation. In November 1996, we acquired Catapult Entertainment,
Inc., in order to acquire its enabling network technology. In January 1999, we
launched HearMe.com, our second live community service. During the period from
January 1995 to December 31, 1998, we raised gross proceeds of approximately
$34.9 million from the sale of equity securities to venture capital investors
and strategic partners. In January 1999, we raised approximately an additional
$20.0 million from the sale of equity securities to venture capital investors
and strategic partners. The proceeds from these financings have primarily been
used to finance our research and development and the sales and marketing of our
products and services. In addition, we also issued 868,254 shares of Series C
Preferred Stock in our acquisition of Catapult.
We generate our revenues from two business units, Live Communities and Mpath
Foundation. With respect to Live Communities, we derive the substantial
majority of revenues from advertising fees. While the Mplayer.com and the
HearMe.com services are free to all registered members, users may also pay
subscription fees to us in exchange for access to premium services such as
special events, rankings and ratings, contests, magazine subscriptions, special
features and exclusive games. We also have a subscription plan that allows the
members to purchase a year's subscription up front at a discounted rate.
Additionally, we have begun to derive revenues from e-commerce activities,
including fees from special event promotions and merchandise sales. Advertising
revenue is recognized ratably over the term of each particular advertising
agreement. E-commerce revenue is recognized when notification of shipment has
taken place and the revenue has been earned. With respect to Mpath Foundation,
we derive revenues from licensing fees for our technology and related services.
We also derive incremental Mpath Foundation revenues from service, maintenance
and upgrade fees, which represent a significant source of recurring revenues
each year. Monthly service revenues are recognized over the period in which
services are provided. Development revenue is recognized at the time services
are completed or as development milestones are achieved. License revenue is
recognized in the period earned. Deferred revenue consists primarily of monthly
service revenue billed and paid in advance.
Since we launched our first Live Community service in October 1996 and began
negotiating certain license agreements through the Mpath Foundation business
unit, we have generated $10.9 million in revenues through December 31, 1998.
For the period from inception to December 31, 1998 we have incurred a
cumulative net loss of $53.0 million, of which $14.5 million came from a one-
time write-off of goodwill and in-process research and development expenses
associated with our acquisition of Catapult.
Cost of net revenues for Live Communities consists primarily of the cost of
operating the network infrastructure and royalties paid to third-party content
providers. Cost of revenues for Mpath Foundation consists primarily of network
operating expenses in conjunction with providing services to Mpath Foundation
customers.
Mpath's operating expenses consist of sales and marketing expenses, research
and development expenses and general and administrative expenses. Sales and
marketing expenses consist principally of salaries paid to employees in sales
and marketing activities, advertising and promotional materials, public
relations costs and travel. Research and development expenses consist
principally of salaries and compensation paid to employees
21
<PAGE>
and consultants engaged in research and development activities and product
testing. General and administrative expenses consist principally of salaries
and compensation paid to employees and consultants engaged in activities other
than sales and marketing and research and development, facilities and related
depreciation, in-house and outside legal and accounting fees and related costs,
and travel. All operating costs are expensed as incurred.
We have a limited operating history upon which an evaluation of us, our
current business, and our prospects can be based. In addition, our revenue
model is evolving and relies substantially upon the sale of advertising on our
Mplayer.com and HearMe.com services and the licensing of our POP.X technology.
Our business must be considered in light of the risks, expenses and problems
frequently encountered by companies in their early stages of development,
particularly companies in new and rapidly evolving markets such as the
Internet. Our results of operations and financial condition may be subject to
volatility in future periods.
Results of Operations
The following table presents Mpath's statement of operations data for the
periods indicated as a percentage of total revenues.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Net revenues:
Live Communities.............................. 9.7 % 25.2 % 37.6 %
Foundation.................................... 90.3 74.8 62.4
------- -------- --------
Total revenues.............................. 100.0 100.0 100.0
Cost of net revenues:
Live Communities.............................. 28.2 66.3 27.7
Foundation.................................... 72.6 22.7 9.8
------- -------- --------
Total cost of revenues...................... 100.8 89.0 37.5
------- -------- --------
Gross profit (loss)........................ (0.8) 11.0 62.5
Operating expenses:
Research and development...................... n/m 89.3 39.0
Sales and marketing........................... n/m 253.2 97.8
General and administrative.................... n/m 104.2 40.8
Stock compensation............................ n/m 61.5 32.4
Write-off of acquired intangibles............. n/m -- --
------- -------- --------
Total operating expenses.................... n/m 508.2 210.0
------- -------- --------
Loss from operations............................ n/m (497.2) (147.5)
Interest and other income(expense), net....... n/m (3.4) (1.4)
------- -------- --------
Loss before provision for income tax............ n/m (500.6) (148.9)
Provision for income taxes.................... -- -- --
------- -------- --------
Net loss........................................ n/m (500.6)% (148.9)%
======= ======== ========
</TABLE>
Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997
Revenues. Net revenues increased 194.3% from approximately $2.7 million for
the year ended December 31, 1997 to approximately $8.0 million for the year
ended December 31, 1998. Net revenues from Live Communities increased from
$686,000 to $3.0 million. This increase was primarily driven by growth in
advertising revenues associated with an expanding number of advertisers and the
growth of traffic and usage time in our live communities. Net revenues from
Mpath Foundation increased from $2.0 million for the year ended December 31,
1997 to approximately $5.0 million for the year ended December 31, 1998.
22
<PAGE>
Approximately $1.0 million of this increase was primarily attributable to the
successful development and release of our POP.X technology, and approximately
$2.0 million was due to an increase in the number of Mpath Foundation customers
and the related increase in license revenues. Since $1.5 million of Mpath
Foundation revenue was recognized in late 1998, the accounts receivable balance
associated with Mpath Foundation revenue increased at a faster rate than
related revenue.
Cost of revenues. Cost of revenues increased 25.0% from approximately $2.4
million, or 89.0% of net revenues, for the year ended December 31, 1997 to
approximately $3.0 million, or 37.5% of net revenues, for the year ended
December 31, 1998. Cost of revenues declined as a percentage of net revenues
primarily due to the substantial increase in net revenues between 1997 and
1998. Cost of revenues for Live Communities increased from approximately
$1.8 million for the year ended December 31, 1997 to approximately $2.2 million
for the year ended December 31, 1998. This increase was primarily due to server
and network costs associated with the growth of the Live Communities business
unit. Cost of revenues for Mpath Foundation increased from approximately
$620,000 for the year ended December 31, 1997 to approximately $790,000 for the
year ended December 31, 1998. The increase was attributable to connectivity and
server costs associated with services provided to Mpath Foundation customers.
Research and development. Research and development expenses increased 28.6%
from approximately $2.4 million, or 89.3% of net revenues, for the year ended
December 31, 1997 to approximately $3.1 million, or 39.0% or net revenues, for
the year ended December 31, 1998. Research and development expenses declined as
a percentage of net revenues primarily because of the substantial increase in
net revenues between 1997 and 1998. The increase in research and development
expenses was primarily due to an increase of salary expense in 1998 as
additional engineers were hired to support the Mpath Foundation development of
the POP.X technology and to additional equipment and software expenditures
associated with the increased headcount.
Sales and marketing. Sales and marketing expenses increased 13.6% from
approximately $6.9 million, or 253.2% of net revenues, for the year ended
December 31, 1997, to approximately $7.8 million, or 97.8% of net revenues, for
the year ended December 31, 1998. Sales and marketing expenses decreased as a
percentage of net revenues primarily because of the substantial increase in net
revenues between 1997 and 1998. The increase in sales and marketing expenses
was primarily due to an increase in additional salary expense related to
expanding our sales force in order to grow advertising revenues in our Live
Communities business unit.
General and administrative. General and administrative costs increased 15.2%
from approximately $2.8 million, or 104.2% of net revenues, for the year ended
December 31, 1997 to approximately $3.3 million, or 40.8% of net revenues, for
the year ended December 31, 1998. General and administrative costs decreased as
a percentage of net revenues primarily because of the substantial increase in
net revenues between 1997 and 1998. These increases were primarily due to
salary increases in the operations support area of approximately $300,000 and
patent filings and legal expenses associated with general corporate matters of
approximately $100,000.
Stock based compensation. Stock based compensation costs increased from
approximately $1.7 million in the year ended December 31, 1997 to approximately
$2.6 million or 32.3% of net revenues in the year ended December 31, 1998. The
increase relates to an increase in the number of options granted as we
continued to hire additional employees as well as an increase in the fair
market value of the Company's common stock on the date these new options were
granted.
Interest and other income (expense), net. Interest and other income
(expense), net includes interest expense primarily related to lease and debt
obligations and interest income earned on short-term investment of cash.
Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996
Revenues. Net revenues increased from approximately $124,000 in the year
ended December 31, 1996 to approximately $2.7 million in the year ended
December 31, 1997. Net revenues from Live Communities increased from
approximately $12,000 for the year ended December 31, 1996 to approximately
$686,000 for the year ended December 31, 1997. This increase was primarily
attributable to an increase in advertising revenues associated with the launch
of the Mplayer.com service in October 1996. Net revenues from Mpath Foundation
increased from approximately $112,000 for the year ended December 31, 1996 to
approximately $2.0 million for the year ended
23
<PAGE>
December 31, 1997. This increase was primarily attributable to license revenues
generated by relationships with key Mpath Foundation customers.
Cost of revenues. Cost of revenues increased from approximately $125,000 in
the year ended December 31, 1996 to approximately $2.4 million, or 89.0% of net
revenues, in the year ended December 31, 1997. Cost of revenues for Live
Communities increased from approximately $35,000 for the year ended December
31, 1996 to approximately $1.8 million for the year ended December 31, 1997.
This increase was primarily due to an increase of approximately $1.2 million in
server and network costs associated with the Live Communities services, an
increase of approximately $250,000 in royalties to third-party content
providers and an increase of approximately $250,000 in Internet service
provider access charges. Cost of revenues for Mpath Foundation increased from
approximately $90,000 for the year ended December 31, 1996 to approximately
$620,000 for the year ended December 31, 1997. This increase was primarily due
to an increase in server and network costs necessary to support Mpath
Foundation customers.
Research and development. Research and development expenses decreased from
approximately $5.3 million in the year ended December 31, 1996 to approximately
$2.4 million, or 89.3% of net revenues, in the year ended December 31, 1997.
This decrease was primarily due to $1.6 million in-process research and
development expense associated with the acquisition of Catapult in November
1996. The remaining decrease was primarily associated with reduced cost in
consulting fees of approximately $570,000 and software support fees of
approximately $170,000, which were required during the development of
Mplayer.com client and server software in 1996.
Sales and marketing. Sales and marketing costs increased from approximately
$3.9 million in the year ended December 31, 1996 to approximately $6.9 million,
or 253.2% of net revenues, in the year ended December 31, 1997. This increase
was primarily due to additional salary expense of approximately $2.7 million,
depreciation for Catapult assets of approximately $327,000 and outside
consulting fees of approximately $120,000. This increase was partially offset
by a decrease of approximately $500,000 in the costs associated with member
acquisition, branding, product development and public relations. We were able
to make these expense reductions in 1997, as Mplayer.com went from a primarily
subscription-based model to an advertising-based model.
General and administrative. General and administrative costs decreased from
approximately $2.9 million in the year ended December 31, 1996 to approximately
$2.8 million, or 104.2% of net revenues, in the year ended December 31, 1997.
Expenditures are primarily for salary, patent filings and legal expenses
associated with general corporate matters.
Write-off of acquired intangibles. The write-off of acquired intangibles is
associated with the November 1996 acquisition of Catapult. We acquired all of
the assets and assumed the liabilities of Catapult as part of a Chapter 11 Plan
of Reorganization under the United States Bankruptcy Code. The acquisition was
accounted for as a purchase. The purchase price, including liabilities assumed
included in-process research and development of $1.6 million, which was
immediately expensed as research and development expenses, and goodwill of
$12.9 million. The goodwill was originally assigned a two-year life based on
the time it would take for competitors to develop competing technology. Shortly
after the acquisition, however, significant changes in the industry caused the
Company to move from a "pay for play" business model to an advertising
supported model. The technology and business acquired from Catapult was based
entirely on a "pay for play" business model. As a result, the Company no longer
intended to further develop or use the Catapult technology. Accordingly, the
Company wrote off the goodwill in December, 1996.
Interest and other income (expenses), net. Interest and other income
(expenses), net includes interest expense primarily related to lease and debt
obligations and interest income earned on short-term investment of cash.
Stock compensation. Stock compensation costs increased from approximately
$377,000 in the year ended December 31, 1996 to approximately $1.7 million or
61.2% of net revenues in the year ended December 31, 1997. The increase relates
to an increase in the number of options granted as we continued to hire
additional employees as well as an increase in the fair market value of the
Company's common stock on the date these new options were granted.
24
<PAGE>
Quarterly Results of Operations
The following tables set forth unaudited consolidated statements of
operations data for the eight quarters ended December 31, 1998, as well as the
percentage of our revenues represented by each item. This data has been derived
from unaudited interim consolidated financial statements prepared on the same
basis as our audited consolidated financial statements contained in this
prospectus and, in our opinion, include all adjustments, consisting only of
normal recurring adjustments, that we consider necessary for a fair
presentation of such information when read in conjunction with our consolidated
financial statements and notes to our consolidated financial statements
appearing elsewhere in this prospectus. Our operating results may fluctuate
significantly in the future as a result of a variety of factors, many of which
are outside of our control. See "Risk Factors--The unpredictability of our
quarterly results may adversely affect the trading price of our common stock,"
for a list of factors affecting our quarterly operating results. In addition,
our quarterly results may be adversely impacted by the long sales and
implementation cycle(s) for our Mpath Foundation products and services. See
"Risk Factors--The sales and implementation cycle(s) for our Mpath Foundation
products and services is long, which makes it difficult to predict our results
of operations."
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------------------------------------
Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31, Jun. 30, Sep. 30, Dec. 31,
1997 1997 1997 1997 1998 1998 1998 1998
-------- -------- -------- -------- -------- -------- -------- --------
(in thousands, except as a percentage of net revenues)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of operations:
Net revenues:
Live Communities....... $ 120 $ 176 $ 145 $ 245 $ 317 $ 393 $ 931 $ 1,381
Foundation............. 171 344 449 1,077 1,134 1,103 1,287 1,481
-------- ------- ------- ------- ------- ------- ------- -------
Total revenues........ 291 520 594 1,322 1,451 1,496 2,218 2,862
Cost of net revenues:
Live Communities....... 235 475 508 590 584 567 463 607
Foundation............. 203 121 153 143 192 190 210 198
-------- ------- ------- ------- ------- ------- ------- -------
Total cost of
revenues............. 438 596 661 733 776 757 673 805
-------- ------- ------- ------- ------- ------- ------- -------
Gross profit (loss).... (147) (76) (67) 589 675 739 1,545 2,057
Operating expenses:
Research and
development........... 665 597 551 623 779 767 779 807
Sales and marketing.... 2,155 1,468 1,630 1,653 1,852 1,896 2,058 2,041
General and
administrative........ 789 616 766 670 767 820 785 902
Stock based
compensation.......... 419 419 419 419 650 650 650 651
-------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............. 4,028 3,100 3,366 3,365 4,048 4,133 4,272 4,401
-------- ------- ------- ------- ------- ------- ------- -------
Loss from operations.... (4,175) (3,176) (3,433) (2,776) (3,373) (3,394) (2,727) (2,344)
Interest and other
income (expense), net.. (41) (82) 19 11 (15) 146 (87) (155)
-------- ------- ------- ------- ------- ------- ------- -------
Loss before provision
for income taxes....... (4,216) (3,258) (3,414) (2,765) (3,388) (3,248) (2,814) (2,499)
Provision for income
taxes.................. -- -- -- (1) -- -- -- (2)
-------- ------- ------- ------- ------- ------- ------- -------
Net loss................ $ (4,216) $(3,258) $(3,414) $(2,766) $(3,388) $(3,248) $(2,814) $(2,501)
======== ======= ======= ======= ======= ======= ======= =======
As a percentage of net
revenues:
Net revenues:
Live Communities....... 41.2% 33.8% 24.4% 18.5% 21.8% 26.3% 42.0% 48.3%
Foundation............. 58.8 66.2 75.6 81.5 78.2 73.7 58.0 51.7
-------- ------- ------- ------- ------- ------- ------- -------
Total revenues........ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Live Communities....... 80.5 91.3 85.5 44.6 40.2 37.9 20.8 21.2
Foundation............. 70.0 23.3 25.8 10.8 13.3 12.7 9.6 6.9
-------- ------- ------- ------- ------- ------- ------- -------
Total cost of
revenues............. 150.5 114.6 111.3 55.4 53.5 50.6 30.4 28.1
-------- ------- ------- ------- ------- ------- ------- -------
Gross profit (loss)... (50.5) (14.6) (11.3) 44.6 46.5 49.4 69.6 71.9
Operating expenses:
Research and
development........... 228.5 114.8 92.8 47.1 53.7 51.3 35.1 28.2
Sales and marketing.... 740.5 282.3 274.4 125.0 127.6 126.7 92.8 71.3
General and
administrative........ 271.1 118.5 129.0 50.7 52.9 54.8 35.4 31.5
Stock based
compensation.......... 144.0 80.6 70.5 31.7 44.7 43.4 29.3 22.7
-------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............. 1.384.1 596.2 566.7 254.5 278.9 276.2 192.6 153.7
-------- ------- ------- ------- ------- ------- ------- -------
Loss from operations.... (1,434.6) (610.8) (578.0) (209.9) (232.4) (226.8) (123.0) (81.8)
Interest and other
income (expense), net.. (14.1) (15.7) 3.2 0.8 (1.0) 9.7 (3.9) (5.5)
-------- ------- ------- ------- ------- ------- ------- -------
Loss before provision
for income taxes....... (1,448.7) (626.5) (574.8) (209.1) (233.4) (217.1) (126.9) (87.4)
Provision for income
taxes.................. -- -- -- -- -- -- -- --
-------- ------- ------- ------- ------- ------- ------- -------
Net loss................ (1,448.7)% (626.5)% (574.8)% (209.1)% (233.4)% (217.1)% (126.9)% (87.4)%
======== ======= ======= ======= ======= ======= ======= =======
</TABLE>
25
<PAGE>
As a strategic response to changes in the competitive environment, we may
from time to time make pricing, service or marketing decisions or business
combinations that could have a material adverse effect on our business, results
of operations and financial condition. In order to accelerate the promotion of
the Mplayer.com and HearMe.com brands, we intend to significantly increase
their marketing budgets. A substantial increase in marketing expenditures will
have a negative impact on our results of operations for a number of quarterly
periods.
As a result of our limited operating history, we have limited meaningful
historical financial data upon which to base planned operating expenses.
Accordingly, our expense levels are based in part on our expectations as to
future revenues from advertising, software licensing, commerce revenue-sharing
arrangements, premium membership service fees and our anticipated growth in
membership. There can be no assurance that we will be able to accurately
predict our revenues, particularly in light of the intense competition for the
sale of Web-based advertisements, revenue-sharing opportunities and new
members, our limited operating history and the uncertainty as to the broad
acceptance of the Web as an advertising and commerce medium. Any failure by us
to accurately predict revenues in relation to fixed-expense levels could have a
material adverse effect on our business, results of operations and financial
condition.
Liquidity and Capital Resources
We have generated limited revenues from operations to date. Since our
inception, we have financed our operations primarily through the private sale
of equity securities and, to a lesser extent, capitalized leases and bank
borrowings. As of December 31, 1998, we had raised approximately $34.9 million
from the issuance of preferred stock which does not include an additional $20.0
million we raised from the issuance of preferred stock in January 1999. We had
also drawn down approximately $2.5 million from a $4.0 million financing
agreement with Greyrock Business Credit, as detailed below. As of December 31,
1998, we had approximately $1.1 million of cash and cash equivalents, which
does not include approximately an additional $20.0 million we raised from the
issuance of preferred stock in January 1999.
Net cash used in operating activities was $9.4 million, $11.1 million and
$9.3 million in fiscal 1996, 1997 and 1998, respectively. For such periods, net
cash used by operating activities was primarily a result of funding ongoing
operations.
Net cash used in investing activities was $3.8 million, $1.0 million and
$719,000 in fiscal 1996, 1997 and 1998, respectively. Cash used in investing
activities in each period was primarily related to purchases of property and
equipment, except for fiscal 1996, when $2.4 million was used as payment for
the Catapult acquisition.
Net cash provided by financing activities of $15.1 million, $15.7 million and
$2.0 million in fiscal 1996, 1997 and 1998, respectively, was primarily
attributable in each period to net proceeds from the issuance of preferred
stock and notes payable. We have funded our operations primarily by capital
contributed by investors in five rounds of private financing. The first round,
completed in January 1995, raised approximately $1.4 million through the sale
of Series A Preferred Stock. The second round, completed between August 1995
and January 1996, raised approximately $4.5 million through the sale of Series
B Preferred Stock. The third round, completed between April 1996 and January
1997, raised approximately $15.4 million through the sale of Series C Preferred
Stock. The fourth round, completed between July 1997 and August 1997, raised a
total of approximately $16.8 million, through the sale of Series D Preferred
Stock. Of the $16.8 million raised with Series D Preferred Stock, approximately
$14.9 million was cash and $1.8 million was through conversion of a promissory
note and Series C Preferred Stock. In January 1999, we completed a fifth round
in which we raised a total of approximately $20.0 million through the sale of
Series E Preferred Stock.
In 1995, we entered into a capital lease agreement with Lighthouse Capital
and have drawn down all available funds of approximately $1.5 million. We
entered into a Loan and Security Agreement with Greyrock Business Credit, a
Division of NationsCredit Commercial Corporation in July 1998. The agreement
consisted
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of a term loan for $1.5 million, an accounts receivable revolving line of
credit for $1.5 million and a capital equipment loan of $1.0 million. Amounts
borrowed under these agreements are collateralized by substantially all our
assets, bear interest at the prime rate plus two percent and mature on June 30,
1999. As of December 31, 1998 we had drawn down $1.5 million against the term
loan agreement and approximately $1.0 million against the capital equipment
agreement. We fully repaid the term loan with a portion of the net proceeds
from the sale of our Series E Preferred Stock in January 1999.
In November 1996, we acquired all of the assets and assumed the liabilities
of Catapult as part of a Chapter 11 Plan of Reorganization under the United
States Bankruptcy Code. The total acquisition cost was approximately $11.8
million, which consisted of
. cash payments of approximately $2.4 million, including approximately
$549,000 paid to fund Catapult's unsecured creditor payments;
. shares of Series C Preferred Stock; and
. legal and accounting costs of approximately $367,000.
Net liabilities in excess of assets assumed by Mpath amounted to
approximately $2.6 million.
We currently anticipate that the net proceeds of the offering, together with
our existing lines of credit and available funds will be sufficient to meet our
anticipated needs for working capital and capital expenditures for at least the
next 12 months. We may need to raise additional funds in the future in order to
fund more aggressive brand promotions and more rapid expansion, to develop
newer or enhanced products or services, to fund acquisitions, to respond to
competitive pressures, or to acquire complementary businesses, technologies or
services. There can be no assurance that additional financing will be available
on terms favorable to Mpath, or at all.
Year 2000 Compliance
Many currently installed computer systems and software products are coded to
accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and software used by many companies and governmental agencies may need
to be upgraded to comply with such Year 2000 requirements or risk system
failure or miscalculations causing disruptions of normal business activities.
State of Readiness. We have made a preliminary assessment of the Year 2000
readiness of our information technology ("IT") systems, including the hardware
and software that enable us to provide and deliver our products and services.
We have completed our Year 2000 compliance plan and contracted for the services
of two Year 2000 compliance consultants. Our assessment plan consists of:
. quality assurance testing of our internally developed proprietary
software incorporated in our products;
. contacting third-party vendors and licensors of material hardware,
software and services that are both directly and indirectly related to
the delivery of our products and services;
. contacting vendors of material non-IT systems;
. assessment of repair or replacement requirements;
. repair or replacement;
. implementation; and
. creation of contingency plans in the event of Year 2000 failures.
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In accordance with our Year 2000 compliance plan we have begun to identify
measures that will have to be taken to avoid Year 2000 disruptions to our
business operations. We have also begun a preliminary assessment of our systems
and third party products that must be verified for Year 2000 compliance. Our
Year 2000 compliance plan schedules the following activities:
. First quarter 1999--Began engineering and operational work required to
make our products Year 2000 compliant.
. Second quarter 1999--Complete component evaluation for Year 2000
compliance.
. Third quarter 1999--Complete development of Year 2000 compliant systems.
. Third quarter 1999--Test our systems in a constrained environment for
Year 2000 compliance.
. Fourth quarter 1999--Resolve remaining Year 2000 compliance issues.
We have been informed by many of our hardware and software component vendors
that the products we use are currently Year 2000 compliant. We will require our
other material hardware and software component vendors to provide assurance of
their Year 2000 compliance. We will complete this process during 1999. We are
currently assessing our non-IT systems and will seek assurance of Year 2000
compliance from providers of material non-IT systems. Until such testing is
complete and such vendors and providers are contacted, we will not be able to
completely evaluate whether our IT systems or non-IT systems will need to be
revised or replaced.
In accordance with our Year 2000 compliance plan and under the guidance of
our Year 2000 consultants we will contact our hardware, software and service
vendors concerning Year 2000 compliance. At present we believe there are
upgrade products for all the significant third party hardware products,
software products and services we rely upon to operate our business.
Costs. To date, we have incurred approximately $10,000 in connection with
identifying or evaluating Year 2000 compliance issues. Our expenses have
related to the operating costs associated with time spent by employees in the
evaluation process and Year 2000 compliance matters generally. We anticipate
our costs will continue to include employee expenses and will increase for
purchases of Year 2000 compliant upgrades to our existing hardware and software
platforms. We estimate that these costs will total between approximately
$150,000 and $200,000 and approximately $100,000 for two Year 2000 compliance
consultants; however, if these costs are substantially higher than anticipated,
it could have a material adverse effect on our business, results of operations
and financial condition. The cost of Year 2000 compliance will be accounted for
as an operating expense and funded from working capital.
Risks. We are not currently aware of any Year 2000 compliance problems
relating to our technology or our IT or non-IT systems that would have a
material adverse effect on our business, results of operations or financial
condition, without taking into account our efforts to avoid or fix potential
problems. We may discover Year 2000 compliance problems in our technology that
will require substantial revisions. In addition, third-party software, hardware
or services incorporated into our material IT and non-IT systems may need to be
revised or replaced, all of which could be time consuming and expensive. If we
fail to fix our technology or to fix or replace third-party software, hardware
or services on a timely basis, the result could be lost revenues, increased
operating costs, the loss of customers and other business interruptions, any of
which could have a material adverse effect on our business, results of
operations and financial condition. Moreover, the failure to adequately address
Year 2000 compliance issues in our technology, and our IT and non-IT systems
could result in claims of mismanagement, misrepresentation or breach of
contract and related litigation, which could be costly and time-consuming to
defend. In addition, there can no assurance that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside our control will be Year 2000 compliant. The failure by these types of
entities to be Year 2000 compliant could result in a systemic failure beyond
our control, such as a prolonged Internet, telecommunications or electrical
failure, which could also prevent us from delivering our products and services
to our customers, decrease the use of the
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Internet or prevent users from accessing the Web sites of our strategic
partners, which could have a material adverse effect on our business, results
of operations and financial condition.
Contingency Plan. As discussed above, we are engaged in an ongoing Year 2000
assessment and the development of contingency plans. The results of our Year
2000 simulation testing and the responses received from third-party vendors and
service providers will be taken into account in determining the nature and
extent of any contingency plans. We have not yet identified our most likely
worst-case scenario related to Year 2000 issues. We have not yet completed our
contingency plan related to these issues. Therefore, we do not know the scope
of the worst case scenario and its effect upon our business, results of
operations and financial condition. We do plan to identify our most likely
worst-case scenario and complete our contingency plan in accordance with our
compliance plan and under the guidance of our consultants.
Recently Issued Accounting Principles
On March 4, 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use" (SOP 98-1). SOP 98-1 provides guidance on accounting for the
costs of computer software developed or obtained for internal use. Costs
incurred prior to the initial application of SOP 98-1 should not be adjusted to
the amounts that would have been capitalized had this SOP been in effect when
those costs were incurred. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. Accordingly, the Company will
adopt SOP 98-1 in its financial statements for the year ending December 31,
1999. The impact on the financial statements of the adoption of this standard
has not yet been determined, but is not expected to be significant.
Interest Rate Risk
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 with respect to our various 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 risks, market risk and
reinvestment risk. We plan to mitigate default risk by investing in high-credit
quality securities.
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BUSINESS
The discussion in this prospectus contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially
from those discussed in the forward-looking statements as a result of several
factors, including those set forth under "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Overview
Mpath develops, licenses and operates technologies that enable Internet sites
to create and manage live communities. Live communities are gathering places on
the Internet where multiple users interact with each other in real-time. Real-
time interaction means that the communication, activity and related responses
shared among users occurs almost immediately. We also operate our own leading
live communities serving over 3 million registered users with over 80,000
unique daily visitors generating over 300 minutes of average monthly usage per
visitor, as of March 1999. Our technology allows users to communicate with one
another using graphics, text and sound, such as voice and music, over the
Internet. In addition, our technology can be deployed across a vast network,
such as the Internet, and can support thousands of users at the same time,
without additional investment or cost. We license our proprietary technology,
which we call POP.X, to third party Web site operators and we provide services
for building live communities that may be self-managed by the third party or by
us. People who visit live communities meet other people with similar interests
and backgrounds. This reinforces their desire to return to a site and spend
long periods of time participating in a number of activities with other people
they meet. As a result, our technologies offer Internet advertisers an
opportunity to reach targeted audiences participating in absorbing, memorable
activities and to do so with message formats that go beyond traditional Web
advertisements that are often sold as banners appearing at the top of Web
pages. We believe we deliver high value solutions that significantly enhance
the impact of a broad range of Internet marketing and Web site management
efforts.
Through our Mpath Foundation business unit, we derive revenue by licensing
our proprietary POP.X technology and by providing services for a fee to a
growing customer base of online companies seeking to create and operate live
communities on the Internet. Mpath Foundation is dedicated to delivering proven
online technologies and services that enable the creation of full-featured,
live communities on the Internet. We offer our customers broad technological
expertise in networks, operations, information systems, integration
technologies, and the customer support capabilities necessary to deploy live
community applications rapidly and manage large Internet communities. Customers
of Mpath Foundation consist of a growing base of leading online entertainment
companies such as:
.CSK Sega;
.Electronic Arts;
.Fujitsu;
.GTECH; and
.LG Internet.
Through our Live Communities business unit we have developed and operate two
services, Mplayer.com and HearMe.com. We generate the substantial majority of
revenues from Live Communities by selling advertisements. While our services
are free to all registered members, users may also pay subscription fees to us
in exchange for access to premium services. In October 1996 we launched
Mplayer.com, a premier live entertainment service on the Internet. The
Mplayer.com service now consists of three active communities that are built
around common interests and offers over 100 of the most popular online multi-
participant games. Total usage time on Mplayer.com exceeds 200 million user
minutes per month, as of January 1999, compared to 67 million user minutes per
month as of January 1998. After less than two years of operations, Mplayer.com
has become the tenth largest Internet site in terms of total usage time per
month according to our usage data. In January 1999, we launched HearMe.com, our
second live community service. HearMe.com is currently
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comprised of seven live communities, making live audio interaction available to
people whose interests extend beyond entertainment. We intend to build the
HearMe.com services through relationships with Web sites that want to offer
live audio communities to their members. We intend to continue to expand this
business unit by creating additional services and live communities.
Industry Opportunity
The Internet and the World Wide Web
The Internet has become an important medium for communications, content and
commerce. According to International Data Corporation, the number of Web users
worldwide will grow from 97 million at the end of 1998 to 320 million by the
year 2002. Industry analysts believe that the Internet represents the fastest
growing form of media in history. According to a recent study, the Internet
achieved a reach of 50 million households in only 5 years, whereas cable
television, broadcast television and radio each attained a similar level of
adoption only after at least 10 years. The dramatic growth in Internet usage
has been fueled by a number of key factors, including:
. technological, functional and infrastructure advances in computing and
communications;
. relatively lower costs associated with publishing content on the
Internet as compared to traditional media;
. increased quantity and improved quality of information and services
offered on the Web; and
. increased affordability of, access to and resulting proliferation of
multimedia PCs.
As Internet accessibility, usage and functionality grow, the Internet is
increasingly being used as a medium for direct communication as well as a
rapidly growing sales and marketing channel. Jupiter Communications estimates
that total online advertising revenue in the U.S. will increase from $1.9
billion in 1998 to $7.7 billion by 2002. We anticipate that the growth in Web
advertising will be largely driven by the unique interactive character of the
Internet. Specifically, the Internet allows advertisers to target their
messages to distinct, self-qualified audiences, measure the effectiveness of
their advertisements and modify campaigns on a real-time basis. While we
believe that the growth rate of the Internet represents a tremendous
opportunity, the current growth rates of the Internet are not necessarily
indicative of growth rates that we may experience in the future.
The Demand for Live Communities on the Internet
During the Internet's brief history, we believe three stages of
commercialization have emerged, with each successive stage building upon the
experience and momentum of the previous stage. The first stage has enabled
users to search and view Web sites containing professionally created content on
topics of general interest such as current events, sports, weather and finance.
During this stage, Internet search and information destination sites (e.g.,
CNET, Disney, ESPN SportsZone, Excite, Infoseek, Yahoo!, etc.) have gained
widespread prominence as they provided a valuable function for users seeking
Web content. The second stage has been characterized by the emergence of
Internet commerce sites (e.g., Amazon, eBay, E*Trade, priceline.com, etc.).
Such sites typically offer visitors a wide variety of compelling commerce
opportunities allowing the Internet to serve as a substitute for direct retail,
telephone or catalog sales, thereby generating substantial levels of user
traffic.
Although sites representative of the first two stages of commercialization
provide valuable services, they did not initially enable Web users to interact
or communicate with other individuals. As a result, Internet communities such
as GeoCities, theglobe.com and XOOM.com have emerged as the third stage of
Internet commercialization to address the demand by users to interact and
communicate with each other. Using existing technologies, these Internet
communities aggregate large numbers of people and leverage member-generated
content by offering user-created personal web sites, free e-mail, user-defined
bulletin boards, text chat and shared-interest categories. However, the
attractiveness of the interactive experience within these Internet
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communities depends on several factors, including the nature of the
communication, the richness of the media and the quality of member-created
content. We believe an opportunity exists to create, operate and enable higher
quality Internet communities characterized by real-time interaction among
multiple users, which we call live communities.
We believe that live communities are differentiated from existing Internet
communities because they offer a more complete interactive experience. Within
live communities, thousands of people can communicate in real-time, which means
that the communication, activity and related responses shared among users
occurs almost immediately. For example, a telephone conversation between two
people happens in real-time. By contrast, communications that are not real-time
have significant delays between each response. E-mail is a good example of a
conversation that does not happen in real-time; people who send e-mails
typically have to wait a number of minutes, hours or even days for a response.
In addition, live communities use rich media tools such as audio, graphics,
text chat and instant messaging to enhance the quality of the user experience.
The combination of these tools and capabilities provides users with the ability
to engage with others in activities such as live concerts, live auctions, group
conferencing, help desk applications, distance learning, multi-player games and
more. While live communities enhance the quality of the interactive experience
for users, we believe they also provide advertisers and Internet retailers with
an attractive means of promoting and selling their products and services over
the Web. These communities allow advertisers and Internet retailers to reach
highly targeted audiences within a more personalized context, thereby improving
the impact of sales and marketing efforts. The real-time nature of live
communities typically results in long usage times and repeat visits, providing
further value for advertisers and Internet retailers. In addition, the use of
advanced technologies enables advertisers to create rich and effective
advertisements that go beyond traditional Web advertisements which are often
sold as banners that appear at the top of most Web pages.
Creating successful live communities presents numerous technological
challenges, requiring high standards of performance, accessibility, ease-of-
use, security, content management and the ability to support thousands of
people using the services at the same time. Given the attractiveness live
communities offer users, advertisers and Internet retailers, and given the time
and effort required to build such communities, we believe there is a tremendous
opportunity to deliver proven online technologies and services that enable the
rapid creation and management of full-featured live communities on the
Internet.
The Mpath Solution
We are well-positioned to capitalize on the demand and future growth
prospects for live communities through licensing of our proprietary
technologies and by operating our own live communities. We provide technology
and services to a growing customer base of online companies seeking to create
and operate live communities on the Internet. In addition, we have developed
and operate Mplayer.com, a live entertainment service comprised of multi-
participant entertainment communities, and HearMe.com, a service comprised of
live audio communities.
Through our Mpath Foundation business unit, we offer our customers
proprietary technologies necessary to rapidly deploy live community
applications. Additionally, we provide broad technological expertise in
networks, operations, information systems, integration technologies and
services necessary to manage large Internet communities. We have developed
POP.X, the first commercially available software product for rapid deployment
of mass-consumer, live community applications on the Internet. POP.X allows
companies to build live community applications that are easy for consumers to
use without also requiring the company to build the numerous components
necessary to support those applications. Such components typically consist of
the ability to register new users, authenticate repeat users, manage user-
generated information and scale the service to support thousands of users at
the same time.
Through our Live Communities business unit, we have developed and operate our
own live communities serving over 3 million registered users with over 80,000
unique daily visitors generating over 300 minutes of average monthly usage per
visitor, as of March 1999. Launched in October 1996, Mplayer.com is a live
multi-
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participant entertainment service on the Internet. In January 1999, we launched
HearMe.com, our second live community service. HearMe.com is currently
comprised of seven live audio communities, making live audio interaction
available to people whose interests extend beyond entertainment. We believe
Mplayer.com and HearMe.com offer one of the widest range of opportunities to
advertisers and Internet retailers available on the Internet today. Advertisers
may choose among several options to achieve both branding and direct marketing
objectives. Our live communities offer advertisers rich 3D and audio
advertisements, targeting based on consumer data and the ability to obtain
direct customer feedback and research on the impact of particular advertising
campaigns. In addition, Internet retailers can offer their products directly to
targeted consumers in a variety of vertical markets.
Mpath Strategy
In order to maintain our position in providing enabling technologies for
companies seeking to build live communities on the Internet and in operating
our own live communities, we have adopted the following strategies:
Expand Our Sales and Marketing Efforts. Through our direct sales efforts, we
have developed a base of large, high profile customers who provide an
attractive stream of both initial and follow-on revenues, validate our
reputation as a technology leader and help to demonstrate the capabilities of
our technology and services. While we will continue to pursue these customers
through direct sales efforts, we also intend to package diverse product
offerings and distribute them through reseller arrangements with Web
development firms, enterprise applications resellers and partnerships with
developers of customer service, e-commerce or other applications. In addition,
we plan to develop an entry-level product with features and a price point more
suited for smaller Web sites and target customers who can use the capabilities
of the Mpath Foundation technology and services outside of the entertainment
and media market segments. We intend to spend approximately $5.0 million of our
proceeds on increasing our sales and marketing efforts. See "How We Intend to
Use the Proceeds from this Offering."
Maintain and Extend Technology Leadership and Expertise. We have developed
proprietary technology for, and accumulated extensive expertise in, delivering
a broad range of live community applications on the Internet. This technology
and expertise extends to several areas, including client software, network
infrastructure, Internet protocols, security, large systems development and
scaling. We will continue to expand our features, capabilities and customer
solutions with our POP.X product. In particular, we intend to add support for
third party content authoring tools and add to our suite of POP.X applications.
This will make it easier for developers to create POP.X content and further
speed the launch of their custom Web applications on POP.X. We will also add
new features and capabilities to POP.X that will enable us to significantly
improve the customer experiences on our live community services, such as
simplifying and expediting the process of acquiring new customers and
immediately engaging them in an entertaining experience. We intend to spend
approximately $5.0 million of our proceeds on research and development and we
expect research and development to remain a significant percent of our
operating expenses in the foreseeable future. See "How We Intend to Use the
Proceeds from this Offering."
Promote Membership Growth and Usage. We plan to increase membership and usage
levels on Mplayer.com, HearMe.com and future services by continuing to provide
compelling content and services. In particular, we encourage member-created
content because it is often the most original, engaging and frequently updated
content available on the Internet. We seek to drive membership growth by
expanding distribution of the Mplayer.com and HearMe.com services through
partnering relationships with major sites, such as portal sites, destination
content and commerce sites, community sites and entertainment content
companies. In addition, we intend to expand our membership base and increase
usage by:
. adding new third-party content to our sites;
. entering into arrangements with content providers to co-market our live
community sites;
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. providing an entertaining community for current users, thereby
motivating current users to recruit new members; and
. streamlining the registration and installation process.
In addition, we intend to increase membership and usage by continuing to
improve the community features offered by Mplayer.com and HearMe.com, such as
live audio chat, paging, tournaments and hosting of member fan sites.
Maximize Value for Advertisers and Internet Retailers. We seek to maximize
the value that our live communities offer to advertisers by providing an
attractive, growing and targeted audience, as well as by delivering innovative
advertising products and campaign management techniques. The Mplayer.com and
HearMe.com services consist of multiple desirable and demographically distinct
communities, with strong membership growth and long average usage times, which,
combined with our technology, allow advertisers to present TV-style full-screen
advertisements and other rich media advertising products. The Mplayer.com and
HearMe.com services allow advertisers to deliver different messages to
different users within the same community experience. Advertisers may also
conduct integrated campaigns such as event sponsorships coupled with regular
branded advertising. Finally, advertisers may use the chat room technology to
conduct online focus groups prior to, during and following an advertising
campaign to help plan and measure the effectiveness of a particular campaign.
The combination of our live community context, highly specific and desirable
user demographics, and long usage times provides a favorable platform for
targeted and cost-effective online advertising and e-commerce.
Pursue Multiple Revenue Streams. Our proprietary technology and live
communities enable us to maximize revenue from multiple sources. Mpath
Foundation derives the majority of its revenues through licenses of its
technology solutions, including POP.X, to customers interested in creating live
communities on the Internet. The Live Community services, Mplayer.com and
HearMe.com, derive a majority of their revenues through advertising and we
intend to maximize advertising revenues by continuing to provide a compelling
value proposition for advertisers. We will also seek to increase premium
subscription revenues by improving the special benefits and features that are
available beyond the free services offered by these communities. These benefits
and features include access to special events, rankings and ratings, contests,
magazine subscriptions, special features and exclusive games. In addition, we
intend to derive revenues from e-commerce activities, including fees from
special event promotions and merchandise sales.
These strategies are listed in order of their relative importance. We believe
expanding our sales and marketing efforts will generate the greatest impact on
our financial results. We are currently implementing each of these strategies
and we intend to continue executing these strategies in the foreseeable future.
We plan to finance these strategies with revenue generated from our existing
business and in part with the process of this offering. See "How We Intend to
Use the Proceeds from this Offering."
Products and Services
We derive revenues from two business units, Live Communities and Mpath
Foundation. Through our Live Communities business unit we have developed and
operate two services, Mplayer.com and HearMe.com, with over 3 million
registered users as of March 1999. Through our Mpath Foundation business unit,
we are a provider of enabling technology and services to a growing customer
base of online companies seeking to create and operate live communities on the
Internet. In the year ended December 31, 1998, Live Communities accounted for
$3.0 million or 37.6% of total revenues and Mpath Foundation accounted for
$5.0 million or 62.4% of total revenues.
Live Communities
Through our Live Communities business unit we have developed and operate two
services, Mplayer.com and HearMe.com. The Mplayer.com service consists of three
interactive communities built around common
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interests. The HearMe.com service is also characterized by multiple
communities which have been created by members with similar interests. We
intend to build the HearMe.com service through relationships with Web sites
that want to offer live audio communities to their members. Our early efforts
to recruit partners for HearMe.com will focus on sites with targeted
demographics attractive to key advertisers.
Title: "Mpath live communities"
Flow chart with "Live Communities" at the top with arrows pointing to two
boxes below it. The box below and to the left of "Live Communities" contains
the Mplayer.com logo and text reading "Entertainment." This box has arrows
pointing to three boxes below it, which contain text reading, from left to
right: (Box 1) "Classics and Casino Community," (Box 2) "Sports Community,"
and (Box 3) "Gamers Community." The box below and to the right of "Live
Communities" contains the HearMe.com logo and text reading "Live Audio." This
box has arrows pointing to two boxes below it, which contain text reading,
from left to right: (Box 1) "HearMe.com communitiies, Family & Friends, On
Stage, Romance, Teen Chat, Sports, College, General Chat," and (Box 2)
"Partner Communities, Developed by Partners."
Our live community services are free to registered members. To join, users
log on to the Mplayer.com and HearMe.com Web sites, complete a short
registration form and download the client software for Mplayer.com and
HearMe.com either from the Web site or a retail CD-ROM. In addition,
Mplayer.com members may also choose to become Mplayer Plus members for a fee
of $39.95 for a one-year membership, $49.90 for a two-year membership or $3.95
for a one-month membership. In exchange, they receive access to special
events, rankings and ratings, contests, magazine subscriptions, special
features and exclusive games.
Mplayer.com offers over 100 games for online play, more than any other
Internet game and entertainment service. These games cover a wide range of
interests including action, strategy, simulation and sports with top retail
titles such as Army Men, Commandos, Links LS, Panzer General I & II, Quake I &
II, Rainbow 6, Total Annihilation and Unreal. The retail games are licensed
from leading game publishers such as ABC Multimedia, Acclaim Entertainment,
Broderbund Software, Eidos Interactive, Electronic Arts, Hasbro Interactive,
Id Software, MGM Interactive, Mindscape, THQ and The 3DO Company. For certain
titles, users must purchase the CD-ROM from the publisher to play on
Mplayer.com, while for other games a free shareware version of the game can be
downloaded from Mplayer.com. Unlike most other online game services, the
Mplayer.com technology offers multi-player games with quick response times
which, combined with Mplayer.com's easy-to-use software, has enabled
Mplayer.com to be one of the leading live entertainment services on the
Internet. In addition to its retail games, Mplayer.com offers over a dozen
classic board and card games, such as checkers, backgammon, hearts and spades,
most of which can be downloaded for free. These games in the aggregate
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generate approximately the same amount of usage as retail games. Many of these
games offer in-game text and live audio chat, allowing players to speak with
one another using their microphones during game play.
Our live communities also offer a rich set of community features including
text and live audio chat, instant messaging, member profiles, ranking,
tournaments, member submitted editorial, a bulletin board service and hosting
of member game fan sites. Mplayer.com and HearMe.com live audio chat allows
members to speak with one another in real-time and requires only a microphone
to be connected to their PC. HearMe.com enables many popular community
activities including live concerts, live auctions, group conferencing, help
desk applications, distance learning, multi-player games and more.
We believe our live communities offer a wide range of Internet advertising
opportunities to marketers, allowing them to achieve both branding and direct
marketing objectives. In general, on Mplayer.com and HearMe.com, advertisers
can use a variety of formats, including rich media, to communicate their
messages to targeted audiences based on demographics and content. At the end of
an advertising campaign, Mplayer.com and HearMe.com facilitate market research
on the impact of the campaign. This research shows that effective campaigns
take advantage of a range of advertising products, thereby delivering an
advertiser's message within multiple contexts, which leads to increased
consumer brand awareness and purchase intent. Mplayer.com and HearMe.com's
advertising products include:
. TV-style full-screen ads, which, according to an industry analysis, are
the best way to brand products and services on the Internet.
. the Pop-Up Box, which is a web page that is shown to all registered
members when they log-on. It drives high request rates for advertisers
on our live communities.
. the WebViewer, which is a web page that provides direct traffic to the
advertiser's Web site and allows our registered members to surf within
it without having to leave Mplayer.com or HearMe.com.
. sponsorship of lobbies, channels, pagers and events, which provide
advertisers with persistent visibility and branding.
. member portraits, which are pictures of advertisers' logos and icons
that our registered members choose to represent themselves online.
. e-mail newsletters, which our members can use to connect directly to the
advertiser's Web site.
. banner ads, which are traditional Web advertisements that are
approximately 1 inch wide by 5 inches long and have the ability to
connect viewers directly to the advertiser's Web site.
Mpath Foundation
Mpath Foundation is a provider of enabling technology and services to a
growing customer base of online companies seeking to create and operate live
communities on the Internet. Leveraging our technological expertise in creating
live communities, we recently introduced POP.X (short for POPulation
eXplosion), our second generation technology product built on the experiences
and knowledge obtained from the original architecture developed for
Mplayer.com. The POP.X product has an open architecture, which means it can be
installed and can run on any computer platform. POP.X is marketed and sold as a
licensable technology product. POP.X allows companies to build live community
applications that are easy for consumers to use without being concerned about
also building the numerous components necessary to support those applications.
These components typically consist of the ability to register new users,
authenticate repeat users, manage user-generated information and scale the
service to support thousands of users at the same time.
POP.X is the first commercially available software product providing for the
rapid deployment of mass-consumer, live community applications on the Internet.
As the diagram below illustrates, the POP.X technology permits users to quickly
access live community applications without the need for user installation,
thereby increasing customer acquisition and retention. When a user first visits
a Web site that uses POP.X, the user's
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browser downloads a lightweight Webtop from the Web site's server. This
lightweight Webtop receives user input, displays graphics and plays sounds
associated with live community applications. The POP.X application, which
resides on the Web site's server, processes the bulk of the information
required to enable the live community application. In particular, the Web
site's server guides media assets, such as text, graphics and sound, to an
individual user's PC when needed and communicates data between multiple users'
PCs in real-time.
Title: "POP.X Technology Solution"
Flow chart with interconnected boxes and numbered blocks of text. The numbered
blocks of text read as follows:
"1. Consumers visit Web site that uses POP.X for live people-to-people
application. Browser requests Web page with embedded POP.X application."
"2. If the first visit, POP.X Webtop is fetched from the Web server by the
browser to the consumer's PC."
"3. POP.X application server launches the applications associated with the
Webtop."
"4. Media assets are sent as needed to the Webtop."
"5. The Webtop displays graphics, plays sounds and animations and receives
user input under the direction of the POP.X application executing on the
application server."
"6. Application instances on application server communicate data to implement
people-to-people interaction."
In the center of the flow chart is a black circle with text reading "The
Internet." At the top of the flow chart there are three boxes with text
reading, from left to right: (Box 1) "Web Page," (Box 2) "Web Browser," and
(Box 3) "POP.X Webtop." Leading from Box 2 is an arrow that points down and to
the left to a box that is subdivided into two boxes that contain text reading,
from top to bottom: "Customer-Created HTML For Web site" and "Industry
Standard Web Server." This subdivided box has an arrow pointing down to a
cylinder with text reading "Web Logs." Leading from Box 3 is an arrow that
points down to a subdivided box that contains text reading, from top to
bottom: "Customer-Created Server," "Asset Manager," and "Data Analysis Tools."
Below "Asset Manager" is an arrow pointing down to a cylinder with text
reading "Service Data Base." Below both of these cylinders is text reading
"Web site administrators extract reports and update media assets." To the
right of "Data Analysis Tools" is an arrow pointing to a box with text reading
"Service Data & Reports."
Using the POP.X technology, developers can create and deploy live community
applications in a significantly shorter time frame, and can instead focus on
creating such applications without being concerned about the inherent
operating restrictions of the Internet. POP.X enables communities to scale
rapidly without large technology or staffing expenditures, permits content to
be easily and rapidly changed and refreshed, and provides for key data
analysis capabilities. POP.X allows a complete online service to be easily
constructed out of multiple small, component applications, without the
developer having to become an expert in the details of how to design a service
that can reliably scale to support thousands of users or how to develop a
service that permits these users to communicate with each other at the same
time. For example, a typical online service would consist of three core
applications: a chat application which implements a single chat room, a lobby
manager which allows a user to browse through a list of rooms, and a pager
application which allows users to reach each other to determine where they
are. With POP.X the developer's focus would be on the creation of the three
distinct user experiences, without concerns about how they would work and
inter-operate. In addition, given that many Web publishers have significant
existing online sites and services, POP.X's open architecture supports
existing industry standards for application development and for the
integration of POP.X with older computer systems and programs, with well-
defined and documented interfaces and APIs.
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Technology for Live Communities
We have developed technology solutions for creating a broad range of live
community applications on the Internet. Since 1995, we have invested heavily in
developing valuable proprietary software and related technologies, incurring
over $12.3 million of research and development expenses in the aggregate. In
particular, we have developed expertise and technology in four major areas:
client software and user experience, network infrastructure for real-time live
community applications, Internet protocols and security, and large systems
development and scaling.
The key to successfully delivering any mass-consumer real-time experience on
the Internet is a strong command of client PC software technology and user
experience design. Client PC software is software that is on an individual
user's PC and makes it possible for the person using that PC to surf the
Internet and communicate with other Internet users. Our proprietary software
remedies several difficult problems in this area including the transmission of
real-time media such as text, graphics and sound to client PCs, delivering
software securely over the Internet, integrating applications with browsers
such as Netscape and Microsoft Explorer, and automatically configuring our
software once it has been installed on an individual user's PC. We have also
built software and developed flexible and powerful technology for automatically
updating our software that resides on users' PCs, while taking into account
varying software versions and configurations.
As the diagram on the following page illustrates, the level of technology
required to enable Internet communities is driven by the type of community
application offered within a particular Web site. Conventional communities,
which offer users Web page hosting, bulletin boards and email services, require
relatively simple technology such as Web servers, Java and email servers. Live
communities, however, require highly sophisticated technology including network
transport protocols, which are methods for sending rich media such as text,
graphics and sound over the Internet to thousands of people at the same time,
and latency matching software, which is software that minimizes the time it
takes to transmit and receive rich media so that users who visit a live
community do not experience delays. In addition, to be effective, live
communities must be run over a distributed infrastructure, which is a network
of large computers that run the live community applications and are located at
various locations across the country and connected by high performance copper
or fiber optic cables. A distributed infrastructure has the advantage of higher
performance because the computers running the live community applications are
located closer to the user. Primary examples of real-time live community
applications are live auctions, help desk applications, distance learning, live
audio chat, live music performance and multi-player fast-action games. We
operate two branded services, Mplayer.com and HearMe.com, which deliver these
applications. We have also developed and market POP.X, which is the first
commercially available software product providing for the rapid deployment of
live community experiences on the Internet.
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[LOGO APPEARS HERE]
Title: "Technology for Line Communications"
Flow chart with interconnected block of text. At the top of the chart there are
two column headings: "Conventional Communities" and "Live Communities." On the
left-hand side of the chart there are three row headings: "Examples," "Enabling
Technology" and "Applications." At the bottom of the chart, there is an arrow
pointing from left to right with the text "Asynchronous Communication"
appearing on the left side of the arrow and the text "Real-time Communication"
appearing the on the right side of the arrow. There are eight boxes within the
chart located in the three rows described above. Each box within a row has an
arrow pointing to the box to its right. The first box, located on the left side
of the "Examples" row, contains the text "Geocities, theglobe.com, XOOM.com."
The second box, located to the right of the first box, contains the text
"Mplayer.com, HearMe.com." In addition, the bottom of the second box contains
an arrow pointing from left to right with the text "POP.X" written across it.
The third box, located on the left side of the "Enabling Technology" row,
contains the text "Web servers, Java, Mail servers." The fourth box, located to
the right of the third box, contains the text "Mpath: POP.X and community
applications, Others: Custom built point solutions." The fifth box, located to
the right of the fourth box, contains the text "Mpath: POP.X Multicast
protocols, Latency matching, Distributing Infrastructure." The sixth box,
located on the left side of the "Applications" row, contains the text "Web page
hosting, Bulletin boards, Email." The seventh box, located to the right of the
sixth box, contains the text "Live auctions, Help desk applications, Distance
learning, Games, Text Chat." The eighth box, located to the right of the
seventh box, contains the text "Live audio chat, Live music performance, Fast
Actions Games."
We have significant experience designing, deploying and managing high
performance network infrastructures necessary to deliver real-time live
community applications. Mplayer.com and HearMe.com leverage the same
distributed Internet infrastructure, thereby delivering reliable and
predictable low latency experiences. In addition, our technology provides a
secure environment for operating live communities on the Internet.
Large mass-consumer real-time communities also require significant support
systems for operating the applications. We have developed significant software
technology and expertise in large support systems for operating commercial live
communities. Our software technology is designed to automatically deal with
scaling and load balancing, and we also provide interfaces for commercial
software packages, such as databases, billing systems and advertising tracking
and rotation systems.
We believe that we have created a significant barrier to potential
competitors in the area of live Internet communities. This barrier is comprised
of multiple pieces. The broad range of skills and technologies needed to enable
live communities is difficult to assemble in a single company. We have
accumulated multiple years of development experience. We aggressively protect
our intellectual property and continue to heavily invest in new technology
development. Our research and development expenses for the prior three years
were as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------------
<S> <C>
1998............................ $3.1 million
1997............................ $2.4 million
1996............................ $5.3 million
</TABLE>
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Strategic Relationships
Mpath has entered into strategic relationships with some of the most
prominent media and technology companies in order to increase membership and
usage, maximize revenues, build brand recognition, accelerate product
development and acquire content. Certain of these relationships are described
below.
Infoseek. Infoseek and Mpath have agreed to distribute a customized co-
branded version of the Mplayer.com client software and create, on Infoseek's Go
Network, co-branded pages that include Mplayer.com client software downloads
and online and interactive entertainment. Infoseek and Mpath also plan to
engage in significant cross-promotional activities and investigate e-commerce
opportunities.
XOOM.com. XOOM.com and Mpath have agreed to distribute a co-branded version
of the Mplayer.com client software and to create and maintain a co-branded
version of the Mplayer.com site for the use of XOOM.com members and site
visitors. The co-branded version of Mplayer.com will be promoted on the
XOOM.com site as "XOOM.com Games powered by Mplayer.com". Further, XOOM.com
will pay us a portion of revenue received from end users referred to XOOM.com
from the co-branded pages. This relationship brings us greater Internet reach,
broadens distribution of client software and creates additional e-commerce
revenue opportunities.
Intel. In the past, Intel has sponsored select micro sites on Mplayer.com to
promote and create awareness of Intel's Pentium II and Pentium processors with
MM technology. We have also developed certain products compatible with Intel
product releases. Intel is a repeat advertiser in Mplayer.com. Intel has used
Mpath screen shots and other Mpath promotional materials to demonstrate
innovative Internet technologies available on the Intel platform. Intel is also
an investor in our company.
Yahoo!. We have signed a technology license and integration agreement with
Yahoo!, which licenses Yahoo! our audio chat technology to real-time, "one-to-
one," "one-to-many" and "many-to-many" live conversations of streaming audio
chat for use on Yahoo!'s Audio Chat Service for an initial six-month period. As
part of the arrangement we have issued Yahoo! a warrant to purchase 192,000
shares of our common stock, which Yahoo! can only exercise upon reaching
specific performance goals, including renewal of the license. We believe that
our relationship with Yahoo! will further validate our technology, promote
HearMe.com as a growing Web site on the Internet and increase the membership
and reach of our live communities.
Excite. Excite and Mpath have created a co-branded area on www.excite.com
that creates a portal to the Mplayer.com service and provides additional
distribution of the Mplayer.com client software. Excite and Mpath have also
undertaken activities to promote each other's services on the Internet. Our
agreement with Excite expands the distribution of the Mplayer.com client
software, promotes Mplayer.com on one of the Internet's largest Web sites and
helps to increase Mplayer.com's Internet reach.
Macromedia. Macromedia and Mpath have agreed to collaborate on the
development of products, license technologies to each other, and co-market
their products and services. The companies anticipate working together to
develop tools and products used to create highly interactive and large-scale
Internet services and communities. Macromedia has agreed to license POP.X from
us. We have licensed Macromedia's Flash Player and will participate in
Macromedia's Traffic Affiliate Program. This relationship helps accelerate
acceptance of POP.X by leveraging Macromedia's standard for multi-participant
media development. The agreements between the companies also help to further
validate our technologies, create additional Internet reach for us and provide
us with revenue opportunities.
GTECH. GTECH was an early adopter of Mpath's POP.X technology. GTECH has
licensed POP.X from us for use with GTECH's entertainment and government-
sanctioned online lottery systems. This presents an exciting new application
and market for POP.X. Our relationship with GTECH has accelerated product
development, provided revenue, and added another important reference account to
validate our technology.
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Sega. SegaSoft Networks was the first licensee of Mplayer.com technology and
uses the technology to operate its online service, www.heat.net. We have rights
to certain SegaSoft Networks content and payments from SegaSoft Networks.
SegaSoft Networks' parent company, CSK Corporation, is an investor in our
company, and we also have a business relationship with Sega of America,
Incorporated, another CSK subsidiary.
Cox. Cox Interactive Media has contracted with Mpath for distribution of the
Mplayer.com client software and the creation of a game channel for Cox. The
agreement with Cox Interactive Media features co-branding of various web pages
on the Cox Web sites and authorizes Cox to distribute the Mplayer.com client
software to end users. Cox Technology Investments, Inc., a Cox affiliate, is an
investor in our company. The Cox relationship will provide distribution of the
Mplayer.com client software, added promotion for Mplayer.com and extension of
our Internet reach.
Of the above companies, Infoseek, Yahoo!, Excite, XOOM.com, Intel and Cox
Interactive Media use our live communities technology. Infoseek, Yahoo! and
Excite provide access to content over the Internet. XOOM.com is an Internet
commerce company. Intel develops and manufactures computer components and Cox
Interactive Media is a media and communications company. Macromedia, a multi-
media software tools company, GTECH, a developer and manager of government-
sanctioned on-line lotteries and SegaSoft Networks, a computer game company,
use our Mpath Foundation technology.
Marketing and Sales
Live Communities
The marketing strategy for Mplayer.com and HearMe.com emphasizes two key
objectives. The first is to provide consumers with online communities in which
they can socialize, create their own experiences, engage in activities and
events, and play multi-player games. The second is to provide online
advertisers with opportunities to reach this attractive, targeted audience with
innovative advertising products. We also market additional value-added services
and products to Mplayer.com users.
We market advertising opportunities on our live communities to the
advertising industry through Web advertisements, trade shows, direct mail,
advertising in the trade press and general public relations. We intend to
expand our sales force in 1999 and to open new sales offices in locations that
can target attractive market segments.
We market Mplayer.com to consumers through Web advertising and publicity in
consumer publications and Web sites. The Web ads are primarily placed on
entertainment and community Web sites, which attract a similar psychographic
and demographic audience as Mplayer.com. Our survey data indicates that over
90% of the participants in our sports and gamers communities are male, and the
people within those communities are typically between the ages of 13 and 50;
however, approximately 40% of the participants in our classics and casino
community are women, and the people within that community are typically between
the ages of 25 and 50. The public relations activity is focused on consumer
publications such as Internet magazines, game magazines, news magazines,
entertainment magazines, and newspapers. We are following a similar strategy
for HearMe.com. Currently, over 40% of the participants on our HearMe.com
service are women, and the people within the service are typically between the
ages of 13 and 55. In addition, the significant majority of retail games
offered on Mplayer.com contain a "button" on the CD-ROM version of the game
linking to Mplayer.com.
Our marketing and sales organization is also responsible for acquiring and
developing original content for our live communities. We establish and maintain
relationships with the world's leading computer game developers, enlisting
their content for distribution on the Mplayer.com service while creating our
own content for distribution within our live communities. In addition, we
attract and retain our members on both the Mplayer.com and HearMe.com services
by encouraging member-created content, hosting contests and events, and
building information-oriented Web pages.
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Once a consumer becomes a registered member of our live communities, we begin
to market value-added services and products to the consumer, including premium
services, pay-per-play games and online purchasing of software and hardware
products. These products are marketed to the consumer directly through Web and
e-mail newsletter advertising and are sold online.
Mpath Foundation
To reach as many customer segments as possible and broaden the customer
penetration of POP.X, Mpath Foundation markets its products and services
through both direct and indirect distribution channels, domestically and
internationally. In addition to addressing the needs of Web publishers seeking
a complete system for developing and deploying live communities applications,
Mpath Foundation has implemented a strategy to meet the needs of customers with
specific application requirements. As such, Mpath Foundation plans to implement
developer marketing programs targeted at creating a variety of highly
customizable POP.X applications. These applications include live audio chat,
pagers, classic games, event auditoriums and data analysis tools that are
designed to complement a Web publisher's existing content.
Mpath Foundation's direct sales force sells and markets products primarily to
the top 200 Web content publishers worldwide. The initial target customers for
POP.X include media companies, large portal sites, games publishers,
wagering/gaming providers, as well as major entertainment companies. The direct
sales force consists of regional account managers and technical sales
engineers, supported by in-house technical marketing and customer support
organizations. Customers such as Macromedia and GTECH enhance our ability to
further penetrate this market with POP.X technology and applications.
Mpath Foundation's reseller channel was established to create broader
customer penetration and drive POP.X application development. We have
established relationships with three classes of resellers including:
. Developer Partners focused on developing and selling POP.X applications;
. Enterprise Partners delivering a full service solution to Web content
publishers including creative development, infrastructure and
operations; and
. OEM Partners creating online products that incorporate POP.X components.
Mpath Foundation reseller programs are targeted at penetration of the
top 2,000 Web site publishers and services.
Mpath Foundation participates in trade shows, conferences, and seminars,
provides product information through our Web sites, places online advertising
pieces through electronic media, participates in public relations activities,
drives reach programs through targeted direct mail, and sponsors special
reseller and developer programs, including its own conference. These programs
are primarily targeted at driving awareness of POP.X in the Web publishing
industry, creating brand recognition, and stimulating reseller and developer
engagement with Mpath Foundation's products and services.
Customers
In 1998, CSK Sega, Sony and Electronic Arts accounted for 23%, 12% and 10% of
total revenues respectively. In 1997, CSK Sega and Sony accounted for 35% and
11% of total revenues, respectively.
Operations and Infrastructure
The network for our live communities is managed from our headquarters in
Mountain View, California. The central services are co-located with Exodus
Communications, a provider of Internet system and network management solutions.
Our central services utilize four Sun enterprise-class servers consisting of a
Master Control Program machine, a member database machine, a data warehouse
machine and a member services billing machine. In addition, the central
services utilize Sun servers for functions such as matchmakers, webservers and
information logging and an X86 architecture machine for matchmaking.
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We also deploy numerous live communities servers across multiple locations at
Exodus, PSINet and @Home co-location sites. The live communities servers are
located as close as feasible to network interchange points to facilitate
improved connectivity and lower latency. In general, the network topology for
Mplayer.com and HearMe.com is designed to provide easy scalability and reduce
network downtime. Our distributed architecture for our live communities servers
enables Mplayer.com and HearMe.com to continue operations even in cases of
severe Internet outages as long as some connectivity to our central service
facility remains functional. The architecture also ensures optimal performance
for users during game play. We intend to expand our infrastructure as necessary
to meet the demand for our products and services.
The Operations department is comprised of three groups: the Central Services
Administration Group, the Network Operations Center Group and the Customer
Support Group. The Central Services Administration Group is responsible for web
services, network infrastructure, live communities administration and Mpath
Foundation administration. The Network Operations Center group is responsible
for real-time response and intervention into issues with its live communities
and Mpath Foundation production services, and is staffed twenty-four hours per
day, seven days a week. The Customer Support group is responsible for both
customer billing and account issues for Electronic Arts' Ultima Online, Mpath
Live Communities and other customers.
Competition
Mpath Live Communities
The market for Internet users and advertisers is new and rapidly evolving.
Competition is intense and is expected to increase significantly in the future.
In addition, barriers to entry are relatively insubstantial. We believe that
the principal competitive factors for companies seeking to create live
communities on the Internet include the following:
. critical mass and functionality;
. brand recognition;
. member affinity and loyalty;
. broad demographic focus; and
. open access for visitors.
Other companies creating Web-based live communities on the Internet are
Cendant, E-Pub Services (Uproar.com), Lipstream, Microsoft, SegaSoft and Sony.
We will also likely face competition in the future from Web directories, search
engines, shareware archives, online communities, Internet telephony, content
sites, commercial online service providers, sites maintained by Internet
service providers and other entities that attempt to or establish communities
on the Internet either by developing their own community or acquiring one of
our competitors.
In addition, our future competition could include traditional media
companies, a number of which, including CBS, Disney and NBC, have recently
invested in and acquired Internet companies. Our competitors and potential
competitors may develop superior communities or communities that achieve
greater market acceptance than our community. We also compete for visitors with
many Internet content providers and Internet service providers, including Web
directories, search engines, shareware archives, content sites, commercial
online services and sites maintained by Internet service providers, as well as
thousands of Internet sites operated by individuals and government and
educational institutions. These competitors include free information, search
and content sites or services, such as America Online, CNET, CNN/Time Warner,
Excite, Infoseek, Lycos, Microsoft, Netscape and Yahoo!. We also compete with
the foregoing companies, as well as traditional forms of media such as
newspapers, magazines, radio and television, for advertisers and advertising
revenues. We believe that the principal competitive factors in attracting
advertisers include the amount of traffic on our Web site, brand recognition,
customer service, the demographics of our members and viewers, our
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ability to offer targeted audiences and the overall cost-effectiveness of the
advertising medium we offer. We believe that the number of Internet companies
relying on Web-based advertising revenue will increase substantially in the
future. Accordingly, we will likely face increased competition, resulting in
increased pricing pressures on our advertising rates which could in turn have a
material adverse effect on our business, results of operations and financial
condition.
Many of our existing and potential competitors, including Web directories and
search engines and large traditional media companies, have longer operating
histories in the Web market, greater name recognition, larger customer bases
and significantly greater financial, technical and marketing resources than we
have. Our competitors may be able to undertake more extensive marketing
campaigns for their brands and services, adopt more aggressive advertising
pricing policies and make more attractive offers to potential employees,
distribution partners, commerce companies, advertisers and third-party content
providers. Advertisers may perceive Internet content providers and Internet
service providers, including Web directories, search engines, shareware
archives, sites that offer professional editorial content, commercial online
services and sites maintained by Internet service providers as more desirable
Web sites for placement of advertisements.
In addition, substantially all of our current advertising customers and
strategic partners also have established collaborative relationships with
certain of our competitors or potential competitors, and other high-traffic Web
sites. Accordingly, we cannot be certain that we will be able to grow our
membership base, traffic levels and advertiser customer base at historical
levels or retain our current members, traffic levels or advertiser customers.
Advertisers may find other Web sites more attractive if Web traffic grows at a
faster rate on the Web sites of competitors. and our strategic partners may
decline to renew their agreements with us. We may not be able to compete
successfully against our current or future competitors and competition could
have a material adverse effect on our business, results of operations and
financial condition.
Mpath Foundation
The market for software and services for the Internet is relatively new,
constantly evolving and intensely competitive and we expect that competition
will only intensify in the future. As part of our business, we sell and license
products and services for community applications. Our principal competitors in
this market include Acuity Software and in-house developers of such
applications. Competitive factors in this market include the following:
. quality and reliability of software;
. features for creating, editing and adapting content;
. ease of use and interactive user features;
. scaleability and cost per user; and
. compatibility with the user's existing network components and software
systems.
To expand our user base and further enhance the user experience, we must
continue to innovate and improve the performance of our POP.X technology. Many
of our existing and potential competitors have longer operating histories,
greater name recognition and significantly greater financial, technical and
marketing resources than we do. We are committed to continued market
penetration of our brand, products and services and we may implement pricing,
licensing, service or marketing changes as a strategic response to changes in
the competitive environment in an effort to extend our current brand and
technology franchise. If we make price concessions or if our pricing and
distribution strategies emerge from our competitors, our business, financial
condition and results of operations may be adversely affected.
Proprietary Rights
Our success depends in part on our ability to protect our proprietary
software and other intellectual property. To protect our proprietary rights, we
rely generally on patent, copyright, trademark and trade secret
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laws, confidentiality agreements with employees and third parties, and license
agreements with consultants, vendors and customers, although we have not signed
such agreements in every case. Despite efforts to protect our proprietary
rights, unauthorized third parties could copy or otherwise obtain and use our
products or technology, or develop similar technology. Other parties may breach
confidentiality agreements and other protective contracts we have entered into.
As a result we may not become aware of, or have adequate remedies in the event
of, such a breach.
We currently have six issued patents in the U.S. with expiration dates
ranging from 2014 to 2016, two allowed patents and 16 patents pending. One of
the patents pending is a provisional patent. We cannot be certain that any
pending or future patent applications will be granted, that any existing or
future patent will not be challenged, invalidated or circumvented, or that the
rights granted under any patent that has issued or may issue will provide
competitive advantages to us. Many of our current and potential competitors
dedicate substantially greater resources than we do to protection and
enforcement of intellectual property rights, especially patents. If a blocking
patent has issued or issues in the future, we would need to either obtain a
license or design around the patent. We cannot be certain that we would be able
to obtain such a license on acceptable terms, if at all, or to design around
the patent. We pursue the registration of certain of our trademarks and service
marks in the U.S. and in certain other countries, although we have not secured
registration of all our marks. As of February 11, 1999, we had four registered
U.S. and four foreign trademarks or service marks, and had applications pending
for an additional five U.S. and six foreign trademarks or service marks, and
one intent to use trademark application in the U.S.
Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related businesses are
uncertain and still evolving, and no assurance can be given as to the future
viability or value of any of our proprietary rights or of similar rights of
other companies within this market. We cannot be certain that the steps taken
by us will prevent misappropriation or infringement of our proprietary
information.
Any such infringement or misappropriation, should it occur, could have a
material adverse effect on our business, results of operations and financial
condition. In addition, we are currently involved in litigation and additional
litigation may be necessary in the future to enforce our intellectual property
rights, to protect our trade secrets or to determine the validity and scope of
the proprietary rights of others. Such litigation might result in substantial
costs and diversion of resources and management attention and could have a
material adverse effect on our business, results of operations and financial
condition. Furthermore, it is possible that our business activities may
infringe upon the proprietary rights of others, or that other parties may
assert infringement claims against us.
From time to time, we have been, and expect to continue to be, subject to
claims in the ordinary course of our business including claims of alleged
infringement of the trademarks, service marks and other intellectual property
rights of third parties by us and the content generated by our members.
Although such claims have not resulted in any significant litigation or had a
material adverse effect on our business to date, such claims and any resultant
litigation, should it occur, might subject us to significant liability for
damages. In addition, even if such claims are not meritorious, they could be
time consuming and expensive to defend. Finally, as a result of such claims,
our proprietary rights could be invalidated. Any of the foregoing could result
in the diversion of management time and attention, any of which might have a
material adverse effect on our business, results of operations and financial
condition.
We also rely on certain technology and content that we license from third
parties, including software that is integrated with our internally developed
software and used in our products and Web site, to perform key functions.
Although we are generally indemnified against claims that such third-party
technology or content infringes the proprietary rights of others, such
indemnification is not always available for all types of intellectual property
rights, and in some cases the scope of such indemnification is limited. Even if
we receive broad indemnification, third-party indemnitors are not always well
capitalized and may not be able to indemnify us in the event of infringement,
resulting in substantial exposure to us.
45
<PAGE>
Infringement or invalidity claims arising from the incorporation of third-
party technology or content, and claims for indemnification from our customers
resulting from such claims, may be asserted or prosecuted against us. As a
result of such claims, even if not meritorious, we could incur expenditures of
significant financial and managerial resources in addition to potential product
redevelopment costs and delays, all of which could materially and adversely
affect our business, financial condition and results of operations.
Regulation of our Business
We are not currently subject to direct regulation by any governmental agency,
other than laws and regulations generally applicable to businesses, although
certain U.S. export controls and import controls of other countries, including
controls on the use of encryption technologies, may apply to our products. Due
to the increasing popularity and use of the Internet, it is possible that a
number of laws and regulations may be adopted in the U.S. and abroad with
particular applicability to the Internet. It is possible that governments will
enact legislation that may be applicable to us in areas such as content,
network security, encryption and the use of key escrow, data and privacy
protection, electronic authentication or "digital" signatures, illegal and
harmful content, access charges and retransmission activities. Moreover, the
applicability to the Internet of existing laws governing issues such as
property ownership, content, taxation, defamation and personal privacy is
uncertain. The majority of laws that currently regulate the Internet were
adopted before the widespread use and commercialization of the Internet and, as
a result, do not contemplate or address the unique issues of the Internet and
related technologies. Any export or import restrictions, new legislation or
regulation or governmental enforcement of existing regulations may limit the
growth of the Internet, increase our cost of doing business or increase our
legal exposure. Any of these factors could have a material adverse effect on
our business, financial condition and results of operations.
We face potential liability for claims based on the nature and content of the
materials that we distribute over the Internet, including claims for
defamation, negligence or copyright, patent or trademark infringement. Claims
like these have been brought, and sometimes successfully litigated, against
Internet companies. Our general liability insurance may not cover claims of
this type or may not be adequate to indemnify us for any liability that may be
imposed. Any liability not covered by insurance or in excess of insurance
coverage could have a material adverse effect on our business, financial
condition and results of operations.
Legislation over content distributed over the Internet could damage the
growth of the Internet generally and decrease the demand for our products and
services. Although two recently enacted federal laws regulating the content
distributed over the Internet have either been partially struck down or
enjoined, similar laws may be proposed and adopted. Portions of the
Communications Decency Act of 1996, which proposed to impose criminal penalties
on anyone distributing "indecent" material to minors over the Internet, were
held to be unconstitutional by the U.S. Supreme Court. In addition, a federal
judge recently issued a preliminary injunction against the Child Online
Protection Act, a law attempting to protect children from pornography over the
Internet. While we do not distribute the types of materials that these acts
were designed to regulate, the nature of similar legislation and the manner in
which it may be interpreted and enforced cannot be fully determined and,
therefore, could subject us to potential liability, which in turn could have an
adverse effect on our business, financial condition and results of operations.
See "--Proprietary Rights."
Due to the global nature of the Web, it is possible that, the governments of
other states and foreign countries might attempt to regulate our transmissions
or prosecute us for violations of their laws even though transmissions by us
over the Internet originate primarily in the State of California. Violations of
local laws may be alleged or charged by state or foreign governments, and we
may unintentionally violate local laws and local laws may be modified, or new
laws enacted, in the future. Any of the foregoing developments could have a
material adverse effect on our business, results of operations and financial
condition.
Employees
As of December 31, 1998, we have 111 full-time employees, including 29 in
research and development, 51 in sales and marketing and 25 in general and
administrative functions. From time to time, we also employ
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<PAGE>
independent contractors to support our engineering, market, sales and support
and administrative organizations. See "Risk Factors--We depend on our key
personnel to manage our business effectively in a rapidly changing market."
Facilities
We are headquartered in Mountain View, California, where we lease
approximately 28,800 square feet of office space from Martin CBP Associates,
L.P. under a lease expiring in January 2002. Our monthly rent was initially
$32,256 in 1997 and has increased each year based on an inflation index. We
also maintain a sales office in New York City. We believe that our existing
facilities are adequate to meet our current and foreseeable requirements or
that suitable additional or substitute space will be available as needed.
Legal Proceedings
On September 20, 1996, Mpath, MPCAT Acquisition Corporation (a wholly-owned
subsidiary of Mpath), and Catapult Entertainment, Inc. executed an Agreement
and Plan of Reorganization. The agreement provided for the merger of MPCAT into
Catapult such that Catapult would be the surviving corporation and would become
a wholly-owned subsidiary of Mpath. In addition, Catapult agreed, as part of
the merger agreement, that it would file a voluntary bankruptcy petition. On
October 10, 1996, Catapult filed a voluntary bankruptcy petition under Chapter
11 of the United States Bankruptcy Code with the United States Bankruptcy Court
for the Northern District of California, San Jose Division. On November 15,
1996, the Bankruptcy Court entered its order, which approved the merger between
MPCAT and Catapult. At the same time, the Bankruptcy Court entered a separate
order that authorized Catapult to assume two patent licenses that it had
obtained from Steve Perlman prior to filing the bankruptcy petition. Mr.
Perlman objected to the assumption of his licenses by Catapult, and on November
18, 1996, Mr. Perlman filed an appeal with the United States District Court for
the Northern District of California, San Jose Division. On August 7, 1997, the
District Court affirmed the Bankruptcy Court decision. On September 8, 1997,
Mr. Perlman filed an appeal with the Ninth Circuit Court of Appeals, and on
January 28, 1999, the Ninth Circuit reversed the Bankruptcy Court and the
District Court. The Ninth Circuit held that Catapult could not assume Mr.
Perlman's licenses without Mr. Perlman's consent. Catapult expects to file a
petition for a writ of certiorari with the United States Supreme Court prior to
April 28, 1999.
We have been informed that the current holder of the rights to these patents
is Microsoft. We believe that the technology used in our products and services
does not infringe upon these patents. However, if a court were to rule that our
technology did infringe upon these patents, we believe we will be able to work
around these patents. Even if we were unable to work around these patents and
were required to remove these portions of our technology, we do not believe
that this would have a material adverse effect on our business, results of
operations, or financial condition.
From time to time we have been, and expect to continue to be, subject to
legal proceedings and claims in the ordinary course of business, including
claims of alleged infringement of third-party trademarks and other intellectual
property rights by us and our licensees. Claims like these, even if not
meritorious, could result in the expenditure of significant financial and
managerial resources and could materially and adversely affect our business,
financial condition and results of operations.
47
<PAGE>
MANAGEMENT
The names and ages of Mpath's executive officers and directors as of February
10, 1999, are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Paul Matteucci................... 43 President, Chief Executive Officer,
Acting General
Manager, Live Communities and Director
Lynn Heublein.................... 36 Chief Operating Officer
Linda Palmor..................... 43 Chief Financial Officer
Brian Apgar...................... 44 Chief Entrepreneur, Founder and
Director
Steven Roskowski................. 33 Chief Technical Officer
Robert Csongor................... 36 General Manager, Mpath Foundation
James Schmidt.................... 46 Vice President, Engineering
James W. Breyer (1).............. 37 Director
David A. Brown (2)............... 53 Director
Douglas G. Carlston (1).......... 51 Director
William McCall................... 38 Director
Gregory O'Brien.................. 51 Director
Ruthann Quindlen (2)............. 44 Director
</TABLE>
- --------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Paul Matteucci, President and Chief Executive Officer, joined Mpath and
became a Director in May 1995. From December 1994 to May 1995, Mr. Matteucci
was a Resident Entrepreneur at Institutional Venture Partners. From July 1986
to December 1994, Mr. Matteucci held various positions at Adaptec, Inc.,
including Vice President and General Manager. Prior to joining Adaptec, Inc.,
Mr. Matteucci held positions with Texas Instruments. Mr. Matteucci received an
M.B.A. from Stanford University and an M.A. from Johns Hopkins School of
Advanced International Studies. Mr. Matteucci received his undergraduate degree
from the University of Pacific in Stockton, California.
Lynn Heublein, Chief Operating Officer, joined Mpath in November 1996 upon
Mpath's acquisition of Catapult Entertainment, Inc., which is now a wholly-
owned subsidiary of Mpath. Catapult filed a voluntary petition under Chapter 11
of the United States Bankruptcy Code with the United States Bankruptcy Court
for the Northern District of California, San Jose Division, on October 10,
1996, and MPCAT Acquisition Corporation, a wholly-owned subsidiary of Mpath,
merged with and into Catapult upon the conclusion of the bankruptcy
proceedings. Ms. Heublein was a co-founder of Catapult, and from April 1994 to
November 1996, she was Executive Vice President, Business Development at
Catapult. From October 1993 to April 1994, she served as Vice President of
Marketing for THQ, Inc. Ms. Heublein has also served Mpath in the capacity of
Acting Chief Financial Officer and General Manager, Mpath Foundation. Ms.
Heublein holds a B.S. in Engineering from the University of Washington and an
M.B.A. from Stanford University.
Linda R. Palmor, Chief Financial Officer, joined Mpath in February 1999. From
February 1996 to February 1999, Ms. Palmor worked for Terayon Communication
Systems, a developer and marketer of cable modem systems, where she served in a
number of positions, including Vice President, Finance and Corporate
Controller. From 1995 to 1996, Ms. Palmor served as the Corporate Controller of
Electronic Arts, Inc., a multimedia software company. From 1991 to 1995, Ms.
Palmor held a number of financial positions with The Walt Disney Company, a
media conglomerate. Ms. Palmor is a certified public accountant, and she
received a B.Sc. degree in biochemistry from Manchester University in the
United Kingdom.
Brian Apgar, Chief Entrepreneur, Founder and Director, co-founded Mpath in
January 1995, where he has also served as President, Vice President,
Development, General Manager, and Chief Operating Officer. From October 1993 to
January 1995, Mr. Apgar served as a Resident Entrepreneur and in other
consulting capacities
48
<PAGE>
for several venture capital firms, including Merrill Pickard Anderson & Eyre,
Sigma Partners and Institutional Venture Partners. Mr. Apgar holds a B.A. in
Physics from Princeton University.
Steve Roskowski, Chief Technical Officer, joined Mpath in November 1996 upon
Mpath's acquisition of Catapult Entertainment, Inc., which is now a wholly-
owned subsidiary of Mpath. Catapult filed a voluntary petition under Chapter 11
of the United States Bankruptcy Code with the United States Bankruptcy Court
for the Northern District of California, San Jose Division, on October 10,
1996, and MPCAT Acquisition Corporation, a wholly-owned subsidiary of Mpath,
merged with and into Catapult upon the conclusion of the bankruptcy
proceedings. From March 1994 to December 1996, Mr. Roskowski was Vice
President, Engineering and a co-founder of Catapult. Mr. Roskowski has also
served Mpath as Vice President, Operations and Vice President, Technology,
Mpath Foundation. From October 1992 to March 1994, Mr. Roskowski was a manager
of hardware for General Magic. Prior to that, he was a Project Manager at Apple
Computer. Mr. Roskowski holds a B.S. in Engineering from the California
Institute of Technology.
Robert Csongor, General Manager, Mpath Foundation, joined Mpath in August
1996 where he initially served as Director of Product Marketing and also as
Vice President, Business Development and Marketing. From January 1995 to August
1996, he served as Director of Marketing at NVIDIA Corporation. From August
1986 to January 1995, Mr. Csongor served in various capacities at Adaptec,
Inc., including as Director of Marketing. Mr. Csongor holds a B.S. in
Electrical Engineering from Villanova University.
James Schmidt, Vice President, Engineering, joined Mpath in December 1998.
From December 1986 to December 1998, Mr. Schmidt worked for Adaptec Inc., where
he served in a number of positions, including Vice President and Chief
Information Officer, Vice President, Process Development and Infrastructure,
and Vice President, Engineering. Mr. Schmidt received both a B.S. degree in
Electrical Engineering and an M.S. degree in Electrical Engineering from
Wichita State University.
James W. Breyer has served as a Director of Mpath since January 1995. Mr.
Breyer has been a general partner of Accel Partners, a venture capital firm,
since 1990, and the Managing Partner since 1997. Prior to joining Accel, Mr.
Breyer worked as a management consultant at McKinsey and Company, and he held
product management and marketing positions at Apple Computer and Hewlett
Packard. Mr. Breyer currently serves as a director of Actuate, RealNetworks,
Inc. and several privately held companies. Mr. Breyer holds a B.S. in Computer
Science and Economics from Stanford University and an M.B.A. from Harvard
University, where he was named a Baker Scholar.
David A. Brown has served as a Director of Mpath since June 1995. Mr. Brown
currently sits on the Board of Directors of Quantum Corporation, a mass storage
company he helped found in February 1980. Mr. Brown has also been a management
consultant and board member for various technology companies since February
1992. Mr. Brown received a B.S. in Engineering from San Jose State University
and an M.S. in Engineering from the University of Santa Clara.
Douglas G. Carlston has served as a Director of Mpath since February 1996.
Mr. Carlston was a founder of Broderbund Software Inc., and he served as
Chairman of the Board of Broderbund from November 1989 through August 1998. Mr.
Carlston also served as Chief Executive Officer of Broderbund from November
1989 until October 1996 and as President of Broderbund from September 1981
until November 1989. Mr. Carlston holds a B.A. and J.D. from Harvard
University.
William McCall has served as a Director of Mpath since November 1998. Mr.
McCall is the Director, New Media Development of Cox Enterprises, a media
company, a position he has held since March 1997. From November 1994 to March
1997, Mr. McCall was a director of TCI Interactive, the interactive division of
TCI, a cable company. From March 1994 to November 1994, Mr. McCall was employed
by Classic Sports. From February 1991 to March 1994, he was employed by Court
TV. Mr. McCall holds a B.A. in History from Connecticut College.
49
<PAGE>
Gregory O'Brien has served as a Director of Mpath since January 1999. Mr.
O'Brien has been Chief Administrative Officer at CSK Global Business Offices
since May 1998, and has held various other positions at CSK or its affiliates
since September 1990. CSK is a computer software and services company. Mr.
O'Brien has a B.BA. and an M.B.A. from Pace University.
Ruthann Quindlen has served as a Director of Mpath since January 1995. Ms.
Quindlen has been a partner at Institutional Venture Partners since 1994, where
she has focused on investments in Internet and software companies. Prior to
joining Institutional Venture Partners, Ms. Quindlen was a Managing Director at
Alex Brown & Sons. Ms. Quindlen serves on the boards of many other private
Internet companies including Digital Impact, Diffusion, FaceTime, Portera
Systems, and TimeHub. Ms. Quindlen has a B.S. in Economics from Georgetown
University and an M.B.A. from The Wharton School at the University of
Pennsylvania.
Board Composition
Directors are elected annually at Mpath's annual meeting of stockholders, and
serve for the term for which they are elected and until their successors are
duly elected and qualified. Mpath's Bylaws currently provide for a Board of
Directors comprised of eight directors.
Board Compensation
Mpath's directors do not receive cash compensation for their services as
directors, although some directors are reimbursed for reasonable expenses
incurred in attending Board or committee meetings. In August 1995, Mr. Brown
purchased 60,000 shares of common stock at a price per share of $0.05. In
February 1996, Mr. Carlston purchased 60,000 shares of common stock at a price
per share of $0.21. The stock purchased by Messrs. Brown and Carlston is
subject to a right of repurchase by Mpath that lapses over a four-year period.
Officers of Mpath are appointed by the Board of Directors and serve at the
Board's discretion. Directors who are employees of Mpath are also eligible to
participate in Mpath's 1995 Stock Option/Stock Issuance Plan, and beginning in
1999, they will also be eligible to participate in Mpath's 1999 Employee Stock
Purchase Plan. Beginning in 1999, directors who are not employees of Mpath will
be eligible to participate in Mpath's 1999 Directors' Stock Option Plan. See
"Stock Plans."
Mpath has entered into indemnification agreements with each member of the
Board of Directors and some of its officers providing for the indemnification
of such person to the fullest extent authorized, permitted or allowed by law.
Board Committees
The Board of Directors has a Compensation Committee that reviews and
recommends to the Board the compensation arrangements provided to the
management of Mpath and administers the various stock option plans. The members
of the Compensation Committee are Ms. Quindlen and Mr. Brown.
The Board of Directors has an Audit Committee that reviews Mpath's annual
audit and meets with Mpath's independent auditors to review Mpath's internal
controls and financial management practices. The Board's Audit Committee
currently consists of Mr. Breyer and Mr. Carlston.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of Directors consists of Mr. Brown
and Ms. Quindlen. No interlocking relationship exists between any member of our
Board of Directors or our Compensation Committee and any member of the board of
directors or compensation committee of any other company, and no such
interlocking relationship has existed in the past.
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<PAGE>
Executive Compensation
The following table sets forth summary information concerning the
compensation received for services rendered to Mpath during the year ended
December 31, 1998 by the Chief Executive Officer and each of the other four
most highly compensated executive officers, each of whose aggregate
compensation during our last fiscal year exceeded, or would exceed on an
annualized basis, $100,000 (the "Named Officers"). Other Annual Compensation
consists of health insurance premiums paid for by Mpath on behalf of the Named
Officer, and in some cases, the spouse and dependents of the Named Officer.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
----------------------------------- ------------
Securities
Name and Principal Salary Other Annual Underlying All Other
Position ($) Bonus ($) Compensation ($) Options (#) Compensation ($)
- ------------------ ------ --------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Paul Matteucci.......... $206,853 -- $9,566 300,000 --
President and Chief
Executive Officer
Lynn Heublein........... 178,786 -- 2,764 160,000 --
Chief Operating Officer
Brian Apgar............. 187,378 -- 5,870 15,000 --
Chief Entrepreneur and
Founder
Steven Roskowski........ 155,500 -- 2,357 40,000 --
Chief Technical Officer
Robert Csongor.......... 152,375 -- 5,759 25,000 --
General Manager, Mpath
Foundation
</TABLE>
Option Grants
The following table provides summary information regarding stock options
granted to the Named Officers during the fiscal year ended December 31, 1998.
The options were granted pursuant to Mpath's 1995 Stock Option/Stock Issuance
Plan. Stock price appreciation of 5% and 10% is assumed pursuant to rules
promulgated by the Securities and Exchange Commission and does not represent
Mpath's predictions of its stock performance. There can be no assurance that
the actual stock price appreciation over the ten-year option term will be at
the assumed 5% and 10% levels or at any other defined level.
<TABLE>
<CAPTION>
Potential
Realizable Value
Individual Grants At Assumed Annual
---------------------------------------------- Rates of Stock
Number Of Percent Of Price
Securities Total Options Appreciation For
Underlying Granted To Exercise Option Term
Options Employees In Price Expiration -----------------
Name Granted (#) Fiscal Year ($/Share) Date 5% 10%
- ---- ----------- ------------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Paul Matteucci.......... 300,000 18.9% $1.03 6/8/08 $194,328 $492,466
Lynn Heublein........... 160,000 10.1 1.03 10/8/08 103,642 262,649
Brian Apgar............. 15,000 0.9 1.03 10/8/08 9,716 24,623
Steven Roskowski........ 40,000 2.5 1.03 10/8/08 25,910 65,662
Robert Csongor(1)....... 25,000 1.6 1.03 10/8/08 16,194 41,039
</TABLE>
Option Grants in Last Fiscal Year
- --------
(1) In January 1999, Mr. Csongor received an option to purchase 20,000 shares
of common stock at an exercise price of $4.62.
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<PAGE>
Option Exercises and Holdings
The following table provides summary information concerning the shares of
common stock acquired in 1998, the value realized upon exercise of stock
options in 1998, and the year end number and value of unexercised options with
respect to each of the Named Officers as of December 31, 1998. The value was
calculated by determining the difference between the fair market value of
underlying securities and the exercise price. The fair market value of Mpath's
common stock throughout 1998 was assumed to be our initial public offering
price of $11.00 per share.
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Shares Underlying Unexercised Value of Unexercised
Acquired on Options at In-the-Money Options at
Exercise Value December 31, 1998 (#) December 31, 1998 ($)
Name (#) Realized ($) (Exercisable/Unexercisable) (Exercisable/Unexercisable)
- ---- ----------- ------------ --------------------------- ---------------------------
<S> <C> <C> <C> <C>
Paul Matteucci.......... 0 0 420,000/0 $4,187,400/$0
Lynn Heublein........... 174,584 $1,740,602 151,347/0 $1,488,253/$0
Brian Apgar............. 0 0 30,000/0 $ 299,100/$0
Steven Roskowski........ 139,829 $1,393,112 23,931/0 $ 217,915/$0
Robert Csongor.......... 120,000 $1,196,400 0/0 $ 0/$0
</TABLE>
Stock Plans
1999 Stock Incentive Plan. Our 1999 Stock Incentive Plan was adopted by the
Board of Directors in February 1999 and we will be submitting it for approval
by our stockholders prior to the closing of this offering. A total of 2,500,000
shares of common stock has been reserved for issuance under the 1999 Stock
Incentive Plan as of the date of this offering. On the first day of each of our
fiscal years in 2000, 2001, 2002, 2003, and 2004 the number of shares reserved
for issuance under the 1999 Stock Incentive Plan will be increased by the
lesser of:
.750,000 shares;
. 3% of our outstanding common stock on the last day of the immediately
preceding fiscal year; or
. a lesser number of shares as determined by the Board of Directors. No
options to purchase shares of common stock have been issued under the
1999 Stock Incentive Plan.
The 1999 Stock Incentive Plan provides for the grant of incentive stock
options, as defined in Section 422 of the IRS Code, to employees and the grant
of nonstatutory stock options and restricted stock to employees, non-employee
directors and consultants. The Compensation Committee currently administers the
1999 Stock Incentive Plan and the Board of Directors has designated the
Compensation Committee to administer the 1999 Stock Incentive Plan with respect
to different groups of service providers. The administrator of the 1999 Stock
Incentive Plan will determine number, vesting schedule, and exercise price for
options, or conditions for restricted stock, granted under the 1999 Stock
Incentive Plan; provided, however, an individual employee may not receive
option grants for more than 2,500,000 shares in any fiscal year, and the
exercise price of incentive stock options must be at least equal to the fair
market value of our common stock on the date of grant.
In the event of a sale of all or substantially all of our assets of Mpath, or
the merger or consolidation of Mpath with or into another corporation in which
the ownership of more than 50% of the total combined voting power of Mpath's
outstanding securities changes hands, then restrictions on restricted stock
shall lapse unless the restrictions are assigned to the successor corporation.
In addition, the administrator of the plan will either provide that options be
assumed or substituted by the successor corporation, provide notice that the
options will terminate on a specified date if not exercised or terminate each
option in exchange for a payment equal to the excess of the fair market value
of vested option shares over the exercise price of the shares.
The Board of Directors may amend, modify or terminate the 1999 Stock
Incentive Plan at any time as long as any amendment, modification or
termination does not impair vesting rights of plan participants and provided
that stockholder approval shall be required for an amendment to the extent
required by applicable law,
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<PAGE>
regulations or rules. The 1999 Stock Incentive Plan will terminate on February
9, 2009, unless the Board of Directors terminates it earlier. We have not
issued any options under the 1999 Stock Incentive Plan to date.
1995 Stock Option/Stock Issuance Plan. Our 1995 Stock Option/Stock Issuance
Plan was adopted by the Board of Directors and approved by our stockholders in
April 1995. As of December 31, 1998, an aggregate of 3,453,000 shares of common
stock had been reserved for issuance under the 1995 Stock Plan. Under the 1995
Stock Plan, incentive stock options, within the meaning of Section 422 of the
IRS Code, may be granted to employees and nonstatutory stock options may be
granted and shares may be issued to employees, non-employee directors and
consultants. As of February 11, 1999, 1,673,410 shares of common stock were
issuable upon exercise of outstanding options granted under the 1995 Stock
Plan, 1,656,396 shares of common stock have been issued upon exercise of
options or pursuant to stock issuances. Options and stock granted under the
1995 Stock Plan will remain outstanding in accordance with their terms, but the
Board of Directors has determined that no further options or other awards will
be granted under the 1995 Stock Plan. The following table provides summary
information concerning the stock options issued to executive officers under the
1995 Stock Plan. Directors were not awarded any stock options under the 1995
Stock Plan.
<TABLE>
<CAPTION>
Number of Securities
Underlying Options Terms of
Granted Under the the
Name 1995 Stock Plan Options
---- -------------------- --------
<S> <C> <C>
Paul Matteucci............................... 300,000 10 years
Lynn Heublein................................ 325,931 10 years
Bryan Apgar.................................. 30,000 10 years
Steve Roskowski.............................. 163,760 10 years
Rob Csongor.................................. 120,000 10 years
James Schmidt................................ 150,000 10 years
</TABLE>
The 1995 Stock Plan may be administered by the Board of Directors or a
committee of the Board otherwise known as the Administrator which has the
authority to grant option and stock purchase rights and to determine the terms
of awards. Stock options granted under the 1995 Stock Plan may not have a term
of more than ten years and generally remain exercisable for a period of three
months following termination of the optionee's relationship with Mpath except
in cases where termination is as a result of death or disability, longer
periods apply. The exercise price of all incentive stock options must be at
least equal to the fair market value of the common stock at the time of grant
and the exercise price of nonstatutory stock options and the purchase price for
restricted stock purchase grants must be at least 85% of the fair market value
of the common stock at the time of grant. However, in the event an individual
owns stock representing more than 10% of the total combined voting power of all
classes of outstanding capital stock of Mpath the exercise price of stock
options and the purchase price of stock purchase rights must in all cases be at
least 110% of the fair market value of the common stock at the time of grant.
The administrator has authority to grant stock options which are exercisable
prior to vesting, in which case Mpath retains the right to repurchase the
unvested portion of the exercised shares at the optionee's original exercise
price. Outstanding options vest, and repurchase rights lapse, generally at a
rate of 25% upon completion of one year of service after the grant and the
balance in successive equal monthly installments over the next three years of
service. In the event of a shareholder-approved merger or consolidation of
Mpath in which the ownership of more than 50% of the total combined voting
power of Mpath's outstanding securities changes hands, or the sale of all or
substantially all of Mpath's assets in a complete liquidation or dissolution of
Mpath, outstanding options granted under the 1995 Stock Plan will terminate
unless assumed by a successor in interest to Mpath's business, and all Company
stock repurchase rights will terminate unless the repurchase rights are
assigned to the successor corporation.
1999 Directors' Stock Option Plan. Our 1999 Directors' Stock Option Plan was
adopted by the Board of Directors in February 1999 and we will be submitting it
for approval by our stockholders prior to the closing of this offering. A total
of 300,000 shares of common stock has been reserved for issuance under the
Directors' Plan.
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Under the Directors' Plan, each non-employee director who first becomes a
non-employee director after the effective date of the plan will receive an
automatic initial grant of an option to purchase 30,000 shares of common stock
upon appointment or election. Initial grants to non-employee directors shall
become exercisable in installments of 25% of the total number of shares subject
to the option on the first, second, third and fourth anniversaries of the date
of grant. The Directors' Plan also provides for annual grants, on the date of
each annual meeting of Mpath's shareholders, to each non-employee director who
has served on Mpath's Board of Directors for at least six months. The annual
grant to non-employee directors is an option to purchase 7,500 shares of common
stock, which option shall become exercisable in full on the fourth anniversary
of the date of grant. The exercise price of all stock options granted under the
Directors' Plan shall be equal to the fair market value of a share of Mpath's
common stock on the date of grant of the option. Options granted under the
Directors' Plan have a term of ten years, however, unvested options will
terminate when the optionee ceases to serve as a Director and vested options
will terminate if they are not exercised within 12 months after the Director's
death or disability or within 90 days after the Director ceases to serve as a
Director for any other reason.
In the event of a sale of all or substantially all of the assets of Mpath or
the merger or consolidation of Mpath with or into another corporation in which
the ownership of more than 50% of the total combined voting power of Mpath's
outstanding securities changes hands, all outstanding options will accelerate
and become fully vested effective upon the consummation of the transaction.
The Directors' Plan is designed to work automatically without administration;
however, to the extent administration is necessary, it will be performed by the
Board of Directors other than the director or directors that have a personal
interest at stake. Although the Board of Directors may amend or terminate the
Directors' Plan; they may not take any action that may adversely affect any
outstanding option. The Directors' Plan will have a term of ten years unless
terminated earlier. We have not issued any options under the 1999 Directors'
Plan to date.
1999 Employee Stock Purchase Plan. Our 1999 Employee Stock Purchase Plan was
adopted by the Board of Directors in February 1999 and we will be submitting it
for approval by our stockholders prior to the closing of this offering. A total
of 750,000 shares of common stock has been reserved for issuance under the
Purchase Plan, none of which have been issued as of the date of this offering.
The number of shares reserved for issuance under the Purchase Plan will be
increased on the first day of each of Mpath's fiscal years in 2000, 2001, 2002,
2003, and 2004 by the lesser of:
. 100,000 shares;
. 1% of Mpath's outstanding common stock on the last day of the
immediately preceding fiscal year; or
. the number of shares determined by the Board of Directors.
The Purchase Plan becomes effective on the date of this prospectus. Unless
terminated earlier by the Board of Directors, the Purchase Plan shall terminate
in February 2019.
The Purchase Plan, which is intended to qualify under Section 423 of the
Code, will be implemented by a series of overlapping offering periods of 24
months' duration, with new offering periods, other than the first offering
period, commencing on May 1 and November 1 of each year. Each offering period
will consist of four consecutive purchase periods of six months' duration, and
at the end of each six month period an automatic purchase will be made for
participants. The initial offering period is expected to commence on the date
of this offering and end on April 30, 2001; the initial purchase period is
expected to begin on the date of this offering and end on October 31, 1999. The
Purchase Plan will be administered by the Board of Directors or by a committee
appointed by the Board. Employees (including officers and employee directors)
of Mpath, or of any majority-owned subsidiary designated by the Board, are
eligible to participate in the Purchase Plan if Mpath or its subsidiary employs
them for at least 20 hours per week and more than five months per year. Under
the Purchase Plan, eligible employees may purchase common stock through payroll
deductions, which in any event may not exceed 20% of an employee's
compensation, at a price equal to the lower of 85% of the fair market
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<PAGE>
value of the common stock at the beginning of each offering period or at the
end of each purchase period. Employees may end their participation in the
Purchase Plan at any time during an offering period, and participation ends
automatically on termination of employment. The Board may also implement
provisions of the Purchase Plan that permit stock purchases through cash or
stock contributions.
Under the Purchase Plan, no employee shall be granted an option if
immediately after the grant the employee would own stock and/or hold
outstanding options to purchase stock equaling 5% or more of the total voting
power or value of all classes of stock of Mpath or its subsidiaries. In
addition, no employee shall be granted an option under the Purchase Plan if the
option would permit the employee to purchase stock under all employee stock
purchase plans of Mpath and its subsidiaries in an amount that exceeds $25,000
of fair market value for each calendar year in which the option is outstanding
at any time. In addition, no employee may purchase more than 2,000 shares of
common stock under the Purchase Plan in any one purchase period. If the fair
market value of the common stock on a purchase date is less than the fair
market value at the beginning of the offering period, each participant in the
Purchase Plan shall automatically be withdrawn from the offering period as of
the end of the purchase date and re-enrolled in the new twenty-four month
offering period beginning on the first business day following the purchase
date.
The Purchase Plan provides that in the event of a merger or consolidation of
Mpath with or into another corporation or a sale of all or substantially all of
Mpath's assets, each right to purchase stock under the Purchase Plan will be
assumed or an equivalent right will be substituted by the successor corporation
unless the Board of Directors shortens any ongoing offering period so that
employees' rights to purchase stock under the Purchase Plan are exercised prior
to consummation of the transaction. The Board of Directors has the power to
amend or terminate the Purchase Plan and to change or terminate offering
periods as long as any action does not adversely affect any outstanding rights
to purchase stock under the Purchase Plan, however the Board may amend or
terminate the Purchase Plan or an offering period even if it would adversely
affect outstanding options in order to avoid Mpath's incurring adverse
accounting charges. We have not issued any shares under the 1999 Employee Stock
Purchase Plan to date.
Limitation of Liability and Indemnification Matters
As permitted by the Delaware General Corporation Law, Mpath has included a
provision in its Restated Certificate of Incorporation to eliminate the
personal liability of its officers and directors for monetary damages arising
out of a breach or alleged breach of their fiduciary duties as officers or
directors, other than in cases of fraud and other wilful misconduct. In
addition, Mpath's Bylaws provide that Mpath is required to indemnify its
officers and directors even where indemnification would otherwise be
discretionary, and Mpath is required to advance expenses to its officers and
directors as incurred in connection with proceedings against them for which
they may be indemnified. Mpath has entered into indemnification agreements with
its officers and directors containing provisions that are in some respects
broader than the specific indemnification provisions contained in the Delaware
General Corporation Law. The indemnification agreements require Mpath to
indemnify officers and directors against liabilities that may arise by reason
of their status or service as officers and directors, but not for liabilities
arising from willful misconduct of a culpable nature, to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified, and to obtain directors' and officers' insurance if available on
reasonable terms. Mpath has obtained directors' and officers' liability
insurance.
At present, Mpath is not aware of any pending or threatened litigation or
proceeding involving a director, officer, employee or agent of Mpath in which
indemnification would be required or permitted. Mpath is not aware of any
threatened litigation or proceeding that might result in a claim for such
indemnification. Mpath believes that its charter provisions and indemnification
agreements are necessary to attract and retain qualified persons as directors
and officers.
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<PAGE>
CERTAIN TRANSACTIONS
Private Placements of Securities
In January 1995, we issued and sold a total of 100,000 shares of our common
stock at a price of $0.05 per share. In addition we issued and sold 2,800,000
shares of our Series A Preferred Stock to IVP and Accel Partners and their
respective affiliates at a price of $0.50 per share.
In August 1995 and January 1996, we issued and sold a total of 2,190,842
shares of our Series B Preferred Stock, at a price of $2.07 per share, to IVP,
Accel Partners, Sutter Hill Ventures and their respective affiliates and other
private investors.
In April 1996, we issued and sold a total of 1,154,580 shares of our Series C
Preferred Stock at a price of $10.28 per share to CSK Corporation and its
affiliates, IVP, Accel Partners, Sutter Hill and certain other private
investors. In November 1996, we issued and sold a total of 291,829 shares of
our Series C Preferred Stock at a price per share of $10.28 to CSK Corporation.
In March 1997, we issued and sold a total of 48,638 shares of our Series C
Preferred Stock at a price of $10.28 per share to Electronic Arts.
In November 1996, in connection with the reorganization of Catapult
Entertainment, Inc., a California corporation, we acquired all of the
outstanding capital stock of Catapult. As part of an Agreement and Plan of
Reorganization and an Agreement and Plan of Merger, Catapult merged with and
into a wholly-owned subsidiary of ours. In connection with the merger,
Catapult's stockholders received 868,254 shares of our Series C Preferred Stock
and options to purchase 121,078 shares of our common stock, valued at $10.28
per share. In addition, we issued and sold a warrant to purchase up to 52,250
shares of our common stock at a price of $60.00 per share to Intel. This
warrant expires on December 31, 2000. We also issued two convertible promissory
notes to Intel for $1,150,000 and $150,000, and issued a convertible senior
subordinated promissory note to Viacom for $1,864,000. In July 1997, the notes
to Intel were canceled in exchange for shares of our Series D Preferred Stock
and warrants to purchase our common stock, based on a purchase price of $5.40
per share. The Viacom note is convertible into common stock upon a sale of all
or substantially all of Mpath, through a merger, acquisition, or other
transaction or upon an initial public offering of Mpath's common stock by means
of a registration statement. The Viacom note is due and payable on November 18,
2001.
In July and August 1997, we issued and sold a total of 3,111,110 shares of
our Series D Preferred Stock to Intel, Technology Crossover Ventures,
Electronic Arts, IVP, Accel Partners, Sutter Hill, Cox Technology Investments
and certain other private investors at a price of $5.40 per share. In addition,
in July and August 1997, we issued warrants to purchase 1,555,555 shares of
common stock at an exercise price of $5.40 per share to the purchasers of the
Series D Preferred Stock. These warrants to purchase common stock are
exercisable in stages. One-half of the shares subject to these common stock
warrants are exercisable upon the earlier to occur of:
. a sale of Mpath in which the consideration per share received by us, on
a fully-diluted basis, is less than $10.80 per share, and
. two years from the date of their issuance.
The second half of the shares subject to these common stock warrants are
exercisable upon the earlier to occur of:
. a sale of Mpath in which the consideration per share received by us, on
a fully-diluted basis, is less than $10.80 per share; and
. 30 months from the date of their issuance.
The first half of these warrants expire upon the earliest of:
. the issuance and sale of shares of our common stock in an initial
underwritten registered public offering in which the price per share is
at least $10.80 and where we receive total net proceeds of at least
$15,000,000,
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<PAGE>
. a sale of Mpath in which the consideration per share received by us on a
fully-diluted basis is at least $10.80,
. the closing of a private financing of Mpath equity securities in which
the price per share on a fully-diluted basis is at least $10.80 and
where we receive total net proceeds of at least $10,000,000; and
. two years from the date of their issuance.
The second half of these warrants expire upon the same events as the first half
of these warrants, except that they may be exercisable for up to 30 months
after their issuance, not just two years. In any event, these common stock
warrants expire five years from the date they become exercisable, if that ever
occurs.
In July 1998, we entered into a Loan and Security Agreement with Greyrock
Business Credit, a Division of NationsCredit Commercial Corporation. Under this
agreement, Greyrock Business Credit made a $1,500,000 term loan to us and
agreed to provide an accounts receivable revolving line of credit for
$1,500,000 and a capital equipment loan of $1,000,000. Amounts borrowed under
these agreements are collateralized by substantially all our assets, bear
interest at the prime rate plus two percent and mature on June 30, 1999. As of
December 31, 1998 we had drawn down $1,500,000 against the term loan agreement
and approximately $1,000,000 against the capital equipment agreement. We fully
repaid the term loan with a portion of the net proceeds from the sale of our
Series E Preferred Stock in January 1999. In connection with the loan agreement
with Greyrock Business Credit, we issued and sold a warrant to Greyrock
Business Credit to purchase 23,000 shares of our Series D Preferred Stock at an
exercise price of $5.40 per share. This warrant is exercisable at any time and
expires on July 30, 2003.
In January 1999, we issued and sold a total of 3,035,306 shares of our Series
E Preferred Stock to Intel, CSK Corporation, Technology Crossover Ventures,
IVP, Accel Partners, Sutter Hill, Wheatley Partners, HLM ICB Fund, Winfield
Capital Corp., Spinnaker Founders Fund and its affiliates and other private
investors at a price of $6.60 per share. In connection with this sale of our
Series E Preferred Stock, we issued a warrant to purchase 77,422 shares of our
Series E Preferred Stock at an exercise price of $6.60 per share to NationsBanc
Montgomery Securities LLC, the placement agent in the Series E financing. This
warrant expires on the closing of this offering.
Since our inception, we have, from time to time, issued and sold shares of
our common stock and granted options to purchase common stock to our employees,
directors and consultants.
Transactions with Directors and Officers
Affiliate Relationships. The following members of the Board of Directors are
affiliated with certain private investors that participated in the transactions
listed above: James W. Breyer (Accel Partners), William McCall (Cox Technology
Investments), Ruthann Quindlen (IVP) and Gregory O'Brien (CSK Corporation). In
addition, David Brown directly holds shares of our preferred stock.
Non-statutory Option's Change of Control. On February 5, 1999, Linda Palmor,
Chief Financial Officer, received a non-statutory option to purchase 150,000
shares of our common stock at an exercise price of $5.50 per share. This price
represented 85% of our common stock's fair market value on the date of grant.
The stock issuable upon exercise of Ms. Palmor's option is subject to vesting
over a four-year period. Although the option was granted outside the 1995 Stock
Plan, it has substantially the same terms and conditions as options granted
under the 1995 Stock Plan. In the event of a change of control, 40% of Ms.
Palmor's unvested stock shall immediately vest. This option has a term of ten
years.
Promissory Notes. The executive officers listed on the table below have
executed full-recourse promissory notes in favor of Mpath in excess of $60,000.
All of the notes listed below were executed in
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connection with the purchase of shares of our common stock, and if the notes
are not paid back when due, Mpath may seek repayment from the personal assets
of the defaulting executive officer.
<TABLE>
<CAPTION>
Name Date of Note Amount Interest Rate Term
---- ------------ ----------- ------------- ----
<S> <C> <C> <C> <C>
Lynn Heublein, 10/05/98 $ 78,105.23 5.12% (1)
Chief Operating Officer 11/22/98 $101,707.56 4.51% (1)
Linda Palmor, 02/05/99 $221,398.31 4.71% (2)
Chief Financial Officer
Steven Roskowski, 11/22/98 $144,999.78 4.51% (1)
Chief Technical Officer
Robert Csongor, 11/22/98 $123,594.00 4.51% (1)
General Manager, Mpath
Foundation
</TABLE>
- --------
(1) These notes will become due and payable upon the earliest of:
. 9 months after our initial public offering;
. 5 years from the date of issue; or
. the termination of the executive officer's employment with us.
(2) This note will become due and payable upon the earliest of:
. 2 years after our initial public offering,
. 5 years from the date of issue; or
. the termination of the executive officer's employment with us.
Purchase of Shares in the Offering. Some of our existing stockholders and/or
their affiliates have indicated to us that they intend to purchase at the
initial public offering price $3.0 million of our common stock in this
offering, which they are prohibited from selling for 90 days. The identity of
the purchasers and the amounts to be purchased have not yet been determined.
SegaSoft Agreement
In April 1996, we entered into a Technology License Agreement with SegaSoft.
Under the agreement with SegaSoft, we granted SegaSoft a non-exclusive license
to use certain proprietary information and technology which supports multi-
participant interactive applications. In addition, we must provide technical
assistance to SegaSoft. and SegaSoft must develop at least two games in each 12
month period beginning December 1, 1997. At any time after April 1998, SegaSoft
may terminate the agreement upon 12 months written notice.
We believe that the above transactions were entered into on terms no more
favorable than they would have been had they been entered into with unrelated
third parties.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the shares of Mpath's common stock on a fully-diluted basis as of
February 11, 1999, and as adjusted to reflect the sale of the common stock
offered by Mpath pursuant to this prospectus by:
. each person who is known by Mpath to own beneficially more than 5% of
Mpath's common stock on a fully-diluted basis;
. each director, the Chief Executive Officer and the Named Officers; and
. all directors and executive officers of Mpath as a group.
Except as otherwise noted, the address of each person listed in the table is
c/o Mpath Interactive, Inc., 665 Clyde Avenue, Mountain View, California 94043.
The table includes all shares of common stock beneficially owned by the
indicated stockholder as of February 11, 1999. The table excludes $3.0 million
of our common stock that some of our existing stockholders and their affiliates
have indicated to us they intend to purchase in this offering. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission. In computing the number of shares beneficially owned by a
person and the percentage of ownership of that person, shares of common stock
subject to options held by that person that are currently exercisable or
exercisable within 60 days of February 11, 1999 are deemed outstanding. Such
shares, however, are not deemed outstanding for the purposes of computing the
percentage of ownership of any other person. To the knowledge of Mpath, except
as otherwise noted, the persons named in the table have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them, subject to community property laws where
applicable.
The percent of beneficial ownership for each stockholder is based on
17,718,739 shares of common stock outstanding as of February 11, 1999, and
21,618,739 shares of common stock outstanding after this offering.
<TABLE>
<CAPTION>
Percent of Class
Shares -----------------
Beneficially Before After
Name Owed Offering Offering
---- ------------ -------- --------
<S> <C> <C> <C>
Accel Partners (1)............................. 2,849,151 16.1% 13.2%
IVP (2)........................................ 2,849,153 16.1% 13.2%
CSK Corporation and affiliates (3)............. 1,338,528 7.8% 6.4%
Sutter Hill Ventures (4)....................... 1,351,259 7.6% 6.3%
Intel Corporation.............................. 1,087,239 6.1% 5.0%
Cox Technology Investments, Inc.(5)............ 925,925 5.2% 4.3%
Paul Matteucci (6)............................. 1,000,000 5.5% 4.5%
Brian Apgar (7)................................ 639,000 3.6% 3.0%
Lynn Heublein (8).............................. 424,728 2.4% 1.9%
Steve Roskowski(9)............................. 242,402 1.4% 1.1%
Robert Csongor(10)............................. 140,000 * *
James W. Breyer (1)............................ 2,849,151 16.1% 13.2%
David A. Brown................................. 195,757 1.1% *
Douglas G. Carlston............................ 60,000 * *
William McCall (5)............................. 925,925 5.2% 4.3%
Gregory O'Brien (3)............................ 1,388,528 7.8% 6.4%
Ruthann Quindlen (2)........................... 2,849,153 16.1% 13.2%
All executive officers and directors as a group
(13 persons) (13)............................. 11,014,195 59.1% 48.9%
</TABLE>
- --------
* Less than 1%.
(1)Consists of:
. 2,609,824 shares held by Accel IV L.P., 105,417 shares held by Accel
Investors 94 L.P.
. 54,134 shares held by Accel Keiretsu L.P.
. 62,680 shares held by Ellmore C. Patterson Partners, and
. 17,096 shares held by Prosper Partners.
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Mr. Breyer is an affiliate of each of the entities listed in the previous
sentence and disclaims his beneficial ownership of these shares except to the
extent of his pecuniary interest in the various entities. The address of Accel
is 428 University Avenue, Palo Alto, California 94301.
(2)Consists of:
. 2,733,993 shares held by Institutional Venture Partners VI,
. 56,075 shares held by Institutional Venture Management VI,
. 13,630 shares held by IVP Founders Fund I, L.P. and
. 45,455 shares held by IVP Broadband Fund, L.P.
Ms. Quindlen is General Partner of each of the entities listed in the
previous sentence and disclaims beneficial ownership of these shares except to
the extent of her pecuniary interest therein. The address of IVP is 3000 Sand
Hill Road, Building 2, Suite 290, Menlo Park, California 94025.
(3)Consists of:
. 694,263 shares held by CSK Corporation,
. 462,844 shares held by CSK Venture Capital Co. Ltd.,
. 115,711 shares held by CSK Venture Capital Co. Ltd. as Investment
Manager for CSK-2 Investment Fund,
. 57,855 shares held by CSK Venture Capital Co. Ltd. as Investment Manager
for CSK-1(A) Investment Fund, and
. 57,855 shares held by CSK Venture Capital Co. Ltd. as Investment Manager
for CSK-1(B) Investment Fund.
Mr. O'Brien is an officer of a company affiliated with CSK Corporation and
disclaims beneficial ownership of these shares. The address of CSK Corporation
is 25th Floor, Shinjuku-Sumitomo Building, 2-6-1 Mishi-Shinjuku, Shinjuku-ku,
Tokyo 163-0227, Japan.
(4) Consists of 998,852 shares held by Sutter Hill Ventures, and 352,407
shares held by 14 individuals or entities associated with Sutter Hill
Ventures. The address of Sutter Hill Ventures is 755 Page Mill Road, Suite
A200, Palo Alto, California 94304.
(5) Mr. McCall is the Director of New Media Development of a company
affiliated with Cox Technology Investments, Inc. and disclaims beneficial
ownership of such shares except to the extent of his pecuniary interest in
Cox Technology Investments. The address of Cox Technology Investments,
Inc. is 1400 Lake Hearn Drive, Atlanta, Georgia 30319.
(6) Includes 420,000 shares exercisable under outstanding stock options within
60 days of February 11, 1999.
(7) Includes 30,000 shares exercisable under outstanding stock options within
60 days of February 11, 1999.
(8) Includes 151,390 shares exercisable under outstanding stock options within
60 days of February 11, 1999.
(9) Includes 23,931 shares exercisable under outstanding stock options within
60 days of February 11, 1999.
(10) Includes 20,000 shares exercisable under outstanding stock options within
60 days of February 11, 1999.
(11) Includes 907,821 shares exercisable under outstanding stock options within
60 days of February 11, 1999.
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DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, the authorized capital stock of Mpath
will consist of 50,000,000 shares of common stock, $.00005 par value, and
2,000,000 shares of undesignated preferred stock, $.00005 par value, after
giving effect to the amendment of Mpath's Certificate of Incorporation to
delete references to the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock, which will occur upon conversion of such preferred stock into common
stock upon the closing of this offering.
Common Stock
As of February 11, 1999, there were 17,718,739 shares of common stock
outstanding held of record by 199 stockholders, and options to purchase an
aggregate of 1,785,910 shares of common stock were also outstanding. There will
be 21,264,158 shares of common stock outstanding (assuming no exercise of the
underwriter's option to purchase additional shares, exercise of outstanding
options under the Stock Plans after February 11, 1999 or exercise of warrants
outstanding after the closing of this offering) after giving effect to the sale
of the shares of common stock to the public offered in this prospectus.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The common stock
has no preemptive or conversion rights or other subscription rights. There are
no sinking fund provisions applicable to the common stock. The outstanding
shares of common stock are, and the shares of common stock to be issued upon
completion of this offering will be, fully paid and non-assessable.
Preferred Stock
Upon the closing of the offering, all outstanding shares of preferred stock
will be converted into 13,451,921 shares of common stock and automatically
retired. Thereafter, the Board of Directors is authorized to issue preferred
stock in one or more series and to fix the rights, preferences, privileges and
restrictions of any series of preferred stock, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of such series, without further vote
or action by the stockholders.
The issuance of preferred stock may have the effect of delaying, deferring or
preventing a change in control of Mpath without further action by the
stockholders. The issuance of preferred stock with voting and conversion rights
may adversely affect the voting power of the holders of common stock, including
voting rights of the holders of common stock. In certain circumstances, an
issuance of preferred stock could have the effect of decreasing the market
price of the common stock. As of the closing of the offering, no shares of
preferred stock will be outstanding and Mpath currently has no plans to issue
any shares of preferred stock.
Registration Rights
The holders of 17,363,200 shares of common stock, including shares issuable
upon exercise of outstanding warrants, or their transferees are entitled to
certain rights with respect to the registration of their shares under the
Securities Act. These rights are provided under the terms of an agreement
between Mpath and the holders of these registrable securities. On the written
demand of holders of more than 50% of the then-outstanding registrable
securities, Mpath shall use its best efforts to register the shares and those
of any other stockholders who, by prompt notice, request registration,
provided, however, that participation may be cut back by the managing
underwriter. Mpath is not required to effect more than two demand registrations
on Form S-1 at any time and more than two demand registrations on Form S-3 in
any twelve-month period. Stockholders are also entitled to unlimited piggyback
registration rights, provided, however, that participation may be cut back by
the managing underwriter. All offering expenses in connection with such
registration will be borne by Mpath, excluding underwriting discounts and
commissions.
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Delaware Law and the Effect of Certain Certificate of Incorporation and Bylaw
Provisions
Mpath is subject to the provisions of Section 203 of the Delaware General
Corporation Law, and anti-takeover law. In general, the statute prohibits a
publicly-held Delaware corporation from engaging in a business combination with
an "interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes a merger, asset sale or other transaction resulting in a
financial benefit to the stockholder. For purposes of Section 203, an
"interested stockholder" is defined to include any person that is:
. the owner of 15% or more of the outstanding voting stock of the
corporation;
. an affiliate or associate of the corporation and was the owner of 15% or
more of the voting stock outstanding of the corporation at any time
within three years immediately prior to the relevant date; or
. an affiliate or associate of the persons described in the foregoing
bullet points.
Stockholders may, by adopting an amendment to the corporation's certificate
of incorporation or bylaws, elect for the corporation not to be governed by
Section 203, effective 12 months after adoption. Neither Mpath's Certificate of
Incorporation nor the Bylaws exempt Mpath from the restrictions imposed under
Section 203 of the Delaware General Corporation Law. It is anticipated that the
provisions of Section 203 of the Delaware General Corporation Law may encourage
companies interested in acquiring Mpath to negotiate in advance with the Board
of Directors of Mpath because the stockholder approval requirement would be
avoided if a majority of the directors then in office approve either the
business combination or the transaction that results in the stockholder
becoming an interested stockholder.
In February 1999, our Board of Directors approved several amendments to our
Certificate of Incorporation and Bylaws to provide that directors of Mpath will
be elected without the application of cumulative voting. These amendments also
provide that, after the closing of the offering contemplated in this
prospectus, any action required or permitted to be taken by the stockholders of
Mpath may be taken only at a duly called annual or special meeting of the
stockholders. The Bylaws also establish procedures, including advance notice
procedures with regard to the nomination, other than by or at the direction of
the Board of Directors, of candidates for election as directors. All of these
changes to our Certificate of Incorporation and Bylaws will be submitted to our
stockholders for their approval, after which, these changes will go into effect
upon the closing of this offering. See "Description of Capital Stock--Common
Stock."
The provisions discussed above could have the effect of making it more
difficult for a third party to effect a change in the control of the Board of
Directors. In addition, these provisions could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, a majority of the outstanding voting stock of
Mpath.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is BankBoston, N.A. The
transfer agent's address and telephone number is 150 Royall Street, Campton,
Massachusetts, 02021, (781) 575-2000.
62
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock. Future
sales of substantial amounts of our common stock in the public market could
adversely affect prevailing market prices. Furthermore, due to contractual and
legal restrictions on resale, only a limited number of shares will be available
for sale shortly after the offering. After these restrictions lapse, sales of
substantial amounts of our common stock in the public market could adversely
affect the prevailing market price and our ability to raise equity capital.
Upon completion of the offering, we will have 21,264,158 outstanding shares
of common stock. Of these shares, the 3,900,000 shares sold in the offering,
plus any shares issued upon exercise of the underwriters' over-allotment
option, will be freely tradable without restriction under the Securities Act,
unless purchased by "affiliates" of Mpath as that term is defined in Rule 144
of the Securities Act.
The remaining 17,718,739 shares of common stock outstanding are "restricted
securities" within the meaning of Rule 144. Restricted shares may be sold in
the public market only if registered with the Securities and Exchange
Commission or if they qualify for an exemption from registration under Rule
144, Rule 144(k), or Rule 701 of the Securities Act, all of which are
summarized below. Sales of the restricted shares in the public market, or the
availability of shares for sale, could adversely affect the market price of our
common stock.
Our stockholders have entered agreements in which they have agreed that they
will not, without the prior written consent of BancBoston Robertson Stephens,
offer, sell, contract to sell, or grant any option to purchase or otherwise
dispose of their shares of our common stock for a period of 180 days following
the effective date of the registration statement filed pursuant to this
offering. These agreements, often referred to as lock-up agreements, also apply
to any securities owned by our stockholders that are exercisable for or
convertible into our common stock. As a result of these contractual
restrictions, shares subject to lock-up agreements may not be sold until such
lock-up agreements expire or are waived by BancBoston Robertson Stephens.
Taking into account the lock-up agreements, and assuming BancBoston Robertson
Stephens 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 effective date, only the shares sold in the offering
will be immediately available for sale in the public market;
. beginning 180 days after the effective date, approximately 14,606,011
shares will be eligible for sale pursuant to Rules 144, 144(k) and 701;
and
. an additional 3,112,728 shares will be eligible for sale pursuant to
Rule 144 after January 2000.
Under Rule 144, the number of shares that may be sold by affiliates of our
stockholders are subject to volume restrictions. In general, under Rule 144,
and beginning after the expiration of the agreements, a person who has
beneficially owned restricted shares, including shares that are aggregated to
such person or persons, for at least one year would be entitled to sell within
any three-month period a number of shares that does not exceed the greater of:
. one percent of the number of shares of common stock then outstanding,
which will equal approximately 222,000 shares immediately after the
offering; or
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale. In order to sell shares under Rule
144, the selling stockholder must comply with manner of sale provisions
and notice requirements and current public information about us must be
available.
Under Rule 144(k), the following persons will be expected to sell their
shares without complying with the manner of sale, public information, number of
shares limitation or notice provisions of Rule 144:
. not an affiliate of Mpath during the three months preceding a sale; and
. beneficially owned the shares proposed to be sold for at least two
years.
63
<PAGE>
As part of the agreements, all of our employees holding common stock or stock
options may not sell shares acquired upon exercise of their options until 180
days after the effective date. Beginning 180 days after the effective date, any
of our employees, officers, directors, or consultants who purchased his or her
shares pursuant to a written compensatory plan or contract may be entitled to
rely on the resale provisions of Rule 701. Rule 701 permits affiliates to sell
their Rule 701 shares under Rule 144 without complying with the holding period
requirements of Rule 144. Rule 701 further provides that non-affiliates may
sell their shares in reliance on Rule 144 without having to comply with the
holding period, public information, number of shares limitation or notice
provisions of Rule 144. In addition, Mpath intends to file one or more
registration statements under the Securities Act as promptly as possible after
the effective date to register shares to be issued under our employee benefit
plans. As a result, any options exercised under our stock option plans or any
other benefit plan after the effectiveness of a registration statement will
also be freely tradable in the public market, unless the shares are held by
affiliates of ours. Shares held by our affiliates will still be subject to the
number of shares limitation, manner of sale, notice and public information
requirements of Rule 144 unless the shares may otherwise be sold under Rule
701. As of February 11, 1999, there were outstanding options for the purchase
of 1,785,910 shares, all of which were exercisable. No shares have been issued
to date under our Employee Stock Purchase Plan or our Directors' Stock Option
Plan. As of February 11, 1999, there were outstanding warrants for the purchase
of 1,986,282 shares that will survive the completion of this offering. See
"Risk Factors--New investors will suffer immediate substantial dilution,"
"Management--Stock Plans" and "Description of Capital Stock--Registration
Rights."
64
<PAGE>
UNDERWRITING
The underwriters named below, have entered into an underwriting agreement to
purchase from us the number of shares of common stock listed next to their
names below. BancBoston Robertson Stephens Inc., Thomas Weisel Partners LLC,
Warburg Dillon Read LLC, a subsidiary of UBS AG, and Wit Capital Corporation
acting as e-Manager, are the representatives of the underwriters. The
underwriters have committed to purchase and pay for all of the shares listed
below if any shares are purchased.
<TABLE>
<CAPTION>
Number
of
Underwriter Shares
----------- -------
<S> <C>
BancBoston Robertson Stephens Inc. ....................................
Thomas Weisel Partners LLC.............................................
Warburg Dillon Read LLC, a subsidiary of UBS AG........................
Wit Capital Corporation................................................
-------
TOTAL................................................................
=======
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the public offering price listed on the cover page of this prospectus. Any
shares sold by underwriters to securities dealers will be sold at a discount of
up to $ per share from the initial public offering price. Those securities
dealers may resell any shares purchased from the underwriters to other brokers
or dealers at a discount of up to $ per share from the public offering price.
If all the shares are not sold at the initial offering price, the
representatives may change the offering price and other selling terms.
A prospectus in electronic format is being made available on an Internet Web
site maintained by Wit Capital. In addition, pursuant to an e-Dealer Agreement,
all dealers purchasing shares from Wit Capital in the offering similarly have
agreed to make a prospectus in electronic format available on Web sites
maintained by each of the e-Dealers.
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Option to Purchase Additional Shares. We have granted to the underwriters an
option, exercisable during the 30-day period after the date of this prospectus,
to purchase up to 585,000 additional shares of common stock at the same price
per share as we will receive for the 3,900,000 shares that the underwriters
have agreed to purchase. To the extent that the underwriters exercise this
option, each of the underwriters will have a firm commitment to purchase
approximately the same percentage of additional shares that the number of
shares of common stock to be purchased by it shown in the above table
represents as a percentage of the 3,900,000 shares offered in this prospectus.
If purchased, additional shares will be sold by the underwriters on the same
terms as those on which the 3,900,000 shares are being sold. We will be
obligated to sell these shares if the underwriters exercise their option to
purchase additional shares . If the option is exercised in full, the total
price to the public, underwriting discounts and commissions and proceeds to
company will be $49,335,000, $3,453,450 and $45,881,550, respectively.
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters and us against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
65
<PAGE>
Agreements Not to Sell Shares. Each of our officers and directors and other
holders of shares of our common stock have agreed, during the period ending 180
days after the date of this prospectus, subject to limited exceptions, not to
offer to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or
grant any rights with respect to any shares of common stock or any options or
warrants to purchase any shares of common stock, or any securities convertible
into or exchangeable for shares of common stock owned as of the date of this
prospectus or later acquired directly by such holders or with respect to which
they have the power of disposition, without the prior written consent of
BancBoston Robertson Stephens Inc. However, BancBoston Robertson Stephens Inc.
may, in its sole discretion and at any time without notice, release all or any
portion of securities subject to the agreements not to sell shares. There are
no existing agreements between the representatives of the underwriters and any
of our stockholders providing consent to the sale of shares prior to the
expiration of the 180-day period.
Future Sales by Mpath. In addition, we have agreed that during the 180 days
after the date of this prospectus, we will not, without the prior written
consent of BancBoston Robertson Stephens Inc., subject to certain exceptions,
(1) consent to the disposition of any shares held by stockholders subject to
agreements not to sell shares prior to the expiration of the 180-day period or
(2) issue, sell, contract to sell, or otherwise dispose of, any shares of
common stock, any options to purchase any shares of common stock or any
securities convertible into, exercisable for or exchangeable for shares of
common stock other than our sale of shares in this offering, the issuance of
common stock upon the exercise of outstanding options, and the issuance of
options under existing stock option and incentive plans, provided such options
do not vest prior to the expiration of the 180-day period. See "Shares Eligible
for Future Sale."
Purchase by Some of Our Existing Stockholders and/or Their Affiliates in the
Offering. Some of our existing stockholders and/or their affiliates have
indicated to us that they intend to purchase, at the initial public offering
price, $3.0 million of our common stock in the offering, which they are
prohibited from selling for 90 days.
Listing. Application has been made to have our common stock approved for
quotation on the Nasdaq National Market under the symbol "MPTH."
No Prior Public Market. Prior to this offering, there has been no public
market for our common stock. Consequently, the public offering price for the
common stock offered by this prospectus will be determined through negotiations
among Mpath and the representatives of the underwriters. Among the factors to
be considered in such negotiations are prevailing market conditions, certain
financial information of Mpath, market valuations of other companies that Mpath
and the representatives believe to be comparable to Mpath, estimates of the
business potential of Mpath, the present state of Mpath's development and other
factors deemed relevant.
Stabilization. The representatives of the underwriters have advised us that,
pursuant to Regulation M under the Securities Act, certain persons
participating in this offering may engage in transactions, including
stabilizing bids, syndicate covering transactions or the imposition of penalty
bids, that may have the effect of stabilizing or maintaining the market price
of the common stock at a level above that which might otherwise prevail in the
open market. A "stabilizing bid" is a bid for or the purchase of common stock
on behalf of the underwriters for the purpose of fixing or maintaining the
price of the common stock. A "syndicate covering transaction" is the bid for or
the purchase of common stock on behalf of the underwriters to reduce a short
position incurred by the underwriters in connection with this offering. A
"penalty bid" is an arrangement permitting the representatives to reclaim the
selling concession otherwise accruing to an underwriter or syndicate member in
connection with this offering if the common stock originally sold by such
underwriter or syndicate member is purchased by the representatives in a
syndicate covering transaction and has therefore not been effectively placed by
such underwriter or syndicate member. The representatives have advised us that
these types of transactions may be effected on the Nasdaq National Market or
otherwise and, if commenced, may be discontinued at any time.
66
<PAGE>
New Underwriters. Thomas Weisel Partners LLC, one of the representatives of
the underwriters, was organized and registered as a broker-dealer in December
1998. Since December 1998, Thomas Weisel Partners has co-managed twelve public
offerings of equity securities and has acted as an underwriter in an additional
four public offerings of equity securities. Thomas Weisel Partners does not
have any material relationship with us or any of our officers, directors or
controlling persons, except with respect to its contractual relationship with
us pursuant to the underwriting agreement entered into in connection with this
offering.
Wit Capital, a member of the National Association of Securities Dealers,
Inc., will participate in this offering as one of the underwriters. The
National Association of Securities Dealers, Inc. approved the membership of Wit
Capital on September 4, 1997. Since that time, Wit Capital has acted as an
underwriter, e-Manager or selected dealer in over 50 public offerings.
Costs of Offering. We estimate that total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $997,000.
LEGAL MATTERS
The validity of our common stock offered in this prospectus will be passed
upon for Mpath by Venture Law Group, A Professional Corporation, 2800 Sand Hill
Road, Menlo Park, California. Joshua L. Green and Jeffrey Y. Suto, Directors of
Venture Law Group, are the Secretary and Assistant Secretary, respectively, of
Mpath. Certain legal matters in connection with this offering will be passed
upon for the underwriters by Brobeck, Phleger & Harrison LLP, Spear Street
Tower, One Market, San Francisco, California. As of the date of this
prospectus, two Directors of Venture Law Group beneficially own an aggregate of
9,660 shares of Mpath's common stock.
EXPERTS
The consolidated financial statements as of December 31, 1997 and 1998 and
for the years ended December 31, 1996, 1997 and 1998, which are included in the
prospectus, are included in reliance on the reports of PricewaterhouseCoopers
LLP, independent accountants, given to us on the authority of such firm as
experts in accounting and in auditing.
ADDITIONAL INFORMATION
We have filed a registration statement, including any amendments thereto, on
Form S-1 under the Securities Act with the Securities and Exchange Commission
with respect to the common stock offered in this prospectus. This prospectus,
which constitutes a part of the registration statement, does not contain all of
the information contained in the registration statement. Some items are
contained in exhibits to the registration statement as permitted by the rules
and regulations of the Securities and Exchange Commission. For further
information with respect to Mpath and our common stock offered in this
prospectus, we refer you to the registration statement, including its exhibits,
and the financial statements and notes filed with the registration statement.
Statements made in this prospectus concerning the contents of any document are
not necessarily complete. We refer you to the documents filed with the
Securities and Exchange Commission as exhibits to the registration statement
for a more complete description of the matter involved. The registration
statement, including the exhibits, financial statements and notes filed as a
part of the registration statement, as well as such reports and other
information filed with the Securities and Exchange Commission, may be inspected
without charge at the public reference facilities maintained by the Securities
and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the regional offices of the Securities and Exchange Commission located at
Seven World Trade Center, 13th Floor, New York, New York, 10048, and the
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of all or any part of the registration statement may be obtained from
the Securities and Exchange Commission if you pay the fees prescribed by the
Securities and Exchange Commission. Reports and other information may also be
inspected without charge at a Web site maintained by the Securities and
Exchange Commission. The address of the site is http://www.sec.gov.
67
<PAGE>
MPATH INTERACTIVE, INC.
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit).................. F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Mpath Interactive, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows present fairly, in all material respects, the financial position of Mpath
Interactive, Inc. (the Company) at December 31, 1997 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards, which
require that we plan and perform the 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 Jose, CA
January 29, 1999, except as to Note 15, which is as of February 12, 1999
F-2
<PAGE>
MPATH INTERACTIVE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31,
-------------------------------
1997 1998 1998
-------- -------- -----------
(Pro Forma)
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 9,132 $ 1,114
Accounts receivable, net of allowance for
doubtful accounts of $8 and $20
respectively............................... 651 2,226
Prepaid expenses and other current assets.... 364 710
-------- --------
Total current assets....................... 10,147 4,050
Restricted cash................................ 165 170
Property and equipment, net.................... 1,974 1,878
Other assets................................... 70 79
-------- --------
Total assets............................... $ 12,356 $ 6,177
======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................. $ 429 $ 1,119
Accrued payroll and related expenses......... 787 1,029
Accrued expenses............................. 652 719
Current portion of capital lease
obligations................................ 399 458
Deferred revenue............................. 278 332
Notes payable................................ -- 2,426
Deferred rent................................ 22 34
-------- --------
Total current liabilities.................. 2,567 6,117
Convertible note payable....................... 1,864 1,864
Capital lease obligations, net of current
portion...................................... 784 326
-------- --------
Total liabilities.......................... 5,215 8,307
-------- --------
Commitments and contingencies (Note 5)
Stockholders' equity:
Convertible preferred stock:
Par value: $0.00005
Authorized: 16,294,986 shares
Issued and outstanding: 10,425,921 and
10,416,615, respectively, and 0 pro forma
with liquidation preference of
$46,529,773............................... 1 1 $ --
Common stock warrants........................ 2 2 2
Common stock:
Par value: $0.00005
Authorized: 25,000,000 shares
Issued and outstanding: 2,584,150 and
3,834,815, respectively, and 14,251,430
pro forma................................. -- -- 1
Additional paid-in capital................... 55,026 63,155 63,155
Deferred stock based compensation............ (6,751) (11,263) (11,263)
Notes receivable from stockholders........... (83) (1,020) (1,020)
Accumulated deficit.......................... (41,054) (53,005) (53,005)
-------- -------- --------
Total stockholders' equity (deficit)....... 7,141 (2,130) $ (2,130)
-------- -------- --------
Total liabilities and stockholders' equity
(deficit)................................ $ 12,356 $ 6,177
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
MPATH INTERACTIVE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Net revenues:
Live Communities.............................. $ 12 $ 686 $ 3,022
Foundation.................................... 112 2,041 5,005
-------- -------- --------
Total revenues.............................. 124 2,727 8,027
Cost of net revenues:
Live Communities.............................. 35 1,808 2,221
Foundation.................................... 90 620 790
-------- -------- --------
Total cost of revenues...................... 125 2,428 3,011
-------- -------- --------
Gross profit (loss)....................... (1) 299 5,016
-------- -------- --------
Operating expenses:
Research and development...................... 5,261 2,436 3,132
Sales and marketing........................... 3,937 6,906 7,847
General and administrative.................... 2,877 2,841 3,274
Stock based compensation...................... 383 1,676 2,601
Write-off of acquired intangibles............. 12,876 -- --
-------- -------- --------
Total operating expenses.................. 25,334 13,859 16,854
-------- -------- --------
Loss from operations.................... (25,335) (13,560) (11,838)
-------- -------- --------
Interest and other income....................... 353 283 390
Interest and other expense...................... (62) (376) (501)
-------- -------- --------
Interest and other income (expense), net...... 291 (93) (111)
-------- -------- --------
Loss before provision for income taxes.... (25,044) (13,653) (11,949)
Provision for income taxes...................... (1) (1) (2)
-------- -------- --------
Net loss................................ $(25,045) $(13,654) $(11,951)
======== ======== ========
Net loss per common share:
Basic......................................... $ (33.80) $ (7.81) $ (5.39)
======== ======== ========
Diluted....................................... $ (33.80) $ (7.81) $ (5.39)
======== ======== ========
Weighted average shares outstanding:
Basic......................................... 741 1,749 2,217
======== ======== ========
Diluted....................................... 741 1,749 2,217
======== ======== ========
Pro forma basic and diluted loss per share
(unaudited).................................... $ (0.95)
========
Number of shares used in the pro forma
calculation (unaudited)........................ 12,643
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
MPATH INTERACTIVE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Convertible
Preferred Notes Total
Stock Common Stock Additional Deferred Receivable Stockholders'
------------- -------------- Paid-In Stock Based From Accumulated Equity
Shares Amount Warrants Shares Amount Capital Compensation Stockholders Deficit (Deficit)
------ ------ -------- ------ ------ ---------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1995.............. 4,989 $ 1 $-- 2,277 $-- $ 6,454 $ (483) $ (37) $ (2,355) $ 3,580
Conversion of
prior year stock
par value......... -- -- -- -- -- -- -- -- -- --
Issuance of Series
B convertible
preferred stock
net of offering
costs of $9....... 2 -- -- -- -- 5 -- -- -- 5
Issuance of common
stock for notes
receivable........ -- -- -- 220 -- 46 -- (46) -- --
Exercise of stock
options........... -- -- -- 34 -- 2 -- -- -- 2
Issuance of Series
C convertible
preferred stock,
net of offering
costs of $54...... 1,446 -- -- -- -- 14,816 -- -- -- 14,816
Issuance of Series
C convertible
preferred stock in
consideration of
Catapult
acquisition....... 878 -- -- -- -- 9,021 -- -- -- 9,021
Deferred stock
based
compensation...... -- -- -- -- -- 2,720 (2,720) -- -- --
Amortization of
deferred stock
based
compensation...... -- -- -- -- -- -- 383 -- -- 383
Net loss.......... -- -- -- -- -- -- -- -- (25,045) (25,045)
------ --- ---- ----- ---- ------- -------- ------- -------- --------
Balance at
December 31,
1996.............. 7,315 1 -- 2,531 -- 33,064 (2,820) (83) (27,400) 2,762
Issuance of Series
C convertible
preferred......... 49 -- -- -- -- 500 -- -- -- 500
Exchange of Series
C convertible
preferred stock
for Series D
convertible
preferred stock... 44 -- -- -- -- -- -- -- -- --
Issuance of Series
D convertible
preferred stock,
net of offering
cost of $98 and
converted
unamortized debt
discount of $360.. 3,018 -- -- -- -- 15,841 -- -- -- 15,841
Issuance of common
stock warrants in
conjunction with
Series D
convertible
preferred stock... -- -- 2 -- -- -- -- -- -- 2
Exercise of stock
options........... -- -- -- 53 -- 14 -- -- -- 14
Deferred stock
based
compensation...... -- -- -- -- -- 5,607 (5,607) -- -- --
Amortization of
deferred stock
based
compensation...... -- -- -- -- -- -- 1,676 -- -- 1,676
Net loss.......... -- -- -- -- -- -- -- -- (13,654) (13,654)
------ --- ---- ----- ---- ------- -------- ------- -------- --------
Balance at
December 31,
1997.............. 10,426 1 2 2,584 -- 55,026 (6,751) (83) (41,054) 7,141
Adjustment to
Series C relating
to Catapult escrow
closing........... (9) -- -- -- -- (96) -- -- -- (96)
Warrants issued to
purchase of Series
D preferred stock
for services
rendered.......... -- -- -- -- -- 64 -- -- -- 64
Exercise of common
stock options for
notes receivable
and cash.......... -- -- -- 852 -- 937 -- (937) -- --
Repurchase of
stock options..... -- -- -- (2) -- (2) -- -- -- (2)
Exercise of stock
options........... -- -- -- 400 -- 113 -- -- -- 113
Deferred stock
based
compensation...... -- -- -- -- -- 7,113 (7,113) -- -- --
Amortization of
deferred stock
based
compensation...... -- -- -- -- -- -- 2,601 -- -- 2,601
Net loss.......... -- -- -- -- -- -- -- -- (11,951) (11,951)
------ --- ---- ----- ---- ------- -------- ------- -------- --------
Balances at
December 31,
1998.............. 10,417 $ 1 2 3,834 $-- $63,155 $(11,263) $(1,020) $(53,005) $ (2,130)
====== === ==== ===== ==== ======= ======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
MPATH INTERACTIVE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................... $(25,045) $(13,654) $(11,951)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................. 395 852 976
Stock based employee compensation............. 383 1,676 2,601
Non cash interest on debt..................... -- 30 32
Write-off of purchased in-process research
and development costs from Catapult.......... 1,600 -- --
Write-off of intangible assets acquired in
connection with the Catapult acquisition,
net of legal and accounting costs of $367.... 12,509 -- --
Loss (gain) on sale of investment............. -- -- (166)
Amortization of notes payable discount........ 7 47 --
Changes in assets and liabilities:
Accounts receivable......................... (2) (588) (1,575)
Prepaid expenses and other current assets... (179) 74 (314)
Officer note receivable..................... 70 -- --
Other assets................................ 23 (1) (9)
Accounts payable............................ 161 (41) 690
Accrued payroll and related expenses........ 212 227 242
Accrued expenses............................ 505 3 67
Deferred revenue............................ (8) 268 54
Deferred rent............................... -- 23 12
-------- -------- --------
Net cash used in operating activities..... (9,369) (11,084) (9,341)
-------- -------- --------
Cash flows from investing activities:
Purchase of investment......................... -- -- (625)
Proceeds from sale of investment............... -- -- 791
Proceeds from disposal of fixed assets......... -- 57 0
Acquisition of property and equipment.......... (1,220) (1,092) (880)
Purchase of certificate of deposit (restricted
cash)......................................... (165) -- (5)
Payments for Catapult acquisition, net of cash
acquired of $30............................... (2,414) -- --
-------- -------- --------
Net cash used in investing activities..... (3,799) (1,035) (719)
-------- -------- --------
Cash flows from financing activities:
Proceeds from notes payable.................... -- -- 2,500
Payments of notes payable...................... (74)
Proceeds from capital lease transactions....... 431 678 --
Proceeds from refunds of capital lease
deposits...................................... -- 20 --
Payments under capital lease obligations....... (123) (360) (399)
Proceeds from exercise of common stock options,
net of repurchase............................. 2 14 111
Proceeds from issuance of Series B preferred
stock......................................... 5 -- --
Proceeds from issuance of Series C preferred
stock, net.................................... 14,816 500 (96)
Proceeds from issuance of Series D preferred
stock, net.................................... -- 13,287 --
Proceeds from issuance of bridge loans......... -- 1,600 --
Proceeds from common stock warrants issued with
Series D preferred stock...................... -- 1 --
-------- -------- --------
Net cash provided by financing
activities............................... 15,131 15,740 2,042
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents.............................. 1,963 3,621 (8,018)
-------- -------- --------
Cash and cash equivalents, beginning of period... $ 3,548 $ 5,511 $ 9,132
======== ======== ========
Cash and cash equivalents, end of period......... $ 5,511 $ 9,132 $ 1,114
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
MPATH INTERACTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1996, 1997 and 1998
1. FORMATION AND BUSINESS OF THE COMPANY:
Mpath Interactive, Inc. (the Company), was incorporated in Delaware and
commenced operations in January 1995. Mpath designs, develops, operates and
markets a people-to-people entertainment and game community on the Internet and
provides technology and services to third parties seeking to create online
communities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents:
The Company considers all highly liquid investments with original maturities
of three months or less, to be cash equivalents. Cash and cash equivalents are
stated at cost, which approximates market.
Restricted Cash:
At December 31, 1997 and 1998, cash balances of approximately $165,000 and
$170,000, respectively, were restricted from withdrawal and held by a bank in
the form of certificates of deposit. These certificates of deposit serve as
collateral to a letter of credit issued to the Company's landlord as a security
deposit, and as a deposit against the Company's credit card.
Concentration of Credit Risk:
Financial instruments which potentially subject the Company to concentration
of credit risk consist principally of cash and cash equivalents and accounts
receivable. The Company deposits its cash and cash equivalents with two major
banks. The Company has not experienced any losses on its deposits of cash and
cash equivalents. Management believes that these banks are financially sound
and, accordingly, minimal credit risk exists.
With respect to accounts receivable, the Company's customer base is
dispersed across many different geographic areas and range from individual
consumers to a variety of commercial entities. The Company performs ongoing
credit evaluations of its customers and generally does not require collateral.
The Company periodically reviews the need for reserves for potential credit
losses and such losses have been within management's expectations. Typically,
the Company grants terms of 30 to 60 days for both their Live Communities and
Foundation customers.
No customer accounted for more than 10% of total revenues during the year
ended December 31, 1996. During the year ended December 31, 1997, sales to two
customers accounted for approximately 35% and 11% of total revenues. During the
year ended December 31, 1998 three customers accounted for 10%, 12% and 23% of
total revenues. One customer accounted for 43% of total accounts receivable at
December 31, 1997. As of December 31, 1998, two customers accounted for
approximately 19% and 27% of total accounts receivable.
Fair Value of Financial Instruments:
The carrying amount of notes payable and capital lease obligations
approximate fair value.
Consolidation:
The consolidated financial statements include those of the Company and its
subsidiary. Inter-company balances and transactions have been eliminated in
consolidation.
F-7
<PAGE>
MPATH INTERACTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Property and Equipment:
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the assets, generally three to five years. When property and
equipment are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts and the resulting gain
or loss is included in income.
Long-Lived Assets:
The Company accounts for long-lived assets under Statement of Financial
Accounting Standards No. 121 (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, certain identifiable
intangibles, and goodwill related to those 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.
Revenue Recognition:
Live Communities
Advertising revenues are recognized ratably over the period in which the
advertisement is displayed provided that no significant obligations remain and
collection of the resulting receivable is probable. Advertising rates are
dependent on the services provided and the placement of the advertisements. To
date, the duration of the Company's advertising commitments has generally
averaged from two to three months.
Revenues derived from monthly subscription services and on line only games
are recognized over the period in which the services are provided. The Company
records deferred revenue for any amounts received in advance of the completion
of the subscription period.
Foundation
The Company has adopted the provisions of Statement of Position 97-2, or SOP
97-2, "Software Revenue Recognition," as amended by Statement of Position 98-9,
"Software Revenue Recognition With Respect to Certain Transactions." The
Company recognizes product revenue upon shipment if a signed contract exists,
the fee is fixed and determinable, collection of resulting receivables is
probable and product returns are reasonably estimable. For contracts with
multiple obligations (e.g., maintenance, unspecified upgrades), the Company
allocates revenue to each component of the contract based on objective evidence
of its fair value, which is specific to the Company, or for products not being
sold separately, the price established by management. The Company recognizes
revenue allocated to maintenance fees for ongoing customer support and
unspecified upgrades ratably over the period of the maintenance contract or
upgrade period.
Revenues derived from software development activities are recognized using
the percentage of completion methodology. The Company evaluates these long term
contracts periodically for potential loss situations; any such loss would be
recorded when identified.
The Company records deferred revenue for any amounts received in advance of
the completion of the maintenance contract period and for any amounts received
prior to their being earned under the percentage of completion method.
Research and Development Costs:
Research and development expenditures are charged to operations as incurred.
F-8
<PAGE>
MPATH INTERACTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Advertising Costs:
Costs related to advertising and promotion of products is charged to sales
and marketing expense as incurred. Advertising cost charged to expenses for the
years ended December 31, 1996, 1997, and 1998 were approximately $921,000,
$572,000, $1,201,000, respectively.
Earnings per Share
Statement of Financial Accounting Standards No. 128 (SFAS No. 128),
"Earnings per Share", establishes standards for computing and presenting
earnings per share. Basic earnings per share is calculated using the average
shares of common stock outstanding while diluted earnings per share reflects
the potential dilution that could occur because of preferred stock and if stock
options and warrants were exercised. Preferred stock, stock options and
warrants are excluded from the calculation if their effect would be
antidilutive.
Pro forma net loss per share (unaudited)
Pro forma net loss per share for the year ended December 31, 1998 is
computed using the weighted average number of common shares outstanding,
including the pro forma effects of the automatic conversion of the Company's
Series A, Series B, Series C and Series D preferred stock into shares of the
Company's common stock effective upon the closing of the Company's initial
public offering as if such conversion occurred on January 1, 1998. The
resulting pro forma adjustment results in an increase in the weighted average
shares used to compute basic and diluted net loss per share of 10,416,615
shares for the year ended December 31, 1998. Pro Forma common equivalent
shares, comprised of unvested common stock, and incremental common shares
issuable upon the exercise of stock options and warrants, are not included in
pro forma diluted net loss per share because they would be anti-dilutive.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123 (SFAS No. 123),
"Accounting for Stock-Based Compensation", defines a fair value based method of
accounting for an employee stock option or similar equity instrument. This
statement gives entities a choice of recognizing related compensation expense
by adopting the fair value method or measuring compensation using the intrinsic
value approach under Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees". The Company has chosen to continue
to use the measurement prescribed by APB Opinion No. 25 for employee stock
options and to make supplemental disclosures to show the effects of using the
fair value-based measurement criteria. The Company accounts for options granted
to non-employees under SFAS No. 123.
Income Taxes:
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary
to reduce deferred tax assets to the amounts expected to be realized.
Certain Risks and Uncertainties:
The Company is subject to all of the risks inherent in an early stage
business in the technology and entertainment industries. The risks include but
are not limited to limited operating history, limited management resources,
reliance on advertising for revenues where acceptance of advertising on the
Internet is uncertain, reliance on relationships with content providers,
dependence on the Internet and related security risks and the changing nature
of the Internet industry.
F-9
<PAGE>
MPATH INTERACTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
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.
Comprehensive Income:
The Company has adopted the accounting treatment prescribed by Financial
Accounting Statement No. 130, "Comprehensive Income." The adoption of this
statement had no impact on the Company's financial statements for the periods
presented.
Segment Information:
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
(SFAS No. 131). SFAS No. 131 supersedes FAS 14, "Financial Reporting for
Segments of a Business Enterprise," replacing the "industry segment" approach
with the "management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments. SFAS
No. 131 also requires disclosures about products and services, geographic
areas, and major customers. The adoption of SFAS No. 131 did not affect results
of operations or financial position but did affect the disclosure of segment
information (see Note 13).
Recent Accounting Pronouncements:
On March 4, 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use" (SOP 98-1). SOP 98-1 provides guidance on accounting for the
costs of computer software developed or obtained for internal use. Costs
incurred prior to the initial application of SOP 98-1 should not be adjusted to
the amounts that would have been capitalized had this SOP been in effect when
those costs were incurred. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. Accordingly, the Company will
adopt SOP 98-1 in its financial statements for the year ending December 31,
1999. The impact on the financial statements of the adoption of this standard
has not yet been determined, but is not expected to be significant.
Pro Forma Balance Sheet (unaudited):
The accompanying unaudited pro forma balance sheet at December 31, 1998
reflects the conversion of the Series A, Series B, Series C, Series C-1 and
Series D preferred stock into common stock as of December 31, 1998. The
conversion of such preferred stock is automatic upon the completion of an
initial public offering price of at least $10.28 per share.
Reclassifications:
Certain prior year amounts have been reclassified for consistency with
current year financial statement presentation.
F-10
<PAGE>
MPATH INTERACTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. CATAPULT ACQUISITION:
In November 1996, the Company acquired all of the assets and assumed the
liabilities of Catapult Entertainment, Inc. ("Catapult") as part of a Chapter
11 Plan of Reorganization under the United States Bankruptcy Code. The total
acquisition cost was approximately $11,831,000 and consisted of (i) cash
payments of $2,444,000, including $549,000 paid to Catapult's unsecured
creditors; (ii) 877,560 shares of Series C preferred stock valued at $10.28 per
share (see Note 7); and (iii) legal and accounting costs of $367,000. Net
liabilities in excess of assets assumed by the Company amounted to $2,644,000.
Approximately 105,000 shares of Series C Preferred Stock were placed in escrow
in the event that the Company was required to pay allowable unsecured claims in
excess of $549,000. As of May 1998, the final payment of $121,000 had been
requested by Catapult creditors for which the Company was entitled to receive
reimbursement from Series C preferred stock in escrow. The Series C preferred
stock held in escrow was reduced by 9,306 shares and the remaining 95,665
shares were released to the stockholders of Catapult.
The acquisition was accounted for as a purchase. Accordingly, the results of
operations of Catapult have been included in the consolidated statements of
operations from the date of acquisition.
The purchase price, including liabilities assumed, in excess of the fair
value of assets acquired was allocated to in-process research and development
($1,600,000), which was immediately expensed, and goodwill ($12,876,000).
The goodwill was originally assigned a two year life based on the time it
would take for competitors to develop competing technology. Shortly after the
acquisition, however, significant changes in the industry caused the Company to
move from a "pay for play" business model to an advertising supported model.
The technology and business acquired from Catapult was based entirely on a "pay
for play" business model. As a result, the Company no longer intended to
further develop or use the Catapult technology. Accordingly, the Company wrote
off the goodwill in December, 1996.
In June 1998, the Company exercised warrants, received in connection with
the Catapult Acquisition, and immediately sold the acquired shares, realizing a
gain of approximately $167,000. The gain was included in other income during
the year ended December 31, 1998.
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------
Useful
1997 1998 Life
------- ------- -------
<S> <C> <C> <C>
Software.................. $ 212 $ 212 3 years
Computer equipment........ 1,198 2,078 3 years
Furniture and fixtures.... 86 86 5 years
Leasehold improvements.... 109 109 5 years
Equipment under capital
lease:
Software................ 56 56
Computer equipment...... 1,546 1,546
------- -------
3,207 4,087
Less accumulated
depreciation and
amortization............. (1,233) (2,209)
------- -------
$ 1,974 $ 1,878
======= =======
</TABLE>
The accumulated amortization on assets under capital lease was approximately
$455,000 and $900,000 at December 31, 1997 and 1998, respectively.
F-11
<PAGE>
MPATH INTERACTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. COMMITMENTS AND CONTINGENCIES:
Contingencies:
The Company has received notice of certain claims for potential patent
infringement. The Company believes that these claims are without merit,
intends to defend them vigorously. However, litigation is subject to inherent
uncertainties and thus, there can be no assurance that these claims will be
resolved favorably to the Company or that they will not have a material
adverse affect on the Company's financial statements.
Lease Obligations:
Future minimum lease payments under capital and operating leases at
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
--------- ----------
<S> <C> <C>
1999................................................ $ 523,000 $ 419,000
2000................................................ 334,000 422,000
2001................................................ 10,000 435,000
2002................................................ -- 36,000
--------- ----------
Total minimum lease payments...................... 867,000 $1,312,000
==========
Less amount representing interest................... (83,000)
---------
784,000
Less current portion................................ (458,000)
---------
$ 326,000
=========
</TABLE>
Rent expense for the years ended December 31, 1996, 1997 and 1998, was
approximately $458,000, $500,000, and $498,000, respectively.
6. NOTES PAYABLE:
In conjunction with its acquisition of Catapult (Note 3), the Company
assumed certain indebtedness of Catapult. Included in the indebtedness assumed
were convertible, non-interest bearing promissory notes payable totaling
$1,300,000 which were due in full in November 2001. Associated with these
notes was unamortized debt discount, which was calculated using an interest
rate of 8.25%. Warrants to purchase the Company's common stock were issued in
conjunction with the convertible promissory notes at the time of the Catapult
acquisition. In July 1997, these notes were converted into 981,481 shares of
Series D preferred Stock and warrants to purchase 490,741 shares of the
Company's common stock. These warrants have an exercise price of $5.40 per
share and have exercisability and expiration terms defined in Note 7--Common
Stock Warrants. The unamortized debt discount was recorded as a reduction to
additional paid-in capital in connection with the conversion of the notes into
the Series D preferred stock.
The Company also assumed a convertible note payable from Catapult bearing
interest at prime (7.75% at December 31, 1998) which is due with interest in
November 2001. At December 31, 1997 and 1998, the Company had $1,864,000
outstanding under this note payable. The entire amount of unpaid principal and
accrued interest may be converted, at the option of the note holder, into
shares of the Company's common stock, upon (i) a sale of all or substantially
all of the Company, through a merger, acquisition or other transaction, or
(ii) upon an initial public offering of the Company's common stock. The number
of shares of common stock this note can be converted into is calculated by
dividing the amount of unpaid principal and interest by either (i) the IPO
price per share, or (ii) the acquisition price per share.
F-12
<PAGE>
MPATH INTERACTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In May 1997, the Company received convertible bridge loans totaling
$1,600,000 from certain of its stockholders. The bridge loans carried interest
at 6.23 % per annum. In July 1997, the bridge loans and accrued interest of
approximately $14,000 were converted into 647,405 shares of Series D preferred
stock and warrants to purchase 323,702 shares of the Company's common stock.
These warrants have an exercise price of $5.40 per share and have
exercisability and expiration terms defined in Note 7--Warrants.
In July 1998, the Company entered into a revolving line of credit agreement
for up to $1,500,000 or 80% of the Company's accounts receivable, a capital
equipment purchase line agreement for up to $1,000,000 and a term loan
agreement up to $1,500,000, all bearing interest rates of prime plus 2.0%
(9.75% at December 31, 1998). Amounts borrowed under these agreements are
collateralized by substantially all assets of the Company. In conjunction with
this agreement, the Company issued a warrant to purchase 23,000 shares of the
Company's Series D preferred stock at an exercise price of $5.40 per share,
which expires July 31, 2003. As the fair value of these warrants was determined
to be immaterial at the date of issuance, no additional debt issuance costs
were recorded.
As of December 31, 1998, the Company has borrowed approximately $1,500,000
and $1,000,000 against the term loan agreement and the capital equipment
purchase line agreement, respectively. Amounts drawn against the revolving line
of credit, term loan and capital equipment purchase line are due no later than
June 30, 1999. The term loan was repaid in January 1999 (see Note 14). The
Company is required to make monthly payments on the capital equipment purchase
line equal to 1/48th of the balance until June 30, 1999. As of December 31,
1998, the Company has not drawn down any of the available funds on the
revolving line of credit.
Total notes payable outstanding are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------
1997 1998
------ ------
<S> <C> <C>
Assumed note from Catapult................................. $1,864 $1,864
Capital equipment purchase line............................ -- 985
Term loan.................................................. -- 1,441
------ ------
1,864 4,290
Less current portion....................................... (--) (2,426)
------ ------
Total long term notes payable.............................. $1,864 $1,864
====== ======
</TABLE>
7. STOCKHOLDERS' EQUITY (DEFICIT):
Convertible Preferred Stock:
The Company has authorized a total of 13,182,258 shares of convertible
preferred stock. The following is outstanding:
<TABLE>
<CAPTION>
Issued and
Outstanding December
31,
---------------------
Designated 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Series A................................. 2,800,000 2,800,000 2,800,000
Series B................................. 2,234,320 2,190,842 2,190,842
Series C................................. 2,323,969 2,323,969 2,314,663
Series C-1............................... 2,323,969 --
Series D................................. 3,500,000 3,111,110 3,111,110
---------- ----------
Total convertible preferred stock........ 10,425,921 10,416,615
========== ==========
</TABLE>
F-13
<PAGE>
MPATH INTERACTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The rights, preferences and privileges of the preferred stockholders are as
follows:
Dividends:
The holders of Series A, Series B, Series C, Series C-1 and Series D
preferred stock are entitled to receive dividends, out of any assets legally
available prior and in preference to any declaration or payment of any dividend
on the common stock at the rate of $.05, $.205, $1.03, $1.03 and $0.54 per
share per annum, respectively, when and if declared by the Board of Directors.
Such dividends are not cumulative. After payment of the dividend preference,
outstanding shares of Series A, Series B, Series C, Series C-1 and Series D
preferred stock shall participate with shares of common stock as to any
additional declaration or payment of any dividend. As of December 31, 1998, no
dividends have been declared or paid.
Liquidation:
In the event of any liquidation, dissolution or winding up of the Company,
either voluntary or involuntary, the holders of Series D preferred stock shall
be entitled to receive, prior and in preference to any distribution of any of
the assets of the Company to the holders of Series A, Series B, Series C and
Series C-1 preferred stock and common stock, an amount per share equal to the
sum of (i) $5.40 for each outstanding share of Series D preferred stock and
(ii) an amount equal to declared but unpaid dividends on such shares. If upon
the occurrence of such event, the assets and funds thus distributed among the
holders of Series D preferred stock shall be insufficient to permit the payment
of preferential amounts, then the entire assets and funds to the Company
legally available for distribution shall be distributed ratably among the
holders of Series D preferred stock in proportion to the aggregate liquidation
preference for the shares owned by each such holder.
After completion of distribution to the preferred Series D stockholders, the
holders of Series A, Series B, Series C and Series C-1 preferred stock shall be
entitled to receive, prior and in preference to any distribution of any assets
of the Company to the holders of common stock, an amount per share equal to the
sum of (i) $.50 for each outstanding share of Series A preferred stock, $2.07
for each outstanding share of Series B preferred stock, $10.28 for each
outstanding share of Series C and Series C-1 preferred stock, and (ii) an
amount equal to declared but unpaid dividends on such shares. If upon the
occurrence of such an event, the assets and funds distributed among the holders
of Series A, Series B, Series C and Series C-1 preferred stock shall be
insufficient to permit the payment of preferential amounts, then the entire
assets and funds of the Company legally available for distribution shall be
distributed ratably among the holders of the Series A, Series B, Series C and
Series C-1 preferred stock in proportion to the aggregate liquidation
preference for the share of such stock owned by each holder.
After completion of distribution to the preferred stockholders, the
remaining assets of the Company will be distributed to the holders of Series A
preferred stock and common stock pro rata based upon the number of shares of
common stock held by each (assuming conversion into common stock of all such
Series A preferred stock) until the holders of Series A preferred stock shall
have received an aggregate of $2.50 per share of Series A preferred stock held,
including amounts paid from above. Any remaining assets are to be distributed
ratably among the holders of the Company's common stock.
Conversion:
Each share of Series A, Series B, Series C, Series C-1 and Series D
preferred stock is convertible, at the option of the holder, into such number
of fully paid and nonassessable shares of common stock as determined by
dividing the applicable original issue price by the conversion price applicable
to such share in effect at the date of conversion. The original issue price
shall be adjusted for any stock splits. Each share of preferred stock
F-14
<PAGE>
MPATH INTERACTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
shall automatically be converted into shares of common stock immediately upon
the earlier of (i) the closing of a firm commitment underwritten public
offering results in not less than $10.28 per share and aggregate net proceeds
to the Company of more than $15,000,000 or (ii) written consent or agreement of
the holders of 66 2/3% of the then outstanding preferred stock. At December 31,
1998, each share of Series A, Series B, Series C, Series C-1 and Series D
preferred stock can be converted to one share of common stock, subject to
adjustments under specific circumstances. The Company has reserved a total of
14,642,477 shares of common stock in the event of preferred stock conversion.
Redemption:
The preferred stock is not redeemable.
Voting Rights:
The holder of each share of Series A, Series B, Series C, Series C-1 and
Series D preferred stock is entitled to one vote for each share of common stock
into which such share of the preferred stock is convertible.
Common Stock:
Previously the Company had issued 2,397,000 shares of its common stock to
the founders and key employees of the Company under restricted stock purchase
agreements in exchange for notes receivable bearing interest at 5.2% to 6.8%
per annum.
In the period ending December 31, 1998, the Company issued 852,378 options
for shares of its common stock to seven key employees of the Company. All of
the options were exercised immediately in exchange for cash and notes
receivable bearing interest rates ranging from 5.93% to 6.02% per annum.
Under the terms of the agreements, the Company has the option to repurchase
all or any portion of the purchased shares in which the founders and key
employees have not acquired a vested interest, should the individuals cease to
be employed, at the holder's original purchase price. The Company's right to
repurchase such shares generally lapses 25% on the first anniversary date of
the purchase of the common stock and thereafter ratably over three years. At
December 31, 1998, 195,354 shares of the founders common stock and 589,599
shares of the options exercised were subject to the Company's right of
repurchase.
Warrants:
In conjunction with a capital lease agreement, the Company granted warrants
to purchase up to 43,477 shares of its Series B preferred stock at an exercise
price of $2.07 per share and expire September 30, 1999. The warrants are
exercisable based on the amount of the lease line used. As the fair value of
these warrants was determined to be immaterial at the date of issuance, no
charge to rent expense was recorded. At December 31, 1998 warrants to purchase
43,477 shares of Series B preferred stock were fully exercisable. The Company
has reserved 43,477 shares of Series B preferred stock for the exercise of
these warrants.
In conjunction with the issuance of the Series D preferred stock, issued
during July and August 1997, the Company issued warrants to the Series D
investors to purchase 1,555,555 shares of common stock at a price of $5.40 per
share (subject to adjustments under certain circumstances). This grant of
1,555,555 includes the 490,741 convertible promissory note grant and the
323,702 bridge loan conversion grant (see Note 6). No charge was recorded for
the fair value of these warrants at the date of grant (of $529,000) as the
warrants were costs of financing recorded against additional paid-in capital.
One-half of the warrants shall become exercisable upon the earlier of the sale
of the Company for a price which is less than $10.80 per share or July 18, 1999
and
F-15
<PAGE>
MPATH INTERACTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the remaining warrants shall become exercisable upon the earlier of the sale of
the Company for a price which is less than $10.80 per share or January 19,
2001.
One-half of the warrants expire upon (i) the closing of an initial public
offering with a price per share greater than $10.80 per share (subject to
adjustments under certain conditions) and having aggregate net proceeds to the
Company greater than $15,000,000, (ii) the sale of the Company for a price per
share greater than $10.80 per share (subject to adjustment) or (iii) a private
financing with a price per share greater than $10.80 per share (subject to
adjustment); provided that the event occurs before 24 months from the date of
purchase. The remaining warrants expire under the same circumstances provided,
however, that the event occurs before 30 months from the date of purchase and
the offering has an aggregate net proceeds to the Company greater than
$10,000,000.
The Company entered into an agreement with a national Internet Service
Provider (service provider) in 1995 to provide the equipment necessary for the
Company's services. In connection with this agreement, the Company tentatively
agreed to issue warrants to purchase 120,000 shares of common stock, although
the warrant was not issued until an agreement as to its terms was finalized on
February 12, 1999. The warrants entitle the holder to purchase 12,000 shares of
common stock at $0.21 per share and 108,000 shares at $1.03 per share. These
warrants are immediately exercisable and expire in February 2004. The fair
value of these warrants, as determined using the Black-Scholes model, was
calculated to be approximately $913,000, which will be expensed as cost of
revenues in the first quarter of 1999.
The Company issued a warrant to purchase up to 52,250 shares of common stock
at a price of $60 per share (subject to adjustments under certain
circumstances) in connection with the issuance of notes payable by Catapult
prior to its acquisition by the Company (See Note 6). The warrant is
exercisable, in whole or in part, at any time on or after November 18, 1996,
based on certain conditions as defined, and expires on December 31, 2000. The
Company has reserved 52,250 shares of common stock for the exercise of this
warrant. As the fair value of these warrants was determined to be immaterial at
the date of issuance, no charge was recorded.
The following table summarizes the outstanding warrants at December 31,
1998:
<TABLE>
<CAPTION>
Number of Exercise
Date of Grant Issued to Type Warrants Price Expires
------------- ---------------------------- ------------------ --------- ----------- --------------
<S> <C> <C> <C> <C> <C>
September 1995 Capital lessor Series B Preferred 43,477 $2.07 September 1999
November 1996 Promissory noteholder Common 52,250 $60.00 November 2000
July 1997 Series D Preferred investors Common 1,555,555 $5.40 (see Note 6)
July 1998 Note financer Series D Preferred 23,000 $5.40 July 2003
(see above) Internet service provider Common 120,000 (see above) (see above)
</TABLE>
1995 Stock Option/Stock Issuance Plan:
During 1995, the Company adopted the 1995 Stock Option/Stock Issuance Plan
(the Plan). The Plan is divided into an Option Grant Program under which
employees may be granted options to purchase common stock and a Stock Issuance
Program under which employees may be issued shares of common stock directly,
either through the immediate purchase of such shares or for services rendered
to the Company. Options are granted at an exercise price determined by the
board of directors and are fully exercisable on date of grant, subject to
repurchase (at the original price) by the Company. The repurchase right lapses
for 25% of the shares upon completion of one year of service and the balance in
successive equal monthly installments over three years. Options expire ten
years after issuance. As of December 31, 1998 shares authorized under the plan
were 3,453,000.
F-16
<PAGE>
MPATH INTERACTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As part of the Catapult acquisition, the Company exchanged options to
purchase 122,403 shares of stock under the Plan for Catapult options
outstanding prior to the acquisition. These options, which were fully vested
upon consummation of the acquisition, are exercisable following termination of
employment for a period up to four years after the Company's acquisition of
Catapult or nine months after an initial public offering of the Company,
(unless the lock-up period following the initial public offering imposed upon a
particular by the underwriters is longer than six months, in which case such
option's shall not terminate until three months after expiration of such lock-
up period). Shares issuable upon exercise of 15,453 of the options were held as
part of the escrow described under Note 3. The Catapult options held in escrow
were reduced by 1,325 options and the remaining 14,128 options were released
from escrow in 1998. The exercise price of the options was based on the
exchange ratio in the acquisition and range from $1.01 to $6.29 per share.
Activity under the Plan, including options granted in connection with the
above Catapult acquisition, is as follows:
<TABLE>
<CAPTION>
Weighted
Options Average
Available Number of Exercise Aggregate Exercise
for Grant Options Price Price Price
---------- ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balances, December 31,
1995................... 728,000 595,000 $0.05-$0.21 $ 62,000 $ 0.10
Options additionally
reserved............. 380,000
Options granted....... (457,903) 457,903 $0.21-$6.29 777,000 $ 1.70
Options canceled...... 55,500 (55,500) $0.21-$1.03 (16,000) $ 0.29
Options exercised..... (33,750) $0.05-$0.21 (2,000) $ 0.07
---------- ---------- -----------
Balances, December 31,
1996................... 705,597 963,653 $0.05-$6.29 821,000 $ 0.85
Options additionally
reserved............. 600,000
Options granted....... (837,750) 837,750 $ 1.03 863,000 $ 1.03
Options canceled...... 144,525 (144,525) $0.21-$1.03 (93,000) $ 0.65
Options exercised..... (53,400) $0.05-$1.03 (15,000) $ 0.28
---------- ---------- -----------
Balances, December 31,
1997................... 612,372 1,603,478 $0.05-$6.29 1,576,000 $ 0.98
Options additionally
reserved............. 1,150,000
Options granted....... (1,586,750) 1,586,750 $1.03-$2.50 1,992,000 $ 1.26
Options repurchased... 1,500 $ 1.03 $ 1.03
Options canceled...... 152,166 (152,166) $0.05-$6.29 (134,000) $(0.88)
Options exercised..... (1,252,165) $0.05-$1.13 (1,050,000) $(0.84)
---------- ---------- -----------
Balances, December 31,
1998................... 329,288 1,785,897 $0.05-$6.29 $ 2,384,000 $ 1.33
========== ========== ===========
</TABLE>
At December 31, 1996, 1997 and 1998, options for 1,455,088, 12,501 and
589,599 shares remain subject to the Company's right of repurchase.
F-17
<PAGE>
MPATH INTERACTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The options outstanding and currently exercisable by exercise price at
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Options Currently
Options Outstanding Exercisable
--------------------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
----------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.05 106,334 6.3 years $0.05 106,334 $0.05
$0.21 38,187 5.2 years $0.21 38,187 $0.21
$1.01-$1.13 1,308,736 9.2 years $1.03 1,308,736 $1.03
$1.50 46,500 9.9 years $1.50 46,500 $1.50
$2.01 30,712 2.1 years $2.01 30,712 $2.01
$2.50 189,000 10 years $2.50 189,000 $2.50
$6.29 66,428 1.9 years $6.29 66,428 $6.29
--------- ---------
$0.05-$6.29 1,785,897 8.6 years $1.34 1,785,897 $1.33
========= =========
</TABLE>
For financial reporting purposes, the Company has determined that the
deemed fair market value on the date of grant of employee stock options
granted since 1995 was in excess of the exercise price of the options. The
difference is considered stock compensation expense and is charged against
income over the vesting period of the options.
Pro Forma Stock-Based Compensation:
The Company accounts for employee stock options under APB Opinion No. 25.
Had the Company determined compensation expense under SFAS No. 123, the effect
on the Company's net earnings would have been insignificant. These pro forma
results are not necessarily indicative of results which may be expected in the
future as additional grants are made each year and options vest over several
years. The weighted average fair value of the options and warrants granted or
modified for the years ended December 31, 1996, 1997 and 1998 was $0.17, $0.40
and $0.22 respectively.
The following weighted average assumptions were used in the above
calculations:
<TABLE>
<CAPTION>
1996 1997 1998
--------- ------- -------
<S> <C> <C> <C>
Risk free interest rate....................... 6.11% 6.05% 5.13%
Expected life................................. 5.5 years 4 years 4 years
Volatility.................................... -- -- --
Dividend yield................................ -- -- --
</TABLE>
8. NET LOSS PER SHARE:
In accordance with the requirements of SFAS No. 128, a reconciliation of
the numerator and denominator of basic and diluted loss per share is provided
as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Numerator--Basic and Diluted:
Net loss........................... $(25,045,000) $(13,654,000) $(11,951,000)
Denominator--Basic and Diluted:
Weighted average common shares
outstanding....................... 741,000 1,749,000 2,217,000
Basic and Diluted loss per share..... $ (33.80) $ (7.81) $ (5.39)
</TABLE>
F-18
<PAGE>
MPATH INTERACTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Options and warrants to purchase common and preferred shares and preferred
securities are not included in the diluted loss per share calculations as their
effect is antidilutive for all periods presented. These dilutive securities at
December 31, 1998 included weighted average common stock equivalents relating
to preferred stock and options and warrants to purchase common and preferred
shares (as calculated using the treasury method), as follows:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ----------
<S> <C> <C> <C>
Preferred stock............................ 5,332,682 8,662,706 10,416,615
Unvested common shares..................... 1,435,088 794,594 185,354
Options.................................... 650,168 1,118,773 1,993,582
Warrants................................... -- 216,088 543,436
</TABLE>
9. EMPLOYEE BENEFIT PLAN:
The Company created a 401(k) Plan (the Plan) to provide tax deferred salary
deductions for all eligible employees. Participants may make voluntary
contributions to the Plan up to 20% of their compensation, not to exceed the
annual 402(g) limitation for any plan year. The Company's matching contribution
is discretionary as determined by the Board of Directors. During 1996, 1997 and
1998, the Company did not contribute to the Plan.
10. INCOME TAXES:
For the years ended December 31, 1996, 1997 and 1998 the provision for
income taxes comprised minimum state tax expense.
The components of the net deferred tax assets comprised (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------
1997 1998
-------- --------
<S> <C> <C>
Net operating loss carryforwards.......................... $ 14,552 $ 17,588
Tax credit carryforwards.................................. 988 988
Accruals, depreciation and amortization................... 389 528
Intangible assets......................................... 6,957 5,097
-------- --------
22,886 24,201
Less valuation allowance.................................. (22,886) (24,201)
-------- --------
Net deferred tax asset.................................... $ -- $ --
======== ========
</TABLE>
Due to uncertainty surrounding the realization of the favorable tax
attributes in future tax returns, the Company has placed a valuation allowance
against its net deferred tax assets.
The difference between the statutory rate of approximately 40% (34% federal
and 6% state, net of federal tax benefits) and the tax benefit of zero recorded
by the Company is primarily due to the Company not recording the benefit
received from the accumulation of their net deferred tax assets.
At December 31, 1997 and 1998, the Company had federal and state net
operating loss carryforwards of approximately $32,816,000 and $45,232,000,
respectively, available to offset future regular and alternative minimum
taxable income. Of the total net operating loss carryforwards, $16,231,000 was
attributed to Catapult's carryforwards (see Note 3). The Company's net
operating loss carryforwards expire on various dates after the year 1999, if
not utilized.
F-19
<PAGE>
MPATH INTERACTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Due to changes in the Company's ownership, future utilization of these net
operating losses and credit carryforwards will be subject to certain annual
limitations as defined by the Tax Reform Act of 1986. Due to separate return
limitations, future utilization of the net operating losses and credits of
Catapult will be subject to additional limitations.
Due to changes in the Company's ownership, future utilization of these net
operating loss carryforwards may be subject to certain limitations on annual
utilization as deferred by the Tax Reform Act of 1986.
11. RELATED PARTY TRANSACTIONS:
One of the Company's major customers is also an investor and has a seat on
the Board of Directors. The Company had revenue transactions in the normal
course of business with this customer totaling $515,000 and $1,901,000 in the
years ending December 31, 1997 and 1998, respectively. During the year ending
December 31, 1996, the Company did not have revenue transactions with this
customer. As of December 31, 1998, the Company has an accounts receivable
balance of $376,000 outstanding from this customer.
12. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1996 1997 1998
---------- ---------- ---------
<S> <C> <C> <C>
Cash paid for interest......................... $ 40,000 $ 115,000 $ 222,000
Exercise of common stock options for notes
receivable.................................... 46,000 -- 937,000
Issuance of Series C preferred stock in
consideration of Catapult acquisition in
November 1996................................. 9,021,000 -- --
Assumption of notes payable in connection with
the Catapult acquisition, net of original
discount of $415,000.......................... 2,756,000 -- --
Conversion of Series C preferred stock to
Series D preferred stock...................... -- 500,000 --
Exchange of notes payable for Series D
preferred stock............................... -- 1,300,000 --
Conversion of bridge loans and accumulated
interest into Series D preferred stock........ -- 1,614,000 --
Non cash payment for common stock warrants..... -- 1,000 --
Buyout of Catapult leases with deposit funds... -- 74,000 --
Non cash financing cost in conjunction with
financing arrangement for warrant of 23,000
shares of Series D preferred stock............ -- -- 64,000
Compensation accrued for options granted....... 365,000 1,606,000 215,000
Compensation recorded for options exercised.... 12,000 63,000 2,380,000
</TABLE>
13. SEGMENTS:
As discussed in Note 2, the Company has two reportable segments: Live
Communities and Foundation. Live Communities provides a live entertainment and
game community on the Internet. Foundation leverages the technology expertise
developed in creating Live Communities by providing licensed technology,
developmental and supporting services to companies seeking to create online
communities.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on profit or loss from operations before income tax and
including nonrecurring gains and losses.
F-20
<PAGE>
MPATH INTERACTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business has different strategies. The following table provides financial
information by segment (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
----------------- ----------------- ----------------
Percent Percent Percent
of of of
Dollar Total Dollar Total Dollar Total
Value Revenue Value Revenue Value Revenue
-------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net revenues:
Live Communities........ $ 12 10% $ 686 25 % $ 3,022 38%
Foundation.............. 112 90% 2,041 75 % 5,005 62%
-------- --- -------- --- ------- ---
Total................. $ 124 100% $ 2,727 100 % $ 8,027 100%
======== === ======== === ======= ===
Cost of net revenues:
Live Communities........ $ 35 28% $ 1,808 66 % $ 2,221 28%
Foundation.............. 90 72% 620 23 % 790 10%
-------- -------- -------
Total................. $ 125 $ 2,428 $ 3,011
======== ======== =======
Gross profit (loss):
Live Communities........ $ (23) -18% $ (1,122) (41)% $ 801 10%
Foundation.............. 22 18% 1,421 52 % 4,215 52%
-------- -------- -------
Total................. $ (1) $ 299 $ 5,016
======== ======== =======
Operating expenses:
Live Communities........ $ 11,648 $ 8,106 $ 9,740
Foundation.............. 427 4,077 4,513
-------- -------- -------
Total................. $ 12,075 $ 12,183 $14,253
======== ======== =======
Operating loss:
Live Communities........ $(11,671) $ (9,228) $(8,939)
Foundation.............. (405) (2,656) (298)
-------- -------- -------
Total................. $(12,076) $(11,884) $(9,237)
======== ======== =======
</TABLE>
The Company does not track assets at all or operating expenses in any more
detail than presented above for the Chief operating decision maker to make
operating decisions. Accordingly such information has not been presented.
In 1996, operating expenses and operating loss do not agree to the amounts on
the statement of operations as the write-off of acquired intangibles was not
considered to be a part of either operating segment. In 1996, 1997 and 1998,
the operating expenses and operating loss do not agree to the amounts on the
statements of operations as the stock compensation was not classified within
either operating segment.
14. SUBSEQUENT EVENTS:
In January of 1999 the Company increased the authorized number of shares of
preferred stock to 16,294,986 and issued 3,035,306 shares of Series E
convertible preferred stock, with a par value of $.00005 per share, at a price
of $6.60 per share. An additional 77,422 shares of Series E preferred stock are
reserved for issuance upon exercise of warrants granted to the investment
bankers at an exercise price of $6.60 per share. The warrants expire upon the
earlier of January 15, 2004, the sale or merger of substantially all of the
F-21
<PAGE>
MPATH INTERACTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company's assets or an underwritten public offering of securities. The fair
value of these warrants of $104,000 will be recorded as a reduction of
additional paid-in capital.
Each share of Series E preferred stock is convertible at the option of the
holder into one share of common stock. All preferred shares will automatically
convert into common stock upon the earlier of the closing of an underwritten
public offering of common stock for not less than $10.80 per share, with
aggregate net proceeds of more than $15,000,000, or the date specified by
written consent or agreement of the holders of at least sixty-six and two
thirds percent (66.67%) of the then outstanding shares of preferred stock.
The holders of Series E preferred stock are entitled to receive, on an equal
basis, non- cumulative dividends in preference to holders of common stock at
the rate of $0.66 per share, when and if declared by the Board of Directors.
Upon liquidation, dissolution, or winding up of the Company, the holders of
preferred stock are entitled to receive on an equal basis in conjunction with
holders of preferred Series D and in preference to holders of common and
holders of Series A,B,C and C-1 an amount equal to $6.60 for each share of
Series E and $5.40 for each share of Series D then held plus any declared but
unpaid dividends. Holders of Series A,B,C and C-1 preferred stock shall then
receive distributions based on their liquidation rates.
After completion of the distribution to the preferred stockholders the
remaining assets will be distributed to the holders of Series A Preferred Stock
and common stock on a common equivalent of $2.50 per share. Thereafter, the
holders of common stock will be entitled to receive all remaining assets.
The holders of each share of Series E preferred stock shall have the right
to that number of votes equal to the number of shares of common held on as
converted basis.
Immediately subsequent to the issuance of Series E preferred stock the term
loan for $1,500,000 (see Note 6) became due and payable. The Company has fully
repaid this obligation.
15. ADDITIONAL SUBSEQUENT EVENTS:
In February 1999, the Company's Board of Directors approved the 1999 Stock
Incentive Plan, which is still subject to stockholder approval. A total of
2,500,000 shares of common stock has been reserved for issuance under this
plan, which is subject to annual increases. This plan provides for the grant of
incentive stock options to employees and nonstatutory stock options and
restricted stock to employees, directors and consultants. The terms of the
option and restricted stock grants will be determined by the Board of Directors
on the date of issuance.
In February 1999, the Company's Board of Directors approved the 1999
Directors' Stock Option Plan (the "Directors' Plan"), which is still subject to
stockholder approval. A total of 300,000 shares of common stock has been
reserved for issuance under the Directors' Plan. The Directors' Plan provides
for an initial grant of an option to purchase 30,000 shares of common stock to
each person who becomes a non-employee director after the effective date of the
Directors' Plan. These options vest and become exercisable 25% annually upon
the first, second, third and fourth anniversaries of the date of grant. The
Directors' Plan also calls for annual grants upon each annual meeting of
options to purchase 7,500 common shares, which option becomes exercisable and
vested in full upon the fourth anniversary of the date of grant. Options must
be granted at the fair market value on the date of grant and have a term of the
lesser ten years or the term of the optionees' service as a director.
In February 1999, the Company's Board of Directors approved the 1999
Employee Stock Purchase Plan (the "Purchase Plan"), which is still subject to
stockholder approval. A total of 750,000 shares of common
F-22
<PAGE>
MPATH INTERACTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
stock has been reserved for issuance under the Purchase Plan, which is subject
to annual increases. The Purchase Plan allows for eligible employees to
purchase a limited number of shares of the Company's Common Stock at 85% of the
fair market value during certain plan-defined dates.
On February 11, 1999, the Company entered into a Letter of Understanding
with Yahoo! Inc., which outlines an arrangement to license to Yahoo! certain
technology. As part of this arrangement, the Company issued Yahoo! a warrant to
purchase 192,000 shares of common stock at an exercise price of $10.29 per
share, which Yahoo! can exercise upon certain milestones. While the final
valuation of this warrant will not be established until all of the milestones
have been met, the Company will estimate the value at each month-end. One-half
of the value will be expensed in the six-month period to September 30, 1999.
The remaining expense will be charged to operations over the period of the
agreement with Yahoo!.
F-23
<PAGE>
[INSIDE BACK COVER]
Title: "Advertising Products." Text: "The Mpath technologies offer Internet
advertisers an opportunity to reach targeted audiences who are participating
in activities that keep them absorbed in our Live Communities. Our Live
Communities serve over 3 million registered users with over 80,000 unique
daily visitors generating over 300 minutes of average monthly usage per visitor.
Mpath's Live Communities advertising leverages rich media to provide enhanced
opportunities for building brand awareness and loyalty and increasing
customers' purchase intent. Live Communities can also target ads to distinct
demographic and psychographic groups. Live Communities offer standard banner
advertising and also go beyond-the banner to offer TV-style interstitials, Web
viewers, buttons, sponsorships, contests, promotions and special offers."
Center of page:
Seven overlapping images of Web pages, banner ads, and buttons, which display
the various types of advertising mediums available. Each image has text
associated with it, and the text for such images is as follows:
1. "Email Newsletters. Deliver messages directly to the live communities
membership and hyperlink to the advertiser's Web site."
2. "Banner Ads and Buttons. Target by content, demographics, geography,
browser and domain."
3. "Intersitials. Offer innovative, full-screen, TV style ads--using
animation, audio or static graphics."
4. "Web Viewers. Target by content, demographics and geography with guaranteed
visibility so members can navigate the advertiser's site from directly within
our live communities."
5. "Sponsorships. Display high visibility ad or logo by lobby, community or
pager sponsorship and link ad or logo to the advertiser's Web site."
6. "Member Portraits. Customize a member portrait with the advertiser's
corporate logo or icon."
Bottom of page:
Text: "Strategic Relationships. Mpath has entered into strategic relationships
with some of the most prominent media technology companies in order to
increase membership and usage, maximize revenues, build brand recognition,
accelerate product development and acquire content." Small corporate logos for
the following entities:
1. Infoseek Corporation
2. XOOM, Inc.
3. Intel Corporation
4. Excite, Inc.
5. Macromedia, Inc.
6. GTECH Corporation
7. SegaSoft Networks, Inc. (Heat logo)
8. Cox Interactive Media, Inc.
<PAGE>
[LOGO OF MPATH APPEARS HERE]
[OUTSIDE BACK COVER PAGE]
Until , 1999 (25 days after the date of this prospectus), 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 dealers' obligation to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Mpath in connection with the
sale of common stock being registered. All amounts are estimates except the
Securities and Exchange Commission registration fee, the NASD filing fee and
the Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
Amount
to be Paid
----------
<S> <C>
Securities and Exchange Commission registration fee................. $ 13,748
NASD filing fee..................................................... 5,445
Nasdaq National Market listing fee.................................. 90,000
Printing and engraving expenses..................................... 225,000
Legal fees and expenses............................................. 300,000
Accounting fees and expenses........................................ 207,000
Blue Sky qualification fees and expenses............................ 3,000
Transfer Agent and Registrar fees................................... 10,000
Miscellaneous fees and expenses..................................... 142,807
--------
Total............................................................. 997,000
========
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit indemnification under
specific circumstances for liabilities including reimbursement for expenses
incurred arising under the Securities Act. Article X of Mpath's Certificate of
Incorporation (Exhibit 3.1) and Article VII, Section 6 of Mpath's Bylaws
(Exhibit 3.3) provide for indemnification of Mpath's directors, officers,
employees and other agents to the maximum extent permitted by Delaware law. In
addition, Mpath has entered into indemnification agreements (Exhibit 10.1) with
its officers and directors. The Underwriting Agreement (Exhibit 1.1) also
provides for cross-indemnification among Mpath and the Underwriters with
respect to certain matters, including matters arising under the Securities Act.
Item 15. Recent Sales of Unregistered Securities
Since January, 1995, Mpath has sold and issued the following securities:
1. In January and March 1995, Mpath issued and sold for cash a total of
100,000 shares of its Common Stock at a price of $0.05 per share to two
investors and 2,800,000 shares of its Series A Preferred Stock at a price of
$0.50 per share to seven investors.
2. In August 1995 and January 1996, Mpath issued and sold for cash a
total of 2,190,842 shares of its Series B Preferred Stock at a price of $2.07
per share to 29 private investors.
3. In April, May and July 1996, Mpath issued and sold for cash a total of
1,154,580 shares of its Series C Preferred Stock at a price of $10.28 per share
to 35 private investors. In November 1996, Mpath issued and sold a total of
291,829 shares of its Series C Preferred Stock at a price per share of $10.28
to 27 investors. In March 1997, Mpath issued and sold 48,638 shares of its
Series C Preferred Stock at a price of $10.28 per share to one private
investor.
II-1
<PAGE>
4. In November 1996, Mpath acquired one hundred percent of the
outstanding stock of Catapult Entertainment, Inc., a California corporation, in
connection with Catapult's reorganization. Pursuant to an Agreement and Plan of
Reorganization and an Agreement and Plan of Merger, Catapult merged with and
into a wholly-owned subsidiary of Mpath and Mpath issued 868,254 shares of
Series C Preferred Stock and options to purchase 121,078 shares of common
stock, valued at $10.28 per share, to 26 securityholders of Catapult. In
addition, Mpath issued and sold a warrant to purchase up to 52,250 shares of
common stock at a price of $60.00 per share to Intel. Mpath also issued two
convertible promissory notes to Intel for $1,150,000 and $150,000 respectively
and issued a convertible senior subordinated promissory note to Viacom
International, Inc. for $1,864,000.
5. In July and August 1997, Mpath issued and sold a total of 3,111,110
shares of Series D Preferred Stock to 28 private investors for cash and the
cancellation of debt at a price of $5.40 per share. In addition, in July and
August 1997, Mpath issued warrants to purchase 1,555,555 shares of common stock
at an exercise price of $5.40 per share to the purchasers of the Series D
Preferred Stock.
6. In July 1998, Mpath entered into a loan and security agreement
pursuant to which Mpath received a $1,500,000 term loan. In connection with the
loan and security agreement, Mpath issued and a warrant to purchase 23,000
shares of Series D Preferred Stock at an exercise price of $5.40 per share.
7. In January 1999, Mpath issued and sold for cash a total of 3,035,306
shares of Series E Preferred Stock to 69 private investors at a price of $6.60
per share. In addition, Mpath issued a warrant to purchase 77,422 shares of its
Series E Preferred Stock at an exercise price of $6.60 per share and paid a
commission of $1,201,980 to NationsBanc Montgomery Securities, LLC, the
placement agent in the Series E financing.
8. Since inception, Mpath has issued an aggregate of 3,329,806 options to
purchase its common stock net of lapsed options to 184 of its employees,
directors and consultants with exercise prices ranging from $0.05 to $5.50, and
has issued and sold an aggregate of 4,201,896 shares of its common stock net of
repurchases to 101 of its employees, directors and consultants at prices
ranging from $0.005 to $5.50.
The issuances of the securities listed above were deemed to be exempt
from registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as transactions by an issuer not involving any public offering.
In addition, some of the issuances described in Item 8 were deemed exempt from
registration under the Securities Act in reliance upon Rule 701. The recipients
of securities in each transaction represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates and warrants issued in each transaction. All recipients had
adequate access, through their relationships with Mpath, to information about
Mpath.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1 Form of Underwriting Agreement (subject to negotiation).*
3.1 Amended and Restated Certificate of Incorporation of Mpath.**
3.2 Amended and Restated Certificate of Incorporation of Mpath (as
proposed).**
3.3 Amended and Restated Bylaws of Mpath.**
3.4 Amended and Restated Bylaws of MPath (as proposed).**
4.1 Specimen Stock Certificate.
4.2 Fourth Amended and Restated Investors' Rights Agreement dated January
15, 1999.**
4.3 Form of Common Stock Purchase Warrant, issued in connection with the
Series D Preferred Stock financing.**
4.4 Warrant to Purchase Shares of Capital Stock dated November 18, 1996,
issued by Mpath in favor of Intel Corporation.**
4.5 Common Stock Purchase Warrant dated February 12, 1999, issued by Mpath
in favor of PSINet, Inc.**
4.6 Common Stock Purchase Warrant dated February 12, 1999, issued by Mpath
in favor of PSINet, Inc.**
4.7 Common Stock Purchase Warrant dated February 11, 1999, issued by Mpath
in favor of Yahoo! Inc.+**
4.8 Preferred Stock Purchase Warrant dated September 29, 1995, issued by
Mpath in favor of Lighthouse Capital Partners, LP.**
4.9 Warrant to Purchase Stock dated July 29, 1998, issued by Mpath in favor
of Greyrock Business Credit.**
4.10 Series E Preferred Stock Purchase Warrant dated January 15, 1999,
issued by Mpath in favor of NationsBanc Montgomery Securities LLC.**
4.11 Convertible Senior Subordinated Promissory Note dated November 18,
1996, issued by Mpath to Viacom International, Inc.**
4.12 Secured Promissory Notes dated July 29, 1998, and December 24, 1998
issued by Mpath to Greyrock Business Credit.
5.1 Opinion of Venture Law Group regarding the legality of the common stock
being registered.**
10.1 Form of Indemnification Agreement between Mpath and each of its
officers and directors.***
10.2 1995 Stock Option/Stock Issuance Plan.**
10.3 1999 Stock Incentive Plan.**
10.4 1999 Employee Stock Purchase Plan.**
10.5 1999 Directors' Stock Option Plan.**
10.6 Distribution Agreement dated April 22, 1998 between Mpath and Cox
Interactive Media, Inc.+**
10.7 Content License and Co-branded Area Agreement dated April 15, 1998
between Mpath and Excite, Inc.+**
10.8 POP.X(TM) License Agreement dated June 26, 1998 between Mpath and GTECH
Corporation.+**
10.9 Application Development Agreement dated November 9, 1998 between Mpath
and Intel Corporation.+**
10.10 Technology License Agreement dated April 15, 1996 between Mpath and
SegaSoft Networks, Inc.+**
10.11 Amendment #1 to Technology License Agreement dated November 27, 1996
between Mpath and SegaSoft Networks, Inc.+**
10.12 Amendment #2 to Technology License Agreement dated March 28, 1998
between Mpath and SegaSoft Networks, Inc.+**
10.13 Amendment #3 to Technology License Agreement dated October 27, 1998
between Mpath and SegaSoft Networks, Inc.+**
10.14 Content Provider Agreement dated December 23, 1998 between Mpath and
Infoseek Corporation.+**
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.15 Loan and Security Agreement dated July 29, 1998 between Mpath and
Greyrock Business Credit, including the related Schedule to Loan and
Security Agreement dated July 29, 1998, the related Amendment to Loan
Documents dated July 31, 1998, the related Patent and Trademark Security
Agreement dated July 29, 1998, the related Supplement One to Patent and
Trademark Security Agreement dated December 1, 1998, and the related
Security Agreement in Copyrighted Works dated July 29, 1998.
10.16 Industrial Lease dated December 1996 between Mpath and The Prudential
Insurance Company of America and the related Nondisturbance and
Attornment Agreement dated February 25, 1998.
23.1 Consent of Independent Accountants.
23.2 Consent of Attorney (See Exhibit 5.1).
24.1 Power of Attorney (See page II-5).
27.1 Financial Data Schedule.
</TABLE>
- --------
*To be filed by amendment.
**Previously Filed.
+Confidential treatment requested as to certain portions of this Exhibit.
(b) Financial Statement Schedules
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act 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 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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the city of
Mountain View, State of California on March 30, 1999.
MPATH INTERACTIVE, INC.
By: /s/ Paul Matteucci
----------------------------------
Paul Matteucci
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Paul Matteucci President, Chief Executive March 30, 1999
____________________________________ Officer and Director
Paul Matteucci (Principal Executive
Officer)
* Chief Financial Officer March 30, 1999
____________________________________ (Principal Financial and
Linda R. Palmor Accounting Officer)
* Director March 30, 1999
____________________________________
Brian Apgar
* Director March 30, 1999
____________________________________
James W. Breyer
* Director March 30, 1999
____________________________________
David A. Brown
* Director March 30, 1999
____________________________________
Douglas G. Carlston
* Director March 30, 1999
____________________________________
William McCall
* Director March 30, 1999
____________________________________
Gregory O'Brien
* Director March 30, 1999
____________________________________
Ruthann Quindlen
*By: /s/ Paul Matteucci March 30, 1999
__________________________________
Paul Matteucci
Attorney-in-Fact
</TABLE>
II-5
<PAGE>
EXHIBIT 4.1
[LOGO] NUMBER [COMPANY LOGO] TM [LOGO] SHARES
MP_____ _____
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 62473C 1O 1
MPATH INTERACTIVE, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE IN BOSTON, M.A. OR IN NEW YORK, N.Y.
COMMON STOCK
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.00005, OF
MPATH INTERACTIVE, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate and the shares represented hereby are issued and
shall be subject to all the provisions of the Certificate of Incorporation and
Bylaws of the Corporation and any amendments from time to time made thereto,
copies of which are on file at the principal office of the Corporation to all of
which the holder of this Certificate by acceptance hereof assents. This
Certificate is not valid until countersigned and registered by the Transfer
Agent and Registrar.
WITNESS, the facsimile seal of the Corporation and the facsimile signatures of
the duly authorized officers of the Corporation.
Dated:
/s/ LINDA R. PALMOR [LOGO] /s/ PAUL MATTEUCCI
TREASURER PRESIDENT
Countersigned and Registered:
BankBoston, N.A.
Transfer Agent and Registrar
By: /s/
Authorized Signature
MPATH INTERACTIVE, INC.
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights as established, from time to time, by the Certificate of
Incorporation of the Corporation and by any certificate of designation, and the
number of shares constituting each class and series and the designations
thereof, may be obtained by the holder hereof upon request and without charge
from the Corporation at its principal office.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT _________ Custodian ______________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act__________________________
in common (State)
UNIF TRF MIN ACT - _________ Custodian (unit age ______)
(Cust)
_____________ under Uniform Transfers
(Minor)
to Minors Act __________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list
FOR VALUE RECEIVED, ____________________________ hereby sell(s), assign(s) and
transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ----------------------
- ----------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ________________
_______________________________
NOTICE: THE SIGNATURE TO THE ASSIGNMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By_________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM). PURSUANT TO S.E.C. RULE
17Ad-15.
<PAGE>
Exhibit 4.12
---------------------------------------------------------
[LOGO OF GREYROCK]
SECURED PROMISSORY NOTE
$1,500,000 Los Angeles, California July 29, 1998
FOR VALUE RECEIVED, the undersigned (the Borrower) promises to pay to the
order of GREYROCK BUSINESS CREDIT (GBC), at 10880 Wilshire Blvd. Suite 950, Los
Angeles, CA 90024, or at such other address as the holder of this Note shall
direct, the principal sum of $1,500,000, plus interest as hereinafter provided,
on the earlier of the following dates (the Maturity Date): (i) July 29, 1999, or
(ii) the date after the date hereof that the Borrower receives the proceeds of
the issuance of additional equity securities or subordinated debt securities
(other than (i) shares of stock issued pursuant to any employee stock purchase
plan of the Borrower permitted under the Loan and Security Agreement between the
Borrower and GBC dated July 29, 1998 (the Loan Agreement), or (ii) shares of
stock issued pursuant to any stock plan approved by Board of Directors of
Borrower providing for issuances to employees, consultants and directors of
Borrower; or (iii) securities issued upon the exercise or conversion of
exercisable or convertible securities outstanding as of the date of this Note;
or (iv) securities issued substantially concurrently herewith in connection with
a $3,000,000 private placement by the Borrower), or (iii) the date the Loan
Agreement terminates by its terms or is terminated by either party in accordance
with its terms. On the Maturity Date the entire remaining unpaid principal
balance of this Note, plus any and all accrued and unpaid interest, shall be due
and payable.
This Note shall bear interest on the unpaid principal balance hereof from
time to time outstanding at a rate equal to the following: A rate equal to the
"Prime Rate" plus 2% per annum, calculated on the basis of a 360-day year for
the actual number of days elapsed. The interest rate shall be adjusted monthly
as of the first day of each month, and the interest to be charged for each month
shall be based on the highest "Prime Rate" in effect during said month, but in
no event shall the rate of interest charged on any Loans in any month be less
than 8% per annum "Prime Rate" shall have the meaning set forth in the Loan
Agreement. Interest shall be calculated on the basis of a 360-day year for the
actual number of days elapsed.
Accrued interest on this Note shall be payable monthly, in addition to the
principal payments provided above, commencing on July 29, 1998, and continuing
on the last day of each succeeding month. Any accrued interest not paid when due
shall bear interest at the same rate as the principal hereunder.
Principal of and interest on this Note shall be payable in lawful money of
the United States of America. If a payment hereunder becomes due and payable on
a Saturday, Sunday or legal holiday, the due date thereof shall be extended to
the next succeeding business day, and interest shall be payable thereon during
such extension.
In the event any payment of principal or interest on this Note is not paid
in full when due, or if any other default or Event of Default occurs hereunder,
under the Loan Agreement or under any other present or future instrument,
document, or agreement between the Borrower and GBC (collectively, Events of
Default), GBC may, at its option, at any time thereafter, declare the entire
unpaid principal balance of this Note plus all accrued interest to be
immediately due and payable, without notice or demand. The acceptance of any
installment of principal or interest by GBC after the time when it becomes due,
as herein specified, shall not be held to establish a custom, or to waive any
rights of GBC to enforce payment when due of any further installments or any
other rights, nor shall any failure or delay to exercise any rights be held to
waive the same.
<PAGE>
All payments hereunder are to be applied first to costs and fees referred
to hereunder, second to the payment of accrued interest and the remaining
balance to the payment of principal. Any principal prepayment hereunder shall be
applied against principal payments in the inverse order of maturity GBC shall
have the continuing and exclusive right to apply or reverse and reapply any and
all payments hereunder.
The Borrower agrees to pay all costs and expenses (including without
limitation attorney's fees) incurred by GBC in connection with or related to
this Note, or its enforcement, whether or not suit be brought. The Borrower
hereby waives presentment, demand for payment, notice of dishonor, notice of
nonpayment, protest, notice of protest, and any and all other notices and
demands in connection with the delivery, acceptance, performance, default, or
enforcement of this Note, and the Borrower hereby waives the benefits of any
statute of limitations with respect to any action to enforce, or otherwise
related to, this Note.
This Note is secured by the Loan Agreement and all other present and future
security agreements between the Borrower and GBC. Nothing herein shall be deemed
to limit any of the terms or provisions of the Loan Agreement or any other
present or future document, instrument or agreement, between the Borrower and
GBC, and all of GBC's rights and remedies hereunder and thereunder are
cumulative.
In the event any one or more of the provisions of this Note shall for any
reason be held to be invalid, illegal or unenforceable, the same shall not
affect any other provision of this Note and the remaining provisions of this
Note shall remain in full force and effect.
No waiver or modification of any of the terms or provisions of this Note
shall be valid or binding unless set forth in a writing signed by a duly
authorized officer of GBC, and then only to the extent therein specifically set
forth. If more than one person executes this Note, their obligations hereunder
shall be joint and several.
GBC 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 NOTE;
OR (ii) ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN GBC AND
BORROWER; OR (iii) ANY CONDUCT, ACTS OR OMISSIONS OF GBC OR BORROWER OR ANY OF
THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS
AFFILIATED WITH GBC OR BORROWER; IN EACH OF THE FOREGOING CASES, WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
This Note is payable in, and shall be governed by the laws of, the State of
California.
MPATH INTERACTIVE, INC.
/s/ Lynn Heublein
By __________________________________
Vice-President
/s/ Jeffrey Y. Suto
By __________________________________
Secretary
<PAGE>
SECURED PROMISSORY NOTE
$257,291.63 Los Angeles, California November 5, 1998
FOR VALUE RECEIVED, the undersigned ("Borrower") promises to pay to the
order of GREYROCK CAPITAL ("Greyrock"), at 10880 Wilshire Blvd., Suite 950, Los
Angeles, CA 90024, or at such other address as the holder of this Note shall
direct, the principal sum of $257,291.63, plus interest as hereinafter provided,
as follows: (i) forty seven (47) consecutive monthly principal installments in
the amount of $5,360.24 each, commencing December 31, 1998, and continuing on
the last day of each succeeding month; and (ii) one final installment on
November 30, 2002, in the amount of the entire unpaid principal balance of this
Note, plus any and all accrued and unpaid interest. Notwithstanding the
foregoing, the entire unpaid principal balance of this Note, plus any and all
accrued and unpaid interest, shall be due and payable immediately upon any
termination of that certain Loan and Security Agreement dated on or about July
29, 1998, by and between Borrower and Greyrock (the Loan Agreement"). Each
initially capitalized term used herein but not defined herein shall have the
meaning ascribed thereto in the Loan Agreement.
This Note shall bear interest on the unpaid principal balance hereof from
time to time out-standing at a rate equal to the Prime Rate plus 2% per annum,
calculated on the basis Of a 360-day year for the actual number of days elapsed.
The interest rate shall be adjusted monthly as of the first day of each month,
and the interest to be charged for each month shall be based on the highest
Prime Rate in effect during said month, but in no event shall the rate of
interest charged on any Loans in any month be less than 8% per annum. Interest
shall be calculated on the basis of a 360-day year for the actual number of days
elapsed.
Accrued interest on this Note shall be payable monthly, in addition to the
principal payments provided above, commencing on December 31, 1998, and
continuing on the last day of each succeeding month. Any accrued interest not
paid when due shall bear interest at the same rate as the principal hereunder.
Principal of and interest on this Note shall be payable in lawful money of
the United States of America. If a payment hereunder becomes due and payable on
a Saturday, Sunday or legal holiday, the due date thereof shall be extended to
the next succeeding business day, and interest shall be payable thereon during
such extension.
In the event any payment of principal or interest on this Note is not paid
in full when due, or if any other default or Event of Default occurs hereunder,
under the Loan Agreement or under any other present or future instrument,
document, or agreement between Borrower and Greyrock (collectively, "Events of
Default"), Greyrock may, at its option, at any time thereafter, declare the
entire unpaid
-1-
<PAGE>
principal balance of this Note plus all accrued interest to be immediately due
and payable, without notice or demand. The acceptance of any installment of
principal or interest by Greyrock after the time when it becomes due, as herein
specified, shall not be held to establish a custom, or to waive any rights of to
enforce payment when due of any further installments or any other rights, nor
shall any failure or delay to exercise any rights be held to waive the same.
All payments hereunder are to be applied first to costs and fees hereunder,
second to the payment of accrued interest and the remaining balance to the
payment of principal. Any principal prepayment hereunder shall be applied
against principal payments in the inverse order of maturity. Greyrock shall have
the continuing and exclusive right to apply or reverse and reapply any and all
payments hereunder.
Borrower agrees to pay all costs and expenses (including without limitation
attorney's fees) incurred by Greyrock in connection with or related to this
Note, or its enforcement, whether or not suit be brought. Borrower waives
presentment, demand for payment, notice of dishonor, notice of nonpayment,
protest, notice of protest, and any and all other notices and demands in
connection with the delivery, acceptance, performance, default, or enforcement
of this Note, and Borrower waives the benefits of any statute of limitations
with respect to any action to enforce, or otherwise related to, this Note.
This Note is secured by the Loan Agreement and all other present and future
security agreements between Borrower and Greyrock. Nothing herein shall be
deemed to limit any of the terms or provisions of the Loan Agreement or any
other present or future document, instrument or agreement, between Borrower and,
and all of Greyrock's rights and remedies hereunder and thereunder are
cumulative.
In the event any one or more of the provisions of this Note shall for any
reason be held to be invalid, illegal or unenforceable, the same shall not
affect any other provision of this Note and the remaining provisions of this
Note shall remain in full force and effect.
No waiver or modification of any of the terms or provisions of this Note
shall be valid or binding unless set forth in a writing signed by a duly
authorized officer of Greyrock, and then only to the extent therein specifically
set forth. If more than one person executes this Note, their obligations
hereunder shall be joint and several.
GREYROCK 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 NOTE; OR (ii) ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN
GREYROCK AND BORROWER; OR (iii) ANY CONDUCT, ACTS OR OMISSIONS OF GREYROCK OR
BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR
ANY OTHER PERSONS AFFILIATED WITH GREYROCK OR BORROWER; IN EACH OF THE FOREGOING
CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
-2-
<PAGE>
This Note is payable in, and shall be governed by the laws of, the State of
California.
MPATH INTERACTIVE, INC.
/s/ Paul Matteucci
By ___________________________________
President
By ___________________________________
Secretary
3-
<PAGE>
This Note is payable in, and shall be governed by the laws of, the State of
California.
MPATH INTERACTIVE, INC.
By ___________________________________
President
/s/ Jeffrey Y. Suto
By ___________________________________
Secretary
3-
<PAGE>
[LOGO OF GREYROCK]
SECURED PROMISSORY NOTE
$81,404.11 Los Angeles, California December 24, 1998
FOR VALUE RECEIVED, the undersigned ("Borrower") promises to pay to the
order of GREYROCK CAPITAL ("Greyrock"), at 10880 Wilshire Blvd., Suite 950, Los
Angeles, CA 90024, or at such other address as the holder of this Note shall
direct, the principal sum of $81,404.11, plus interest as hereinafter provided,
as follows' (i) forty seven (47) consecutive monthly principal installments in
the amount of $1,695.92 each, commencing January 31, 1999, and continuing on the
last clay of each succeeding month; and (ii) one final installment on December
31, 2002, in the amount of the entire unpaid principal balance of this Note,
plus any and all accrued and unpaid interest. Notwithstanding the foregoing, the
entire unpaid principal balance of this Note, plus any and all accrued and
unpaid interest, shall be due and payable immediately upon any termination of
that certain Loan and Security Agreement dated on or about July 29, 1998, by and
between Borrower and Greyrock (the Loan Agreement"). Each initially capitalized
term used herein but not defined herein shall have the meaning ascribed thereto
in the Loan Agreement.
This Note shall bear interest on the unpaid principal balance hereof from
time to time outstanding at a rate equal to the Prime Rate plus 2% per annum,
calculated on the basis of a 360-day year for the actual number of days elapsed.
The interest rate shall be adjusted monthly as of the first day of each month,
and the interest to be charged for each month shall be based on the highest
Prime Rate in effect during said month, but in no event shall the rate of
interest charged on any Loans in any month be less than 8% per annum. Interest
shall be calculated on the basis of a 360-day year for the actual number of days
elapsed.
Accrued interest on this Note shall be payable monthly, in addition to the
principal payments provided above, commencing on January 31, 1999, and
continuing on the last day of each succeeding month. Any accrued interest not
paid when due shall bear interest at the same rate as the principal hereunder.
Principal of and interest on this Note shall be payable in lawful money of
the United States of America. If a payment hereunder becomes due and payable on
a Saturday, Sunday or legal holiday, the due date thereof shall be extended to
the next succeeding business day, and interest shall be payable thereon during
such extension.
In the event any payment of principal or interest on this Note is not paid
in full when due, or if any other default or Event of Default occurs hereunder,
under the Loan Agreement or under any other present or future instrument,
document, or agreement between Borrower and Greyrock (collectively, "Events of
Default"), Greyrock may, at its option, at any time thereafter, declare the
entire unpaid principal balance of this Note plus all accrued interest to be
immediately due and payable, without notice or demand. The acceptance of any
installment of principal or interest by Greyrock after the time when it becomes
due, as herein specified, shall not be held to establish a custom, or to waive
any rights
-1-
<PAGE>
of to enforce payment when due of any further installments or any other rights,
nor shall any failure or delay to exercise any rights be held to waive the same.
All payments hereunder are to be applied first to costs and fees hereunder,
second to the payment of accrued interest and the remaining balance to the
payment of principal. Any principal prepayment hereunder shall be applied
against principal payments in the inverse order of maturity. Greyrock shall have
the continuing and exclusive right to apply or reverse and reapply any and all
payments hereunder.
Borrower agrees to pay all costs and expenses (including without limitation
attorney's fees) incurred by Greyrock in connection with or related to this
Note, or its enforcement, whether or not suit be brought. Borrower waives
presentment, demand for payment, notice of dishonor, notice of nonpayment,
protest, notice of protest, and any and all other notices and demands in
connection with the delivery, acceptance, performance, default, or enforcement
of this Note, and Borrower waives the benefits of any statute of limitations
with respect to any action to enforce, or otherwise related to, this Note.
This Note is secured by the Loan Agreement and all other present and future
security agreements between Borrower and Greyrock. Nothing herein shall be
deemed to limit any of the terms or provisions of the Loan Agreement or any
other present or future document, instrument or agreement, between Borrower and,
and all of Greyrock's rights and remedies hereunder and thereunder are
cumulative.
In the event any one or more of the provisions of this Note shall for any
reason be held to be invalid, illegal or unenforceable, the same shall not
affect any other provision of this Note and the remaining provisions of this
Note shall remain in full force and effect.
No waiver or modification of any of the terms or provisions of this Note
shall be valid or binding unless set forth in a writing signed by a duly
authorized officer of Greyrock, and then only to the extent therein specifically
set forth. If more than one person executes this Note, their obligations
hereunder shall be joint and several.
GREYROCK 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 NOTE; OR (ii) ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN
GREYROCK AND BORROWER; OR (iii) ANY CONDUCT, ACTS OR OMISSIONS OF GREYROCK OR
BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR
ANY OTHER PERSONS AFFILIATED WITH GREYROCK OR BORROWER; IN EACH OF THE FOREGOING
CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
This Note is payable in, and shall be governed by the laws of, the State of
California.
MPATH INTERACTIVE, INC.
By /s/ Lynn Heublein
___________________________________
President
By
___________________________________
Secretary
Legal-Approved as to Form
/s/ Murray R. Vince
------------------------------------
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<PAGE>
of to enforce payment when due of any further installments or any other rights,
nor shall any failure or delay to exercise any rights be held to waive the same.
All payments hereunder are to be applied first to costs and fees hereunder,
second to the payment of accrued interest and the remaining balance to the
payment of principal. Any principal prepayment hereunder shall be applied
against principal payments in the inverse order of maturity. Greyrock shall have
the continuing and exclusive right to apply or reverse and reapply any and all
payments hereunder.
Borrower agrees to pay all costs and expenses (including without limitation
attorney's fees) incurred by Greyrock in connection with or related to this
Note, or its enforcement, whether or not suit be brought. Borrower waives
presentment, demand for payment, notice of dishonor, notice of nonpayment,
protest, notice of protest, and any and all other notices and demands in
connection with the delivery, acceptance, performance, default, or enforcement
of this Note, and Borrower waives the benefits of any statute of limitations
with respect to any action to enforce, or otherwise related to, this Note.
This Note is secured by the Loan Agreement and all other present and future
security agreements between Borrower and Greyrock. Nothing herein shall be
deemed to limit any of the terms or provisions of the Loan Agreement or any
other present or future document, instrument or agreement, between Borrower and,
and all of Greyrock's rights and remedies hereunder and thereunder are
cumulative.
In the event any one or more of the provisions of this Note shall for any
reason be held to be invalid, illegal or unenforceable, the same shall not
affect any other provision of this Note and the remaining provisions of this
Note shall remain in full force and effect.
No waiver or modification of any of the terms or provisions of this Note
shall be valid or binding unless set forth in a writing signed by a duly
authorized officer of Greyrock, and then only to the extent 'therein
specifically set forth. If more than one person executes this Note, their
obligations hereunder shall be joint and several.
GREYROCK 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 NOTE; OR (ii) ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN
GREYROCK AND BORROWER; OR (iii) ANY CONDUCT, ACTS OR OMISSIONS OF GREYROCK OR
BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR
ANY OTHER PERSONS AFFILIATED WITH GREYROCK OR BORROWER; IN EACH OF THE FOREGOING
CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
This Note is payable in, and shall be governed by the laws of, the State of
California.
MPATH INTERACTIVE, INC.
By
-----------------------------------
President
By /s/ Jeffrey Y. Suto
-----------------------------------
Secretary
Legal-Approved as to Form
/s/
-----------------------------------
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<PAGE>
EXHIBIT 10.15
[LOGO OF GREYROCK]
Loan and Security Agreement
Borrower: Mpath Interactive, Inc.
Address: 665 Clyde Avenue
Mountain View, California 94043
Date: July 29, 1998
This Loan and Security Agreement is entered into on the above date between
GREYROCK BUSINESS CREDIT, a Division of NationsCredit Commercial Corporation
(GBC), whose address is 10880 Wilshire Blvd., Suite 950, Los Angeles, CA 90024
and the borrower named above (Borrower), whose chief executive office is located
at the above address (Borrower's Address). 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 8
below.)
1. LOANS.
1.1 Loans. GBC will make loans to Borrower (the Loans), in amounts determined
by GBC in its commercially reasonable discretion pursuant to the terms of this
Agreement, up to the amounts (the Credit Limit) shown on the Schedule, provided
no Default or Event of Default has occurred and is continuing; and provided
further that, subject to the foregoing, the amounts being loaned by GBC to
Borrower on account of the Equipment Loan and the Term Loan shall be the amounts
set forth in the Schedule and in the Secured Promissory Note, respectively. If
at any time or for any reason the total of all outstanding Loans and all other
Obligations exceeds the Credit Limit, Borrower shall immediately pay the amount
of the excess to GBC, without notice or demand.
* commercially reasonable
** pursuant to the terms of this Agreement
*** ; and provided further that, subject to the foregoing, the amounts being
loaned by GBC to Borrower on account of the Equipment Loan and the Term Loan
shall be the amounts set forth in the Schedule and in the Secured Promissory
Note, respectively
1.2 Interest. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement or in another written agreement signed by GBC and
Borrower. Interest shall be payable monthly, on the last day of the month.
Interest may, in GBC's discretion, be charged to Borrower's loan account, and
the same shall thereafter bear interest at the same rate as the other Loans.
1.3 Fees. Borrower shall pay GBC the fee(s) shown on the Schedule, which are
in addition to all interest and other sums payable to GBC and are not
refundable.
2. SECURITY INTEREST.
2.1 Security Interest. To secure the payment and performance of all of the
Obligations when due, Borrower hereby grants to GBC a security interest in all
of Borrower's interest in the following, whether now owned or hereafter
acquired, and wherever located (collectively, the Collateral): All Inventory,
Equipment, Receivables, and General Intangibles, including, without limitation,
all of Borrower's Deposit Accounts, all money, all collateral in which GBC is
granted a security interest pursuant to any other present or future agreement,
all property now or at any time in the future in GBC's possession, and all
proceeds (including proceeds of any insurance policies, proceeds of proceeds and
claims against third parties), all products of the foregoing, and all books and
records related to any of the foregoing.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce GBC to enter into this Agreement and to make Loans,
Borrower represents and warrants to GBC as follows, and Borrower covenants that
the following representations will continue to be true, and that Borrower will
at all times comply with all of the following covenants:
* until full and final payment and satisfaction of all of the Obligations
and Loans
3.1 Corporate Existence and Authority. Borrower, if a corporation, is and
will continue to be, duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation. Borrower is and will continue
to be qualified and licensed to do business in all jurisdictions in which any
failure to do so would have a material adverse effect on Borrower. The
execution, delivery and performance by Borrower of this Agreement,
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<PAGE>
and all other documents contemplated hereby (i) have been duly and validly
authorized, (ii) are enforceable against Borrower in accordance with their terms
(except as enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally), (iii) do not violate Borrower's articles or certificate of
incorporation, or Borrower's by-laws, or any law or any material agreement or
instrument which is binding upon Borrower or its property, and (iv) do not
constitute grounds for acceleration of any material indebtedness or obligation
under any material agreement or instrument which is binding upon Borrower or its
property.
3.2 Name; Trade Names and Styles. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give GBC 30 days' prior written notice before changing its name
or doing business under any other name. Borrower has complied, and will in the
future comply, with all laws relating to the conduct of business under a
fictitious business name.
3.3 Place of Business; Location of Collateral. The address set forth in the
heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule. Borrower will give GBC at least 30 days prior written
notice before opening any additional place of business, changing its chief
executive office, or moving any of the Collateral to a location other than
Borrower's Address or one of the locations set forth on the Schedule*.
* ; provided, however, that Collateral may be moved, within the State of
California, from one office of Borrower to another office of Borrower, in the
ordinary course of business, without notice therreof to GBC.
3.4 Title to Collateral; Permitted Liens. Borrower is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of Equipment which are leased by Borrower. The Collateral now is and will remain
free and clear of any and all liens, charges, security interests, encumbrances
and adverse claims, except for Permitted Liens. GBC now has, and will continue
to have, a first-priority perfected and enforceable security interest in all of
the Collateral, subject only to the Permitted Liens, and Borrower will at all
times defend GBC and the Collateral against all claims of others. So long as any
Loan is Outstanding which is a term loan, none of the Collateral now is or will
be affixed to any real property in such a manner, or with such intent, as to
become a fixture. Borrower is not and will not become a lessee under any real
property lease pursuant to which the lessor may obtain any rights in any of the
Collateral and no such lease now prohibits, restrains, impairs or will prohibit,
restrain or impair Borrower's right to remove any Collateral from the leased
premises. Whenever any Collateral is located upon premises in which any third
party has an interest (whether as owner, mortgagee, beneficiary under a deed of
trust, lien or otherwise), Borrower shall use commercially reasonable efforts to
cause such third party to execute and deliver to GBC, in form acceptable to GBC,
such waivers and subordinations as GBC shall specify, so as to ensure that GBC's
rights in the Collateral are, and will continue to be, superior to the rights of
any such third party. Borrower will keep in full force and effect, and will
comply with all the terms of, any lease of real property where any of the
Collateral now or in the future may be located.
* commercially reasonable
3.5 Maintenance of Collateral. Borrower will maintain the Collateral in good
working condition, ordinary wear and tear excepted, and Borrower will not use
the Collateral for any unlawful purpose. Borrower will immediately advise GBC in
writing of any material loss or damage to the Collateral.
3.6 Books and Records. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records as required by GAAP,
comprising an accounting system in accordance with generally accepted accounting
principles.
* as required by GAAP
3.7 Financial Condition, Statements and Reports. All financial statements now
or in the future delivered to GBC have been, and will be, prepared in conformity
with generally accepted accounting principles and now and in the future will
completely and fairly reflect the financial condition of Borrower, at the times
and for the periods therein stated. Between the last date covered by any such
statement provided to GBC and the date hereof, there has been no material
adverse change in the financial condition or business of Borrower. Borrower is
now and will continue to be solvent.
3.8 Tax Returns and Payments; Pension Contributions. Borrower has timely
filed, and will timely file, all tax returns and reports required by applicable
law, and Borrower has timely paid, and will timely pay, all applicable taxes,
assessments, deposits and contributions now or in the future owed by Borrower.
Borrower may, however, defer payment of any contested taxes, provided that
Borrower (i) in good faith contests Borrower's obligation to pay the taxes by
appropriate proceedings promptly and diligently instituted and conducted, (ii)
notifies GBC in writing of the commencement of, and any material development in,
the proceedings, and (iii) posts bonds or takes any other steps required to keep
the contested taxes from becoming a lien upon any of the Collateral. Borrower is
unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect
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<PAGE>
to, any such plan which could result in any liability of Borrower, including any
liability to the Pension Benefit Guaranty Corporation or any other governmental
agency. Borrower shall, at all times, utilize the services of an outside payroll
service providing for the automatic deposit of all payroll taxes payable by
Borrower.
3.9 Compliance with Law. Borrower has complied, and will comply, in all
material respects, with all provisions of all applicable laws and regulations,
including, but not limited to, those relating to Borrower's ownership of real or
personal property, the conduct and licensing of Borrower's business, and all
environmental matters.
3.10 Litigation. Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which may
result, either separately or in the aggregate, in any material adverse change in
the financial Condition or business of Borrower, or in any material impairment
in the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted. Borrower will promptly inform GBC in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower involving any single claim of
$50,000 or more, or involving $100.000 or more in the aggregate.
3.11 Use of Proceeds. All proceeds of all Loans shall be used solely for
lawful business purposes.
4. RECEIVABLES.
4.1 Representations Relating to Receivables. Borrower represents and warrants
to GBC as follows: 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 or the rendition of
services, in the ordinary course of Borrower's business.
4.2 Representations Relating to Documents and Legal Compliance. Borrower
represents and warrants to GBC as follows: All statements made and all unpaid
balances appearing in all invoices, instruments and other documents evidencing
the Receivables are and shall be true and correct and all such invoices,
instruments and other documents and all of Borrower's books and records are and
shall be genuine and in all respects what they purport to be. and all of
Borrower's signatories and endorsers have the capacity to contract. All sales
and other transactions underlying or giving rise to each Receivable shall comply
with all applicable laws and governmental rules and regulations. All of
Borrower's signatures and endorsements on all documents, instruments, and
agreements relating to all Receivables are and shall be genuine, and all such
documents, instruments and agreements are and shall be legally enforceable in
accordance with their terms.
* of Borrower's
4.3 Schedules and Documents relating to Receivables. Borrower shall deliver
to GBC transaction reports and loan requests, schedules and assignments of all
Receivables, and schedules of collections, all on GBC's standard forms'
provided, however, that Borrower's failure to execute and deliver the same shall
not affect or limit GBC's security interest and other rights in all of
Borrower's Receivables, nor shall GBC's failure to advance or lend against a
specific Receivable affect or limit GBC's security interest and other rights
therein. Together with each such schedule and assignment, or later if requested
by GBC, Borrower shall furnish GBC with copies (or, at GBC's request, originals)
of all contracts, orders, invoices, and other similar documents, and all
original shipping instructions, delivery receipts, bills of lading, and other
evidence of delivery, for any goods the sale or disposition of which gave rise
to such Receivables, and Borrower warrants the genuineness of all of the
foregoing*. Borrower shall also furnish to GBC an aged accounts receivable trial
balance in such form and at such intervals as GBC shall request. In addition,
Borrower shall deliver to GBC the originals of all instruments, chattel paper,
security agreements, guarantees and other documents and property evidencing or
securing any Receivables, immediately upon receipt thereof and in the same form
as received, with all necessary indorsements.
* ; provided, however, that except where needed by GBC in order to verify, or
effectuate the collection of, Receivables, Borrower shall not be required to
provide that portion of contracts with Borrower's account debtors that Borrowr
has agreed not to reveal. To the extent Borrower provides GBC with any
information that Borrower haas contracted to keep confidential, and advises GBC
of such confidentiality, GBC shall take reasonable efforts to keep such
information confidential but shall be entitiled to use such information in order
to verify, or effectuate the collectionof, Receivables and shall be permitted to
provide such information in court and in response to legal process (e.g.,
subpeona). For purposeds of this Section 4.3, "reasonable efforts" on the part
of GBC shall mean informing its employees and agents that receive such
confidential information of the confidential nature of such information and that
they are not to disclose or use such information except for the purposes, and
under the circumstances, provided in this Section 4.3
4.4 Collection of Receivables. Borrower shall have the right to collect all
Receivables, unless and until a Default or an Event of Default has occurred.
Borrower shall hold all payments on, and proceeds of, Receivables in trust for
GBC, and Borrower shall deliver all such payments and proceeds to GBC, within
two Business Days* after receipt of the same, in their original form, duly
endorsed, to be applied to the Obligations in such order as GBC shall determine.
* two Business Days
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<PAGE>
4.5 Disputes. Borrower shall notify GBC promptly of all disputes or claims
relating to Receivables on the regular reports to GBC. Borrower shall not
forgive, or settle any Receivable for less than payment in full, or agree to do
any of the foregoing, except that Borrower may do so, provided that: (i)
Borrower does so in good faith, in a commercially reasonable manner, in the
ordinary course of business, and in arm's length transactions, which are
reported to GBC on the regular reports provided to GBC; (ii) no Default or Event
of Default has occurred and is continuing' and (iii) taking, into account all
such settlements and forgiveness, the total outstanding Loans and other
Obligations will not exceed the Credit Limit.
4.6 Returns. Provided no Event of Default has occurred and is continuing, if
any Account Debtor returns any Inventory to Borrower in the ordinary course of
its business, Borrower shall promptly determine the reason for such return and
promptly issue a credit memorandum to the Account Debtor in the appropriate
amount (sending a copy to GBC). In the event any attempted return occurs after
the occurrence of any Event of Default, Borrower shall (i) not accept any return
without GBC's prior written consent, (ii) hold the returned Inventory in trust
for GBC, (iii) segregate all returned Inventory from all of Borrower's other
property, (iv)conspicuously label the returned Inventory as GBC's property, and
(v) immediately notify GBC of the return of any Inventory, specifying the reason
for such return, the location and condition of the returned Inventory, and on
GBC's request deliver such returned Inventory to GBC.
4.7 Verification. GBC may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or GBC or such other name as GBC may choose, and GBC or its designee
may, at any time, notify Account Debtors that it has a security interest in the
Receivables.
4.8 No Liability. GBC shall not under any circumstances be responsible or
liable for any shortage or discrepancy in, damage to, or loss or destruction of,
any goods, the sale or other disposition of which gives rise to a Receivable, or
for any error, act, omission, or delay of any kind occurring in the settlement,
failure to settle, collection or failure to collect any Receivable, or for
settling any Receivable in good faith for less than the full amount thereof, nor
shall GBC be deemed to be responsible for any of Borrower's obligations under
any contract or agreement giving rise to a Receivable. Nothing herein shall,
however, relieve GBC from liability for its own gross negligence or willful
misconduct.
5. ADDITIONAL DUTIES OF THE BORROWER.
5.1 Insurance. Borrower shall, at all times, insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to GBC, in such form and amounts as GBC may
reasonably require, and Borrower shall provide evidence of such insurance to
GBC, so that GBC is satisfied that such insurance is, at all times, in full
force and effect. All such insurance policies shall name GBC as an additional
loss payee, and shall contain a lenders loss payee endorsement in form
reasonably acceptable to GBC Upon receipt of the proceeds of any such insurance,
GBC shall apply such proceeds in reduction of the Obligations as GBC shall
determine in its sole discretion, except that, provided no Default or Event of
Default has occurred and is continuing, GBC shall release to Borrower insurance
proceeds with respect to Equipment totaling less than $100,000, which shall be
utilized by Borrower for the re- placement of the Equipment with respect to
which the insurance proceeds were paid. GBC may require reasonable assurance
that the insurance proceeds so released will be so used. If Borrower fails to
provide or pay for any insurance, GBC may, but is not obligated to, obtain the
same at Borrower's expense. Borrower shall promptly deliver to GBC copies of all
reports made to insurance companies.
5.2 Reports. Borrower, at its expense, shall provide GBC with the written
reports set forth in the Schedule, and such other written reports with respect
to Borrower (including budgets, sales projections, operating plans and other
financial documentation), as GBC shall from time to time reasonably specify.
5.3 Access to Collateral, Books and Records. At reasonable times, and on one
Business Day's notice, GBC, or its agents, shall have the right to inspect the
Collateral, and the right to audit and copy Borrower's books and records. GBC
shall take reasonable steps to keep confidential all information obtained in any
such inspection or audit, but GBC shall have the right to disclose any such
information to its auditors, regulatory agencies, and attorneys, and pursuant to
any subpoena or other legal process. The foregoing inspections and audits shall
be at Borrower's expense and the charge therefor shall be $600 per person per
day (or such higher amount as shall represent GBC's then current standard charge
for the same), plus reasonable out-of-pockets expenses. Borrower shall not be
charged more than $3,000 per audit (plus reasonable out-of-pockets expenses),
nor shall audits be done more frequently than four times per calendar year,
provided that the foregoing limits shall not apply after the occurrence of a
Default or Event of Default, nor shall they restrict GBC's right to conduct
audits at its own expense (whether or not a Default or Event of Default has
occurred). Borrower will not enter into any agreement with any accounting firm,
service bureau or third party to store Borrower's books or records at any
location other than Borrower's Address, without first obtaining GBC's written
consent, which may be conditioned upon such accounting firm, service bureau or
other third party agreeing to give GBC the same rights with respect to access to
books and records and related rights as GBC has under this Agreement.
5.4 Remittance of Proceeds. All proceeds arising from the sale or other
disposition of any Collateral shall be delivered, in kind, by Borrower to GBC in
the original
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form in which received by Borrower not later than the Following Business Day
after receipt by Borrower, to be applied to the Obligations in such order as GBC
shall determine; provided that, if no Default or Event of Default has occurred
and is continuing, and if no term loan is outstanding hereunder, then Borrower
shall not be obligated to remit to GBC the proceeds of the sale of Equipment
which is sold in the ordinary course of business, in a good-faith arm's length
transaction. Except for the proceeds of the sale of Equipment as set forth
above, Borrower shall not commingle proceeds of Collateral with any of
Borrower's other funds or property, and shall hold such proceeds separate and
apart from such other funds and property and in an express trust for GBC.
Nothing in this Section limits the restrictions on disposition of Collateral set
forth elsewhere in this Agreement.
5.5 Negative Covenants. Except as may be permitted in the Schedule, Borrower
shall not, without GBC's prior written consent which cannot be unreasonably
withheld, do any of the following: (i) merge or consolidate with another
corporation or entity; (ii) acquire any assets, except in the ordinary course of
business; (iii) enter into any other transaction outside the ordinary course of
business; (iv) sell or transfer any Collateral, except that, provided no Default
or Event of Default has occurred and is continuing, Borrower may (a) sell
finished Inventory in the ordinary course of Borrower's business, (b) if no term
loan is outstanding hereunder, sell Equipment in the ordinary course of
business, in good-faith arm's length transactions**; (v) store any Inventory or
other Collateral with any warehouseman or other third party; (vi) sell any
Inventory on a sale-or-return, guaranteed sale, consignment, or other contingent
basis; (vii) make any loans of any money or other assets: (viii) incur any
debts, outside the ordinary course of business, which would have a material,
adverse effect on Borrower or on the prospect of repayment of the Obligations;
(ix) guarantee or otherwise become liable with respect to the obligations of
another party or entity: (x) pay or declare any dividends on Borrower's stock
(except for dividends payable solely in stock of Borrower); (xi) redeem, retire,
purchase or otherwise acquire, directly or indirectly, any of Borrower's
stock***; (xii) make any change in Borrower's capital structure which would have
a material adverse effect on Borrower or on the prospect of repayment of the
Obligations; or (xiii) dissolve or elect to dissolve; or (xiv) agree to do any
of the foregoing. ****
* which cannot be unreasonably withheld
** , and (c) license Collateral in the ordinary course of business
*** , other than repurchases of shares of Common Stock from employees,
officers, directors, consultants or other persons performing services for
Borrower or any subsidiary pursuant to agreements under which Borrower has the
option to repurchase such shares at no cost or at cost upon the occurrence of
certain events, such as the termination of employement
**** Notwithstanding any of the foregoing, Borrower shall have the right to
obtain equity investments up to 34% of the total outstanding voting stock of
Borrower without first obtaining GBC's approval.
5.6 Litigation Cooperation. Should any third-party suit or proceeding be
instituted by or against GBC with respect to any Collateral or in any manner
relating to Borrower, Borrower shall, without expense to GBC, make available
Borrower and its officers, employees and agents, and Borrower's books and
records, without charge, to the extent that GBC may deem them reasonably
necessary in order to prosecute or defend any such suit or proceeding.
5.7 Notification of Changes. Borrower will promptly notify GBC in writing of
any change in its officers or directors, the opening of any new bank account or
other deposit account, and any material adverse change in the business or
financial affairs of Borrower.
5.8 Further Assurances. Borrower agrees, at its expense, on request by GBC,
to execute all documents and take all actions, as GBC may deem reasonably
necessary or useful in order to perfect and maintain GBC's perfected security
interest in the Collateral, and in order to fully consummate the transactions
contemplated by this Agreement.
5.9 Indemnity. Borrower hereby agrees to indemnify GBC and hold GBC harmless
from and against any and all claims, debts, liabilities, demands, obligations,
actions, causes of action, penalties, costs and expenses (including attorneys'
fees), of every nature, character and description, which GBC may sustain or
incur based upon or arising out of any of the Obligations, any actual or alleged
failure to collect and pay over any withholding or other tax relating to
Borrower or its employees, any relationship or agreement between GBC and
Borrower, any actual or alleged failure of GBC to comply with any writ of
attachment or other legal process relating to Borrower or any of its property,
or any other matter, cause or thing whatsoever occurred, done, omitted or
suffered to be done by GBC relating to Borrower or the Obligations (except any
such amounts sustained or incurred as the result of the gross negligence or
willful misconduct of GBC or any of its directors, officers, employees, agents,
attorneys, or any other person affiliated with or representing GBC).
Notwithstanding any provision in this Agreement to the contrary, the indemnity
agreement set forth in this Section shall survive any termination of this
Agreement and shall for all purposes continue in full force and effect.
6. TERM.
6.1 Maturity Date. This Agreement shall continue in effect until the maturity
date set forth on the Schedule (the Maturity Date); provided that the Maturity
Date shall automatically be extended, and this Agreement shall automatically and
continuously renew, for successive additional terms of one year each, unless one
party gives written notice to the other, not less than sixty days prior to
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the next Maturity Date, that such party elects to terminate this Agreement
effective on the next Maturity Date.
6.2 Early Termination. 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 GBC; or (ii) by GBC at any time after the
occurrence of an Event of Default, without notice, effective immediately. If
this Agreement is terminated by Borrower or by GBC under this Section 6.2,
Borrower shall pay to GBC a termination fee (the Termination Fee) in the amount
shown on the Schedule. The Termination Fee shall be due and payable on the
effective date of termination and thereafter shall bear interest at a rate equal
to the highest rate applicable to any of the Obligations.
6.3 Payment of Obligations. On the Maturity Date or on any earlier effective
date of termination, Borrower shall pay and perform in full all Obligations,
whether evidenced by installment notes or otherwise, and whether or not all or
any part of such Obligations are otherwise then due and payable. Without
limiting the generality of the foregoing, if on the Maturity Date, or on any
earlier effective date of termination, there are any outstanding letters of
credit issued based upon an application, guarantee, indemnity or similar
agreement on the part of GBC, then on such date Borrower shall provide to GBC
cash collateral in an amount equal to 110% of the face amount of all such
letters of credit plus all interest, fees and costs due or (in GBC's estimation)
likely to become due in connection therewith, to secure all of the Obligations
relating to said letters of credit, pursuant to GBC's then standard form cash
pledge agreement. Notwithstanding any termination of this Agreement, all of
GBC's security interests in all of the Collateral and all of the terms and
provisions of this Agreement shall continue in full force and effect until all
Obligations have been paid and performed in full; provided that, without
limiting the fact that Loans are subject to the discretion of GBC, GBC may, in
its sole discretion, refuse to make any further Loans after termination. No
termination shall in any way affect or impair any right or remedy of GBC, nor
shall any such termination relieve Borrower of any Obligation to GBC, until all
of the Obligations have been paid and performed in full. Upon payment and
performance in full of all the Obligations and termination of this Agreement,
GBC shall promptly deliver to Borrower termination statements, requests for re-
conveyances and such other documents as may be reasonably required to terminate
GBC's security interests.
7. EVENTS OF DEFA ULTAND REMEDIES.
7.1 Events of Default. The occurrence of any of the following events shall
constitute an Event of Default under this Agreement, and Borrower shall give GBC
immediate written notice thereof: (a) Any warranty, representation, statement,
report or certificate made or delivered to GBC by Borrower or any of Borrower's
officers, employees or agents, now or in the future, shall be untrue or
misleading at the time it is made in a material respect; or (b) Borrower shall
fail to pay when due any Loan or any interest thereon or any other monetary
Obligation; or (c) the total Loans and other Obligations outstanding at any time
shall exceed the Credit Limit; or (d) Borrower shall fail to perform any non-
monetary Obligation which by its nature cannot be cured; or (e) Borrower shall
fail to perform any other non-monetary Obligation, which failure is not cured
within 5 Business Days after the date performance is due; or (f) any levy,
assessment, attachment, seizure, lien or encumbrance (other than a Permitted
Lien) is made on all or any part of the Collateral which is not cured within 10
days after the occurrence of the same; or (g) any default or event of default
occurs under any obligation secured by a Permitted Lien, which is not cured
within any applicable cure period or waived in writing by the holder of the
Permitted Lien; or (h) Borrower breaches any material contract or obligation,
which has or may reasonably be expected to have a material adverse effect on
Borrower's business or financial condition; or (i) dissolution, termination of
existence, insolvency or business failure of Borrower or any Guarantor; or
appointment of a receiver, trustee or custodian, for all or any part of the
property of, assignment for the benefit of creditors by, or the commencement of
any proceeding by Borrower or any Guarantor under any reorganization,
bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, now or in the future in effect;
or (j) the commencement of any proceeding against Borrower or any Guarantor
under any reorganization, bankruptcy, insolvency, arrangement, readjustment of
debt, dissolution or liquidation law or statute of any jurisdiction, now or in
the future in effect, which is not cured by the dismissal thereof within 45 days
after the date commenced; or (k) revocation or termination of, or limitation or
denial of liability upon, any guaranty of the Obligations or any attempt to do
any of the foregoing; or (1) revocation or termination of, or limitation or
denial of liability upon, any pledge of any certificate of deposit, securities
or other property or asset pledged by any third party to secure any or all of
the Obligations, or any attempt to do any of the foregoing, or commencement of
proceedings by or against any such third party under any bankruptcy or
insolvency law; or (m) Borrower makes any payment on account of any indebtedness
or obligation which has been subordinated to the Obligations other than as
permitted in the applicable subordination agreement, or if any Person who has
subordinated such indebtedness or obligations terminates or in any way limits or
terminates its subordination agreement; or (n) there shall be a change in the
record or beneficial ownership of an aggregate of more than 34% of the
outstanding shares of stock of Borrower, in one or more transactions, compared
to the ownership of outstanding shares of stock of Borrower in effect on the
date hereof, without the prior written consent of GBC; or (o) Borrower shall
generally not pay its debts as they become due, or Borrower shall conceal,
remove or transfer any part of its property, with intent to hinder, delay or
defraud its creditors, or make or suffer any transfer of any of its property
which may be fraudulent under any bankruptcy, fraudulent conveyance or similar
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<PAGE>
law; or (p) there shall be a material adverse change in Borrower's business or
financial condition. GBC may cease making any Loans hereunder during any of the
above cure periods, and thereafter if an Event of Default has occurred.
* at the time it is made
** 34%
7.2 Remedies. Upon the occurrence and during the continuance of any Event of
Default, and at any time thereafter, GBC, at its option, and without notice or
demand of any kind (all of which are hereby expressly waived by Borrower), may
do any one or more of the following: (a) Cease making Loans or otherwise
extending credit to Borrower under this Agreement or any other document or
agreement; (b) Accelerate and declare all or any part of the Obligations to be
immediately due, payable, and performable, notwithstanding any deferred or
installment payments allowed by any instrument evidencing or relating to any
Obligation; (c) Take possession of any or all of the Collateral wherever it may
be found, and for that purpose Borrower hereby authorizes GBC without judicial
process to enter onto any of Borrower's premises without interference to search
for, take possession of, keep, store, or remove any of the Collateral, and
remain on the premises or cause a custodian to remain on the premises in
exclusive control thereof, without charge for so long as GBC deems it reasonably
necessary in order to complete the enforcement of its rights under this
Agreement or any other agreement; provided, however, that should GBC seek to
take possession of any of the Collateral by Court process, Borrower hereby
irrevocably waives: (i) any bond and any surety or security relating thereto
required by any statute, court rule or otherwise as an incident to such
possession: (ii) any demand for possession prior to the commencement of any suit
or action to recover possession thereof; and (iii) any requirement that GBC
retain possession of, and not dispose of, any such Collateral until after trial
or final judgment; (d) Require Borrower to assemble any or all of the Collateral
and make it available to GBC at places designated by GBC which are reasonably
convenient to GBC and Borrower, and to remove the Collateral to such locations
as GBC may deem advisable; (e) Complete the processing, manufacturing or repair
of any Collateral prior to a disposition thereof and, for such purpose and for
the purpose of removal, GBC shall have the right to use Borrower's premises,
vehicles, hoists, lifts, cranes, equipment and all other property without
charge; (f) Sell, lease or otherwise dispose of any of the Collateral, in its
condition at the time GBC obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private sales,
in lots or in bulk, for cash, exchange or other property, or on credit, and to
adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale. GBC shall have the right to conduct
such disposition on Borrower's premises without charge, for such time or times
as GBC deems reasonable, or on GBC's premises, or elsewhere and the Collateral
need not be located at the place of disposition. GBC may directly or through any
affiliated company purchase or lease any Collateral at any such public
disposition, and if permissible under applicable law, at any private
disposition. Any sale or other disposition of Collateral shall not relieve
Borrower of any liability Borrower may have if any Collateral is defective as to
title or physical condition or otherwise at the time of sale; (g) Demand payment
of, and collect any Receivables and General Intangibles comprising Collateral
and, in connection therewith, Borrower irrevocably authorizes GBC to endorse or
sign Borrower's name on all collections, receipts, instruments and other
documents, to take possession of and open mail addressed to Borrower and remove
therefrom payments made with respect to any item of the Collateral or proceeds
thereof, and, in GBC's sole discretion, to grant extensions of time to pay,
compromise claims and settle Receivables, General Intangibles and the like for
less than face value; and (h) Demand and receive possession of any of Borrower's
federal and state income tax returns and the books and records utilized in the
preparation thereof or referring thereto. All reasonable attorneys' fees,
expenses, costs, liabilities and obligations incurred by GBC with respect to the
foregoing shall be added to and become part of the Obligations, shall be due on
demand, and shall bear interest at a rate equal to the highest interest rate
applicable to any of the Obligations. Without limiting any of GBC's rights and
remedies, from and after the occurrence of any Event of Default, the interest
rate applicable to the Obligations shall be increased by an additional four
percent per annum.
7.3 Standards for Determining Commercial Reasonableness. Borrower and GBC
agree that a sale or other disposition (collectively, sale) of any Collateral
which complies with the following standards will conclusively be deemed to be
commercially reasonable: (i) Notice of the sale is given to Borrower at least
seven days prior to the sale, and, in the case of a public sale, notice of the
sale is published at least seven days before the sale in a newspaper of general
circulation in the county where the sale is to be conducted; (ii) Notice of the
sale describes the collateral in general, non-specific terms; (iii) The sale is
conducted at a place designated by GBC, with or without the Collateral being
present; (iv) The sale commences at any time between 8:00 a.m. and 6:00 p.m: (v)
Payment of the purchase price in cash or by cashier's check or wire transfer is
required; (vi) With respect to any sale of any of the Collateral, GBC may (but
is not obligated to) direct any prospective purchaser to ascertain directly from
Borrower any and all information concerning the same. GBC shall be free to
employ other methods of noticing and selling the Collateral, in its discretion,
if they are commercially reasonable.
7.4 Power of Attorney. Upon the occurrence and during the continuance of any
Event of Default, without limiting GBC's other rights and remedies, Borrower
grants to GBC an irrevocable power of attorney coupled with an interest,
authorizing and permitting GBC (acting through any of its employees, attorneys
or agents) at any
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<PAGE>
time, at its option, but without obligation, with notice to Borrower, and at
Borrower's expense, to do any or all of the following, in Borrower's name or
otherwise, but GBC agrees to exercise the following powers in a commercially
reasonable manner: (a) Execute on behalf of Borrower any documents that GBC may,
in its sole discretion, deem advisable in order to perfect and maintain GBC's
security interest in the Collateral, or in order to exercise a right of Borrower
or GBC, or in order to fully consummate all the transactions contemplated under
this Agreement, and all other present and future agreements; (b) Execute on
behalf of Borrower any document exercising, transferring or assigning any option
to purchase, sell or otherwise dispose of or to lease (as lessor or lessee) any
real or personal property which is part of GBC's Collateral or in which GBC has
an interest; (c) Execute on behalf of Borrower, any invoices relating to any
Receivable, any draft against any Account Debtor and any notice to any Account
Debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of
mechanic's, materialman's or other lien, or assignment or satisfaction of
mechanic's, materialman's or other lien; (d) Take control in any manner of any
cash or non-cash items of payment or proceeds of Collateral; endorse the name of
Borrower upon any instruments, or documents, evidence of payment or Collateral
that may come into GBC's possession; (e) Endorse all checks and other forms of
remittances received by GBC; (f) Pay, contest or settle any lien, charge,
encumbrance, security interest and adverse claim in or to any of the Collateral,
or any judgment based thereon, or otherwise take any action to terminate or
discharge the same; (g) Grant extensions of time to pay, compromise claims and
settle Receivables and General Intangibles for less than face value and execute
all releases and other documents in connection therewith; (h) Pay any sums
required on account of Borrower's taxes or to secure the release of any liens
therefor, or both: (i) Settle and adjust, and give releases of, any insurance
claim that relates to any of the Collateral and obtain payment therefor; (j)
Instruct any third party having custody or control of any books or records
belonging to, or relating to, Borrower to give G BC the same rights of access
and other rights with respect thereto as GBC has under this Agreement; and (k)
Take any action or pay any sum required of Borrower pursuant to this Agreement
and any other present or future agreements. Any and all reasonable sums paid and
any and all reasonable costs, expenses, liabilities, obligations and reasonable
attorneys' fees incurred by GBC with respect to the foregoing shall be added to
and become part of the Obligations, shall be payable on demand, and shall bear
interest at a rate equal to the highest interest rate applicable to any of the
Obligations. In no event shall GBC's rights under the foregoing power of
attorney or any of GBC's other rights under this Agreement be deemed to indicate
that GBC is in control of the business, management or properties of Borrower.
7.5 Application of Proceeds. All proceeds realized as the result of any sale
or other disposition of the Collateral shall be applied by GBC first to the
reasonable costs, expenses, liabilities, obligations and attorneys' fees
incurred by GBC in the exercise of its rights under this Agreement, second to
the interest due upon any of the Obligations, and third to the principal of the
Obligations, in such order as GBC shall determine in its sole discretion. Any
surplus shall be paid to Borrower or other persons legally entitled thereto;
Borrower shall remain liable to GBC for any deficiency. If GBC, in its sole
discretion, directly or indirectly enters into a deferred payment or other
credit transaction with any purchaser at any sale of Collateral, GBC shall have
the option, exercisable at any time, in its sole discretion, of either reducing
the Obligations by the principal amount of purchase price or deferring the
reduction' of the Obligations until the actual receipt by GBC of the cash
therefor.
7.6 Remedies Cumulative. In addition to the rights and remedies set forth in
this Agreement, GBC shall have all the other rights and remedies accorded a
secured party under the California Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between GBC and Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
GBC of one or more of its rights or remedies shall not be deemed an election,
nor bar GBC from subsequent exercise or partial exercise of any other rights or
remedies. The failure or delay of GBC to exercise any rights or remedies shall
not operate as a waiver thereof, but all rights and remedies shall continue in
full force and effect until all of the Obligations have been fully paid and
performed.
8. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
Account Debtor means the obligor on a Receivable.
--------------
Affiliate means, with respect to any Person, a relative, partner, shareholder,
---------
director, officer, or employee of such Person, or any parent or subsidiary of
such Person, or any Person controlling, controlled by or under common control
with such Person.
Agreement and this Agreement means this Loan and Security Agreement and all
--------- --------------
modifications and amendments thereto, extensions thereof, and replacements
therefor.
Business Day means a day on which GBC is open for business.
------------
Code means the Uniform Commercial Code as adopted and in effect in the State
----
of California from time to time.
Collateral has the meaning set forth in Section 2. l above.
----------
Default means any event which with notice or passage of time or both, would
-------
constitute an Event of Default.
Deposit Account has the meaning set forth in Section 9105 of the Code.
---------------
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<PAGE>
Eligible Receivables means unconditional Receivables arising in the ordinary
--------------------
course of Borrower's business from the completed sale of goods or rendition of
services. which GBC, in its sole judgment, shall deem eligible for borrowing,
based on such considerations as GBC may from time to time deem appropriate.
Equipment means all of Borrower's present and hereafter acquired machinery,
---------
molds, machine tools, motors. furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible
personal property (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located.
Event of Default means any of the events set forth in Section 7.1 of this
----------------
Agreement.
General Intangibles means all general intangibles of Borrower, whether now
-------------------
owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, inventions, designs, drawings, blueprints, patents,
patent applications, trademarks and the goodwill of the business Symbolized
thereby, names, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, security and other deposits, rights in all
litigation presently or hereafter pending for any cause or claim {whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, all claims of Borrower against GBC, rights to purchase or sell real
or personal property, rights as a licensor or licensee of any kind, royalties,
telephone numbers, proprietary information. purchase orders, and all insurance
policies and claims (including life insurance, key man insurance, credit
insurance, liability insurance, property insurance and other insurance), tax
refunds and claims, computer programs, discs, tapes and tape files, claims under
guaranties, security interests or other security held by or granted to Borrower,
all rights to indemnification and all other intangible property of every kind
and nature (other than Receivables).
Guarantor means any Person who has guaranteed any ()t' the Obligations.
---------
Inventory means all of Borrower's now owned and hereafter acquired goods,
---------
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease {,including all raw materials,
work in process, finished goods and goods in transit), and all materials and
supplies of every kind. nature and description which are or might be used or
consumed in Borrower's business or used in connection with the manufacture
packing, shipping, advertising selling or finishing of such goods, merchandise
or other personal property, and all warehouse receipts, documents of title and
other documents representing any of the foregoing.
Obligations means all present and future Loans, advances, debts, liabilities,
-----------
obligations, guaranties, covenants, duties and indebtedness at any time owing by
Borrower to GBC, whether evidenced by this Agreement or any note or other
instrument or document, whether arising from an extension of credit, opening of
a letter of credit, banker's acceptance, loan, guaranty. indemnification or
otherwise, whether direct or indirect (including, without limitation, those
acquired by assignment and any participation by GBC in Borrower's debts owing to
others), absolute or contingent, due or to become due, including, without
limitation, all interest, charges, expenses, tees, attorney's fees, expert
witness fees, audit fees. letter of credit fees, loan fees, termination fees.
minimum interest charges and any other sums chargeable to Borrower under this
Agreement or under any other present or future instrument or agreement between
Borrower and GBC.
Permitted Liens means the following: (i) purchase money security interests in
---------------
specific items of Equipment; (ii) leases of specific items of Equipment; (iii)
liens for taxes not yet payable; (iv) additional security interests and liens
which are subordinate to the security interest in favor of GBC and are consented
to in writing by GBC (which consent shall not be unreasonably withheld); (v)
security interests being terminated substantially concurrently with this
Agreement; (vi) liens of materialmen, mechanics, warehousemen, carriers, or
other similar liens arising in the ordinary course of business and securing
obligations which are not delinquent; (vii)liens incurred in connection with the
extension, renewal or refinancing of the indebtedness secured by liens of the
type described above in clauses (i) or (ii) above, provided that any extension,
renewal or replacement lien is limited to the property encumbered by the
existing lien and the principal amount of the indebtedness being extended,
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<PAGE>
renewed or refinanced does not increase; (viii) Liens in favor of customs and
revenue authorities which secure payment of customs duties in connection with
the importation of goods. GBC will have the right to require, as a condition to
its consent under subparagraph (iv) above, that the holder of the additional
security interest or lien sign an intercreditor agreement on GBC's then standard
form, acknowledge that the security interest is subordinate to the security
interest in favor of GBC, and agree not to take any action to enforce its
subordinate security interest so long as any Obligations remain outstanding, and
that Borrower agree that any uncured default in any obligation secured by the
subordinate security interest shall also constitute an Event of Default under
this Agreement.
Person means any individual, sole proprietorship, partnership, joint venture,
------
trust, unincorporated organization, association, corporation, government, or any
agency or political division thereof, or any other entity.
Receivables means all of Borrower's now owned and hereafter acquired accounts
-----------
(whether or not earned by performance), letters of credit, contract rights,
chattel paper, instruments, securities, documents and all other forms of
obligations at any time owing to Borrower, all guaranties and other security
therefor, all merchandise returned to or repossessed by Borrower, and all rights
of stoppage in transit and all other rights or remedies of an unpaid vendor,
lienor or secured party.
Other Terms. All accounting terms used in this Agreement, unless otherwise
-----------
indicated, shall have the meanings given to such terms in accordance with
generally accepted accounting principles, consistently applied. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meanings
provided by the Code, to the extent such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 Interest Computation. In computing interest on the Obligations. all
checks, wire transfers and other items payment received by GBC (including
proceeds of Receivables and payment of the Obligations in full) shall be deemed
applied by GBC on account of the Obligations three Business Days after receipt
by GBC of immediately available funds. GBC shall not, however, be required to
credit Borrower's account for the amount of any item of payment which is
unsatisfactory to GBC in its discretion, and GBC may charge Borrower's Loan
account for the amount of any item of payment which is returned to GBC unpaid.
9.2 Application of Payments. All payments with respect to the Obligations may
be applied, and in GBC's sole discretion reversed and re-applied, to the
Obligations, in such order and manner as GBC shall determine in its sole
discretion.
9.3 Charges to Account. GBC may, in its discretion, require that Borrower pay
monetary Obligations in cash to GBC, or charge them to Borrower's Loan account,
in which event they will bear interest at the same rate applicable to the Loans.
9.4 Monthly Accountings. GBC shall provide Borrower monthly with an account
of advances, charges, expenses and payments made pursuant to this Agreement.
Such account shall be deemed correct, accurate and binding on Borrower and an
account stated (except for reverses and reapplications of payments made and
corrections of errors discovered by GBC), unless Borrower notifies GBC in
writing to the contrary within sixty days after each account is rendered,
describing the nature of any alleged errors or admissions.
9.5 Notices. All notices to be given under this Agreement shall be in writing
and shall be given either personally or by reputable private delivery service or
by regular first-class mail, or certified mail return receipt requested,
addressed to GBC or Borrower at the addresses shown in the heading to this
Agreement, or at any other address designated in writing by one party to the
other party. All notices shall be deemed to have been given upon delivery in the
case of notices personally delivered, or at the expiration of one Business Day
following delivery to the private delivery service, or two Business Days
following the deposit thereof in the United States mail, with postage prepaid.
9.6 Severability. Should any provision of this Agreement be held by any court
of competent jurisdiction to be void or unenforceable, such defect shall not
affect the remainder of this Agreement, which shall continue in full force and
effect.
9.7 Integration. This Agreement and such other written agreements, documents
and instruments as may be executed in connection herewith are the final, entire
and complete agreement between Borrower and GBC and supersede all prior and
contemporaneous negotiations and oral representations and agreements, all of
which are merged and integrated in this Agreement. There are no oral
-----------------
understandings, representations or agreements between the parties which are not
- -------------------------------------------------------------------------------
set forth in this Agreement or in other written agreements signed by the,
- -------------------------------------------------------------------------
parties in connection herewith.
- -------------------------------
9.8 Waivers. The failure of GBC 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 GBC shall not waive or diminish
any right of GBC 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 GBC shall be deemed to have been waived by any act or knowledge of
GBC or its agents or employees, but only by a specific written waiver signed by
an authorized officer of GBC and delivered to Borrower. Borrower waives demand,
protest, notice of protest and notice of default or dishonor, notice of payment
and nonpayment, release, compromise,
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<PAGE>
settlement, extension or renewal of any commercial paper, instrument, account,
General Intangible, document guaranty at any time held by GBC on which Borrower
is or may in any way be liable, and notice of any action taken by GBC, unless
expressly required by this Agreement.
9.9 Amendment. The terms and provisions of this Agreement may not be waived
or amended, except in a writing executed by Borrower and a duly authorized
officer of GBC.
9.10 Time of Essence. Time is of the essence in the performance by Borrower
of each and every obligation under this Agreement.
9.11 Attorneys Fees and Costs. Borrower shall reimburse GBC for all
reasonable attorneys' fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by GBC, pursuant to, or in
connection with, or relating to this Agreement (whether or not a lawsuit is
filed), including, but not limited to, any reasonable attorneys' fees and costs
GBC incurs in order to do the following: prepare and negotiate this Agreement
and the documents relating to this Agreement; obtain legal advice in connection
with this Agreement or Borrower; enforce, or seek to enforce, any of its rights;
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 GBC's
security interest in, the Collateral; and otherwise represent GBC in any
litigation relating to Borrower. If either GBC 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'
tees, 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. All attorneys' fees and costs to which GBC may be entitled
pursuant to this Paragraph shall immediately become part ~t' Borrower's
Obligations, shall be due on demand, and shall bear interest at a rate equal to
the highest interest rate applicable to any of the Obligations.
9.12 Benefit of Agreement. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors, assigns, heirs,
beneficiaries and representatives of Borrower and GBC; provided, however, that
Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of GBC, and any prohibited assignment shall be
void. No consent by GBC to any assignment shall release Borrower from its
liability/'or the Obligations.
9.13 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.
9.14 Security Interest Termination. Upon full, final and irrevocable payment
and satisfaction of all of the Obligations and the Loans, GBC shall terminate
its security interest in all of the Collateral and shall file appropriate
filings in the required governmental offices in order to effectuate such
termination.
9.15 Paragraph Headings; Construction. Paragraph headings are only used in
this Agreement for convenience. Borrower and GBC acknowledge that the headings
may not describe completely the subject matter of the applicable paragraph, and
the headings shall not be used in any manner to construe, limit, define or
interpret any term or provision of this Agreement. The term "including",
whenever used in this Agreement, shall mean "including (but not limited to)".
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 GBC or Borrower under any rule of construction or
otherwise.
9.16 Cross-Default (Viacom). Any default by Borrower under the terms of that
certain Convertible Senior Subordinated Promissory Note dated November 18, 1996
in the amount of $1,864,000 executed by Borrower, as Maker, in favor of Viacom
International Inc., as Payee, or any other agreement between Borrower and Viacom
International Inc. (collectively, the "Viacom Agreements") shall constitute a
Default and an Event of Default under this Agreement. Within 24 hours after
receipt of written or oral notice from Viacom that Borrower is in default under
any of the Viacom Agreements, Borrower shall give notice thereof, in writing, to
GBC. Additionally,
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Borrower shall monthly provide to GBC a written Certificate signed by an officer
of Borrower representing that no default has occurred under any of the Viacom
Agreements and that no oral or written notice of default has been received from
Viacom with respect to any of the Viacom Agreements.
9.17 Governing Law; Jurisdiction; Venue. This Agreement and all acts and
transactions hereunder and all rights and obligations of GBC and Borrower shall
be governed by the laws of the State of California. As a material part of the
consideration to GBC to enter into this Agreement, Borrower (i) agrees that all
actions and proceedings relating directly or indirectly to this Agreement shall,
at GBC's option, be litigated in courts located within California, and that the
exclusive venue therefor shall be Los Angeles County; (ii) consents to the
jurisdiction and venue of any such court and consents to service of process in
any such action or proceeding by personal delivery or any other method permitted
by law; and (iii) waives any and all rights Borrower may have to object to the
jurisdiction of any such court, or to transfer or change the venue of any such
action or proceeding.
9.18 Mutual Waiver of Jury Trial. BORROWER AND GBC 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, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE INSTRUMENT OR
AGREEMENT BETWEEN GBC AND BORROWER, OR ANY CONDUCT, ACTS OR OMISSIONS OF GBC OR
BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR
ANY OTHER PERSONS AFFILIATED WITH GBC OR BORROWER, IN ALL OF THE FOREGOING
CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
Borrower:
MPATH INTERACTIVE, INC.
By /s/ Lynn Heublein
--------------------------------
President or Vice President
By /s/ Jeffrey Y. Suto
--------------------------------
Secretary or Ass't Secretary
GBC:
GREYROCK BUSINESS CREDIT,
a Division of NationsCredit Commercial
Corporation
By /s/ Lisa Nagano Lisa Nagano
-------------------------------
Title Senior Vice President
-------------------------------
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<PAGE>
greyrock
business credit
a NationsBank Company
Schedule to
Loan and Security Agreement
Borrower: Mpath Interactive, Inc.
Address: 665 Clyde Avenue
Mountain View, California 94043
Date: July 29,1998
This Schedule is an integral part of the Loan and Security Agreement between
Greyrock Business Credit, a Division of NationsCredit Commercial Corporation
(GBC) and the above-borrower (Borrower) of even date.
================================================================================
1. CREDIT LIMIT (Section 1.1):
An amount not to exceed the lesser of $4,000,000 or the
sum of the following'
(a) The lesser of (i) $1,500,000 at any one time
outstanding, or 80% of the amount of Borrower's
Eligible Receivables (as defined in Section 8
above), plus
(b) The unpaid principal balance of the Term Loan in
the original principal amount of $1,500,000 being
made concurrently herewith by GBC to Borrower (the
"Term Loan") and evidenced by the Secured Promissory
Note ("Term Note") of even date herewith made by
Borrower to the order of GBC; plus
(c) The unpaid principal balance of the Equipment
Loans referred to below.
Equipment Loans.
----------------
(1) GBC will make Loans (the "Equipment Loans") to
Borrower in an amount equal to 100% of the net
purchase price of equipment purchased and delivered
to Borrower prior to or after the date hereof and
acceptable to GBC in its discretion (provided that
not more than $1,000,000 in Equipment Loans shall be
made hereunder).
(2) The "net purchase price" of Equipment means the
purchase price thereof, as shown on the applicable
invoice, netof all charges for taxes, freight,
delivery, insurance, set-up, training, manuals,
fees, service charges and other similar items.
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<PAGE>
(3) Equipment Loans shall be made in disbursements
of not less than $250,000 each.
(4) Each Equipment Loan shall be repaid by the
Borrower to GBC in 48 equal monthly payments of
principal, commencing on the first day of the first
month after such Equipment Loan was disbursed and
continuing until the earlier of the date such
Equipment Loan has been paid in full or the date
this Agreement terminates by its terms or is
terminated, as provided in Sections 6.1-6.2 above,
at which date the entire unpaid principal balance of
the Equipment Loans, plus all accrued and unpaid
interest thereon, shall be due and payable.
(5) Accrued interest on the Equipment Loans shall be
paid monthly on the last day of each month as
provided in Section 1.2 above.
(6) Equipment Loans may not be repaid and
reborrowed.
Term Loan.
---------
The Term Loan shall bear interest and be repayable
on the terms set forth in the Term Note.
================================================================================
2. INTEREST.
Interest Rate (Section 1.2):
A rate equal to the "Prime Rate" plus 2% per annum,
calculated on the basis of a 360-day year for the actual
number of days elapsed. The interest rate applicable to
all Loans shall be adjusted monthly as of the first day
of each month, and the interest to be charged for each
month shall be based on the highest "Prime Rate" in
effect during said month, but in no event shall the rate
of interest charged on any Loans in any month be less
than 8% per annum. "Prime Rate" means the actual
"Reference Rate" or the substitute therefor of the Bank
of America NT & S A whether or not that rate is the
lowest interest rate charged by said bank. If the Prime
Rate, as defined, is unavailable, "Prime Rate" shall mean
the highest of the prime rates published in the Wall
Street Journal on the first business day of the month, as
the base rate on corporate loans at large U.S. money
center commercial banks.
================================================================================
3. FEES (Section 1.3/Section 6.2):
Loan Fee: $40,000, payable concurrently herewith.
Termination Fee: n/a
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<PAGE>
NSF Check Charge: $15.00 per item.
Wire Transfers: $15.00 per transfer.
================================================================================
4. MATURITY DATE
(Section 6. l): June 30, 1999, subject to automatic renewal as provided
in Section 6.1 above, and early termination as provided
in Section 6.2 above.
Borrower shall not be required to pay a renewal fee on
account of any automatic renewal as provided in Section
6.1 above provided Borrower is not then in Default or
there is not then an existing Event of Default.
================================================================================
5. REPORTING.
(Section 5.2):
Borrower shall provide GBC with the following'
1. Annual financial statements, as soon as available, and in
any event within 180 days following the end of Borrower's
fiscal year, certified by independent certified public
accountants acceptable to GBC.
2. Quarterly unaudited financial statements, as soon as
available, and in any event within 45 days after the end
of each fiscal quarter of Borrower.
3. Monthly unaudited financial statements, as soon as
available, and in any event within 30 days after the end
of each month.
4. Monthly Receivable agings, aged by invoice date, within
15 days after the end of each month.
5. Monthly accounts payable agings, aged by invoice date,
and outstanding or held check registers within 15 days
after the end of each month.
================================================================================
6. BORROWER INFORMATION:
Prior Names of
Borrower
(Section 3.2): Amber Software, Inc.
Prior Trade
Names of Borrower
(Section 3.2): None
Existing Trade
Names of Borrower
(Section 3.2): Mplayer, Mpath Foundation, Mplayer.com
Other Locations and
Addresses (Section 3.3): See Exhibit A hereto
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Material Adverse
Litigation (Section 3.10): See Exhibit A hereto
================================================================================
7. OTHER COVENANTS:
(1) Warrants. The Borrower shall concurrently provide GBC
with five-year warrants to purchase 23,000 shares of
common stock of the Borrower, on the terms set forth
in the Warrant to Purchase Stock and related
documents being executed concurrently with this
Agreement, at $5.40 per share. Such warrants shall
contain such terms and provisions as Borrower and GBC
shall agree. In addition, concurrently, Borrower and
GBC shall enter into an Anti-Dilution Agreement and
Registration Rights Agreement in such form as
Borrower and GBC shall agree. Said warrants shall be
deemed fully earned on the date hereof, shall be in
addition to all interest and other fees, and shall be
non-refundable.
(2) Corporate Structure. Borrower represents and warrants
to GBC that it has no subsidiaries other than
Catapult, which is and shall, during the term hereof,
continue to be inactive and has and shall, during the
term hereof, continue to have assets of less than
$25,000.
(3) Copyright Filings. Concurrently, Borrower is
executing and delivering to GBC a Security Agreement
in Copyrighted Works (the "Copyright Agreement").
Within 60 days after the date hereof, Borrower shall
(i) cause all of its computer software, the licensing
of which results in Receivables, to be registered
with the United States Copyright Office, (ii)
complete the Exhibits to the Copyright Agreement with
all of the information called for with respect to
such software, (iii) cause the Copyright Agreement to
be recorded in the United States Copyright Office,
and (iv) provide evidence of such recordation to GBC.
Borrower: GBC:
MPATH INTERACTIVE, INC. GREYROCK BUSINESS CREDIT,
a Division of NationsCredit Commercial
Corporation
By /s/ Lynn Heublein
-----------------------------
President or Vice President By /s/ Lisa Nagano
----------------------------------
Title /s/ SVP
--------------------------------
By /s/ Jeffrey Y. Suto
-------------------------------
Secretary or Ass't Secretary
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<PAGE>
greyrock
business credit a NationsBank Company
Amendment to Loan Documents
Borrower: Mpath Interactive, Inc.
Address: 665 Clyde Avenue
Mountain View, CA 94043
Date: July 31, 1998
THIS AMENDMENT TO LOAN DOCUMENTS is entered into between GREYROCK BUSINESS
CREDIT, a Division of NationsCredit Commercial Corporation ("GBC"), whose
address is 10880 Wilshire Blvd., Suite 950, Los Angeles, CA 90024 and the
borrower named above ("Borrower").
The Parties agree to amend the Loan and Security Agreement between them,
dated July 29, 1998 (the "Loan Agreement") as follows. (This Amendment, the Loan
Agreement, any prior written amendments to said agreements signed by GBC and the
Borrower, and all other written documents and agreements between GBC and the
Borrower are referred to herein collectively as the "Loan Documents".
Capitalized terms used but not defined in this Amendment shall have the meanings
set forth in the Loan Agreement.)
1. Minimum Interest. Section 2 of the Schedule to Loan and Security
Agreement is hereby deleted and replaced by the following:
"2. INTEREST
Interest Rate (Section 1.2):
A rate equal to the "Prime Rate" plus 2% per annum,
calculated on the basis of a 360-day year for the actual
number of days elapsed. The interest rate applicable to
all Loans shall be adjusted monthly as of the first day
of each month, and the interest to be charged for each
month shall be based on the highest "Prime Rate" in
effect during said month, but in no event shall the rate
of interest charged on any Loans in any month be less
than 8% per annum. In addition, the interest charged for
each month shall be a minimum of $6,000, regardless of
the amount of the Obligations outstanding. "Prime Rate
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<PAGE>
means the actual "Reference Rate" or the substitute
therefor of the Bank of America NT & SA whether or not
that rate is the lowest interest rate charged by said
bank. If the Prime Rate, as defined, is unavailable,
"Prime Rate" shall mean the highest of the prime rates
published in the Wall Street Journal on the first
business day of the month, as the base rate on corporate
loans at large U.S. money center commercial banks."
2. Representations True. Borrower represents and warrants to GBC that all
representations and warranties set forth in the Loan Agreement, as amended
hereby, are true and correct.
3. General Provisions. This Amendment, the Loan Agreement, and the other
Loan Documents set forth in full all of the representations and agreements of
the parties with respect to the subject matter hereof and supersede all prior
discussions, representations, agreements and understandings between the parties
with respect to the subject hereof. Except as herein expressly amended, all of
the terms and provisions of the Loan Agreement and the other Loan Documents
shall continue in full force and effect and the same are hereby ratified and
confirmed.
Borrower: GBC:
MPATH INTERACTIVE, INC. GREYROCK BUSINESS CREDIT,
a Division of NationsCredit
Commercial Corporation
By /s/ Lynn Heublein
----------------------------
President or Vice President By /s/ Lisa Nagano
-------------------------------
By Title SVP
---------------------------- -----------------------------
Secretary or Ass't Secretary
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<PAGE>
PATENT AND TRADEMARK SECURITY AGREEMENT
This PATENT AND TRADEMARK SECURITY AGREEMENT ("Agreement"), dated as of July
29, 1998, is entered into between MPATH INTERACTIVE, INC., a Delaware
corporation ("Grantor"), which has a mailing address at 665 Clyde Avenue,
Mountain View, California 94043, and GREYROCK BUSINESS CREDIT, a Division of
NationsCredit Commercial Corporation ("GBC"), which has a mailing address at
10880 Wilshire Blvd., Suite 950, Los Angeles, CA 90024.
RECITALS
A. Grantor and GBC are, contemporaneously herewith, entering into that
certain Loan and Security Agreement ("Loan Agreement") and other instruments,
documents and agreements contemplated thereby or related thereto (collectively,
together with the Loan Agreement, the "Loan Documents"); and
B. Grantor is the owner of certain intellectual property, identified
below, in which Grantor is granting a security interest to GBC.
NOW THEREFORE, in consideration of the mutual promises, covenants,
conditions, representations, and warranties hereinafter set forth and for other
good and valuable consideration, the parties hereto mutually agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. The following terms, as used in this Agreement, have the
following meanings:
"Code" means the California Uniform Commercial Code, as amended and
----
supplemented from time to time, and any successor statute.
"Collateral" means all of the following, whether now owned or
----------
hereafter acquired:
(i) Each of the trademarks and rights and interest which are
capable of being protected as trademarks (including trademarks, service
marks, designs, logos, indicia, tradenames, corporate names, company names,
business names, fictitious business names, trade styles, and other source
or business identifiers, and applications pertaining thereto), which are
presently, or in the future may be, owned, created, acquired, or used
(whether pursuant to a license or otherwise) by Grantor, in whole or in
part, and all trademark rights with respect thereto throughout the world,
including all proceeds thereof (including license royalties and proceeds of
infringement suits), and rights to renew and extend such trademarks and
trademark rights;
(ii) Each of the patents and patent applications which are
presently, or in the future may be, owned, issued, acquired, or used
(whether pursuant to a license or otherwise) by Grantor, in whole or in
part, and all patent rights with respect thereto throughout the world,
including all proceeds thereof (including license royalties and proceeds of
infringement suits), foreign filing rights, and rights to extend such
patents and patent rights:
(iii) All of Grantor's right to the trademarks and trademark
registrations listed on Exhibit A attached hereto, as the same may be
---------
updated hereafter from time to time;
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<PAGE>
(iv) All of Grantor's right, title, and interest, in and to
the patents and patent applications listed on Exhibit B attached hereto, as
---------
the same may be updated hereafter from time to time;
(v) All of Grantor's right, title and interest to register
trademark claims under any state or federal trademark law or regulation of
any foreign country and to apply for, renew, and extend the trademark
registrations and trademark rights, the right (without obligation) to sue
or bring opposition or cancellation proceedings in the name of Grantor or
in the name of GBC for past, present, and future infringements of the
trademarks, registrations, or trademark rights and all rights (but not
obligations) corresponding thereto in the United States and any foreign
country;
(vi) All of Grantor's right, title, and interest in all
patentable inventions, and to file applications for patent under federal
patent law or regulation of any foreign country, and to request
reexamination and/or reissue of the patents, the right (without obligation)
to sue or bring interference proceedings in the name of Grantor or in the
name of GBC for past, present, and future infringements of the patents, and
all rights (but not obligations) corresponding thereto in the United States
and any foreign country;
(vii) the entire goodwill of or associated with the businesses
now or hereafter conducted by Grantor connected with and symbolized by any
of the aforementioned properties and assets;
(viii) All general intangibles relating to the foregoing and all
other intangible intellectual or other similar property of the Grantor of
any kind or nature, associated with or arising out of any of the
aforementioned properties and assets and not otherwise described above; and
(ix) All products and proceeds of any and all of the foregoing
(including, without limitation, license royalties and proceeds of
infringement suits) and, to the extent not otherwise included, all payments
under insurance, or any indemnity, warranty, or guaranty payable by reason
of loss or damage to or otherwise with respect to the Collateral.
"Obligations" means all obligations, liabilities, and indebtedness of
-----------
Grantor to GBC, whether direct, indirect, liquidated, or contingent, and whether
arising under this Agreement, the Loan Agreement, any other of the Loan
Documents, or otherwise, including all costs and expenses described in Section
9.8 hereof.
1.2 Construction. Unless the context of this Agreement clearly requires
otherwise, references to the plural include the singular, references to the
singular include the plural, and the term "including" is not limiting. The words
"hereof," "herein," "hereby," "hereunder," and other similar terms refer to this
Agreement as a whole and not to any particular provision of this Agreement. Any
initially capitalized terms used but not defined herein shall have the meaning
set forth in the Loan Agreement. Any reference herein to any of the Loan
Documents includes any and all alterations, amendments, extensions,
modifications, renewals, or supplements thereto or thereof, as applicable.
Neither this Agreement nor any uncertainty or ambiguity herein shall be
construed or resolved against GBC or Grantor, whether under any role of
construction or otherwise. On the contrary, this Agreement has been reviewed by
Grantor, GBC, and their respective counsel, and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of GBC and Grantor as expressly stated
herein. Headings have been set forth herein for convenience only, and shall not
be used in the construction of this Agreement.
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<PAGE>
2. GRANT OF SECURITY INTEREST.
To secure the complete and timely payment and performance of all
Obligations, and without limiting any other security interest Grantor has
granted to GBC, Grantor hereby grants, assigns, and conveys to GBC a security
interest, but not an ownership right, in Grantor's entire right, title, and
interest in and to the Collateral.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS.
Grantor hereby represents, warrants, and covenants except as set forth in
Exhibit "A" to Schedule to Loan and Security Agreement that:
3.1 Trademarks; Patents. A tree and complete schedule setting forth all
federal and state trademark registrations owned or controlled by Grantor or
exclusively licensed to Grantor, together with a summary description and full
information in respect of the filing or issuance thereof and expiration dates is
set forth on Exhibit A; and a tree and complete schedule setting forth all
---------
patent and patent applications owned or controlled by Grantor or exclusively
licensed to Grantor, together with a summary description and full information in
respect of the filing or issuance thereof and expiration dates is set forth on
Exhibit B.
- ---------
3.2 Validity; Enforceability. Each of the patents and trademarks is valid
and enforceable, and Grantor is not presently aware of any past, present, or
prospective claim by any third party that any of the patents or trademarks are
invalid or unenforceable, or that the use of any patents or trademarks violates
the rights of any third person, or of any basis for any such claims.
3.3 Title. Grantor is the sole and exclusive owner of the entire and
unencumbered right, title, and interest in and to each of the patents, patent
applications, trademarks, and trademark registrations owned by Grantor, free and
clear of any liens, charges, and encumbrances, including pledges, assignments,
licenses, shop rights, and covenants by Grantor not to sue third persons.
3.4 Notice. Grantor has used and will continue to use proper statutory
notice in connection with its use of each of the patents and trademarks.
3.5 Quality. Grantor has used and will continue to use consistent
standards of high quality (which may be consistent with Grantor's past
practices) in the manufacture, sale, and delivery of products and services sold
or delivered under or in connection with the trademarks, including, to the
extent applicable, in the operation and maintenance of its merchandising
operations, and will continue to maintain the validity of the trademarks.
3.6 Perfection of Security Interest. Except for the filing of a financing
statement with the Secretary of State of California and filings with the United
States Patent and Trademark Office necessary to perfect the security interests
created hereunder, no authorization, approval, or other action by, and no notice
to or filing with, any govemmental authority or regulatory body is required
either for the grant by Grantor of the security interest hereunder or for the
execution, delivery, or performance of this Agreement by Grantor or for the
perfection of or the exercise by GBC of its rights hereunder to the Collateral
in the United States.
4. AFTER-ACQUIRED PATENT OR TRADEMARK RIGHTS.
If Grantor shall obtain rights to any new trademarks, any new patentable
inventions or become entitled to the benefit of any patent application or patent
for any reissue, division, or continuation, of any patent, the provisions of
this Agreement shall automatically apply thereto. Grantor shall give prompt
notice in writing to GBC with respect to any such new trademarks or patents, or
renewal or extension of any trademark registration. Grantor shall bear any
expenses
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<PAGE>
incurred in connection with future patent applications or trademark
registrations. Without limiting Grantor's obligation under this Section 4,
Grantor authorizes GBC to modify this Agreement by amending Exhibits A or B to
---------------
include any such new patent or trademark rights. Notwithstanding the foregoing,
no failure to so modify this Agreement or amend Exhibits A or B shall in any way
---------------
affect, invalidate or detract from GBC's continuing security interest in all
Collateral, whether or not listed on Exhibit A or B.
--------------
5. LITIGATION AND PROCEEDINGS.
Grantor shall commence and diligently prosecute in its own name, as the
real party in interest, for its own benefit, and its own expense, such suits,
administrative proceedings, or other action for infringement or other damages as
are in its reasonable business judgment necessary to protect the Collateral.
Grantor shall provide to GBC any information with respect thereto requested by
GBC. GBC shall provide at Grantor's expense all necessary cooperation in
connection with any such suits, proceedings, or action, including, without
limitation, joining as a necessary party. Following Grantor's becoming aware
thereof, Grantor shall notify GBC of the institution of, or any adverse
determination in, any proceeding in the United States Patent and Trademark
Office, or any United States, state, or foreign court regarding Grantor's claim
of ownership in any of the patents or trademarks, its right to apply for the
same, or its right to keep and maintain such patent or trademark rights.
6. POWER OF ATTORNEY.
Grantor hereby appoints GBC as Grantor's tree and lawful attorney, with
full power of substitution, to do any or all of the following, in the name,
place and stead of Grantor: (a) file this Agreement (or an abstract hereof) or
any other document describing GBC's interest in the Collateral with the United
States Patent and Trademark Office; (b) execute any modification of this
Agreement pursuant to Section 4 of this Agreement; (c) take any action and
execute any instrument which GBC may reasonably deem necessary or advisable to
accomplish the purposes of this Agreement; and (d) following an Event of Default
(as defined in the Loan Agreement), (i) endorse Grantor's name on all
applications, documents, papers and instruments necessary for GBC to use or
maintain the Collateral; (ii) ask, demand, collect, sue for, recover, impound,
receive, and give acquittance and receipts for money due or to become due under
or in respect of any of the Collateral' (iii) file any claims or take any action
or institute any proceedings that GBC may deem necessary or desirable for the
collection of any of the Collateral or otherwise enforce GBC's rights with
respect to any of the Collateral, and (iv) assign, pledge, convey, or otherwise
transfer title in or dispose of the Collateral to any person.
7. RIGHT TO INSPECT.
Grantor grants to GBC and its employees and agents the right to visit
Grantor's plants and facilities which manufacture, inspect, or store products
sold under any of the patents or trademarks, and to inspect the products and
quality control records relating thereto at reasonable times during regular
business hours.
8. SPECIFIC REMEDIES.
Upon the occurrence of any Event of Default (as defined in the Loan
Agreement), GBC shall have, in addition to, other rights given by law or in this
Agreement, the Loan Agreement, or in any other Loan Document, all of the rights
and remedies with respect to the Collateral of a secured party under the Code,
including the following:
8.1 Notification. GBC may notify licensees to make royalty payments on
license agreements directly to GBC;
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<PAGE>
8.2 Sale. GBC may sell or assign the Collateral and associated goodwill at
public or private sale for such amounts, and at such time or times as GBC deems
advisable. Any requirement of reasonable notice of any disposition of the
Collateral shall be satisfied if such notice is sent to Grantor five (5) days
prior to such disposition. Grantor shall be credited with the net proceeds of
such sale only when they are actually received by GBC, and Grantor shall
continue to be liable for any deficiency remaining after the Collateral is sold
or collected. If the sale is to be a public sale, GBC shall also give notice of
the time and place by publishing a notice one time at least five (5) days before
the date of the sale in a newspaper of general circulation in the county in
which the sale is to be held. To the maximum extent permitted by applicable law,
GBC may be the purchaser of any or all of the Collateral and associated goodwill
at any public sale and shall be entitled, for the purpose of bidding and making
settlement or payment of the purchase price for all or any portion of the
Collateral sold at any public sale, to use and apply all or any part of the
Obligations as a credit on account of the purchase price of any collateral
payable by GBC at such sale.
9. GENERAL PROVISIONS.
9.1 Effectiveness. This Agreement shall be binding and deemed effective
when executed by Grantor and GBC.
9.2 Notices. Except to the extent otherwise provided herein, all notices,
demands, and requests that either party is required or elects to give to the
other shall be in writing and shall be governed by the notice provisions of the
Loan Agreement.
9.3 No Waiver. No course of dealing between Grantor and GBC, nor any
failure to exercise nor any delay in exercising, on the part of GBC, any right,
power, or privilege under this Agreement or under the Loan Agreement or any
other agreement, shall operate as a waiver. No single or partial exercise of any
right, power, or privilege under this Agreement or under the Loan Agreement or
any other agreement by GBC shall preclude any other or further exercise of such
right, power, or privilege or the exercise of any other right, power, or
privilege by GBC.
9.4 Rights Are Cumulative. All of GBC's rights and remedies with respect
to the Collateral whether established by this Agreement, the Loan Agreement, or
any other documents or agreements, or by law shall be cumulative and may be
exercised concurrently or in any order.
9.5 Successors. The benefits and burdens of this Agreement shall inure to
the benefit of and be binding upon the respective successors and permitted
assigns of the parties; provided that Grantor may not transfer any of the
Collateral or any rights hereunder, without the prior written consent of GBC,
except as specifically permitted hereby.
9.6 Severability. The provisions of this Agreement are severable. If any
provision of this Agreement is held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such provision, or part thereof, in such jurisdiction, and shall not in any
manner affect such provision or part thereof in any other jurisdiction, or any
other provision of this Agreement in any jurisdiction.
9.7 Entire Agreement. This Agreement is subject to modification only by a
writing signed by the parties, except as provided in Section 4 of this
Agreement. To the extent that any provision of this Agreement conflicts with any
provision of the Loan Agreement, the provision giving GBC greater rights or
remedies shall govern, it being understood that the purpose of this Agreement is
to add to, and not detract from, the rights granted to GBC under the Loan
Agreement. This Agreement, the Loan Agreement, and the documents relating
thereto comprise the entire agreement of the parties with respect to the matters
addressed in this Agreement.
-5-
<PAGE>
9.8 Fees and Expenses. Grantor shall pay to GBC on demand all costs and "'
expenses that GBC pays or incurs in connection with the negotiation,
preparation, consummation, administration, enforcement, and termination of this
Agreement, including: (a) reasonable attorneys' and paralegals' fees and
disbursements of counsel to GBC; (b) costs and expenses (including reasonable
attorneys' and paralegals' fees and disbursements) for any amendment,
supplement, waiver, consent, or subsequent closing in connection with this
Agreement and the transactions contemplated hereby; (c)costs and expenses of
lien and title searches conducted in connection with the enforcement and
termination of this Agreement; (d) taxes, fees, and other charges for filing
this Agreement at the United States Patent and Trademark Office, or for filing
financing statements, and continuations, and other actions to perfect, protect,
and continue the security interest created hereunder; (e) sums paid or incurred
to pay any amount or take any action required of Grantor under this Agreement
that Grantor fails to pay or take; (f) costs and expenses of preserving and
protecting the Collateral; and (g) costs and expenses (including reasonable
attorneys' and paralegals' fees and disbursements) paid or incurred to enforce
the security interest created hereunder, sell or otherwise realize upon the
Collateral, and otherwise enforce the provisions of this Agreement, or to defend
any claims made or threatened against the GBC arising out of the transactions
contemplated hereby (including preparations for the consultations concerning any
such matters). The foregoing shall not be construed to limit any other
provisions of this Agreement or the Loan Documents regarding costs and expenses
to be paid by Grantor. The parties agree that reasonable attorneys' and
paralegals' fees and costs incurred in enforcing any judgment are recoverable as
a separate item in addition to fees and costs incurred in obtaining the judgment
and that the recovery of such attorneys' and paralegals' fees and costs is
intended to survive any judgment, and is not to be deemed merged into any
judgment.
9.9 Indemnity. Grantor shall protect, defend, indemnify, and hold harmless
GBC and GBC's assigns from all liabilities, losses, and costs (including without
limitation reasonable attorneys' fees) incurred or imposed on GBC relating to
the matters in this Agreement.
9.10 Further Assurances. At GBC's request, Grantor shall execute and
deliver to GBC any further instruments or documentation, and perform any acts,
that may be reasonably necessary or appropriate to implement this Agreement, the
Loan Agreement or any other agreement, and the documents relating thereto,
including without limitation any instrument or documentation reasonably
necessary or appropriate to create, maintain, perfect, or effectuate GBC's
security interests in the Collateral.
9.11 Release. At such time as Grantor shall completely satisfy all of the
Obligations and the Loan Agreement shall be terminated, GBC shall execute and
deliver to Grantor all assignments and other instruments as may be reasonably
necessary or proper to terminate GBC's security interest in the Collateral,
subject to any disposition of the Collateral which may have been made by GBC
pursuant to this Agreement and the power of attorney contained in paragraph 6
above shall terminate. For the purpose of this Agreement, the Obligations shall
be deemed to continue if Grantor enters into any bankruptcy or similar
proceeding at a time when any amount paid to GBC could be ordered to be repaid
as a preference or pursuant to a similar theory, and shall continue until it is
finally determined that no such repayment can be ordered.
9.12 Governing Law. The validity and interpretation of this Agreement and
the rights and obligations of the parties shall be governed by the laws of the
State of California, excluding its conflict of law rules to the extent such
rules would apply the law of another jurisdiction, and the United States. The
parties agree that all actions or proceedings arising in connection with this
Agreement shall be tried and litigated only in the state and federal courts
located in the County of Los Angeles, State of California or, at the sole option
of GBC, in any other court in which GBC shall initiate legal or equitable
proceedings and which has subject matter jurisdiction over the matter in
controversy, each of Grantor and GBC waives, to the extent permitted under
applicable law, any
-6-
<PAGE>
right they may have to assert the doctrine of forum non conveniens or to object
to venue to the extent any proceeding is brought in accordance with this
Section.
9.13 Waiver of Right to Jury Trial. GBC AND GRANTOR 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 GBC AND GRANTOR; OR (III) ANY CONDUCT,
ACTS OR OMISSIONS OF GBC OR GRANTOR OR ANY OF THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH GBC OR
GRANTOR; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first written above.
GREYROCK BUSINESS CREDIT, a MPATH INTERACTIVE, INC.
Division of NationsCredit Commercial
Corporation
By /s/ Lisa Nagano By /s/ Lynn Heublein
------------------------------ -------------------------------
Title SVP Title vp
-------------------------- -----------------------------
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<PAGE>
Exhibit "A"
-----------
REGISTERED TRADEMARKS
---------------------
Trademark Registration Date Registration No.
- --------- ----------------- ----------------
MPLAYER 2,133,005
SCRIBBLETALK 2,049,911
PENDING TRADEMARKS
------------------
Trademark Application Date Application No.
- --------- ---------------- ---------------
MPATH
MPATH LOGO
MPATH INTERACTIVE 75/487,674
MPLAYER.COM
MPLAYER LOGO
WANNA PLAY 75/079,847
-8-
<PAGE>
Exhibit "B"
-----------
PATENTS
-------
Patent Description/Title Issue Date Patent No. Name of Inventor
- ------------------------ ---------- --------- ----------------
Improved Video Game Enhancer 4/29/97 5,624,316 Perlman et al
With Integral Modem and Smart
Card Interface
Method and Apparatus for 7/22/97 5,651,060 Cohn et al
Detecting And Recovering From
Call Waiting Interruptions to
Modem Communications
PATENT APPLICATIONS
-------------------
Description Filing Date Serial No. Name of Inventor
- ----------- ----------- --------- ----------------
Method and Apparatus for 3/3/97 08/807,713 Cohn et al
Detecting And Recovering
from Call Waiting
Interruptions to Modem
Communications
Server Group Messaging for 2/1/96 08/595,323 Samuel et al
Interactive Applications
Server Group Messaging for 10/97 08/896,797 Samuel et al
Interactive Applications
Method and Apparatus for 12/23/97 08/996,786 Perlman et al
Loosely Synchronizing Closed
Free-Running Raster Displays
Method and Apparatus for 8/8/96 08/704,930 Perlman et al
Loosely Synchronizing the
Execution of Multiple Video
Gam Systems in a Networked
Environment
-9-
<PAGE>
Improved Video Game Enhancer 10/15/96 08/730,604 Perlman et al
With Integral Modem and
Smart Card Interface
Improved Video Game Enhancer 12/97 Perlman et al
With Integral Modem and
Smart Card Interface
Network Matchmaker for Peer 3/20/97 08/822,785 Grimm et al
to Peer Games
Multi-Homed Network 12/29/97 08/998,614 Grimm
Computers
Network Match Maker 3/20/97 08/821,279 Grimm et al
Network Match Maker for 3/20/97 08/822,289 Grimm et al
Client Server Games
Method and Apparatus for 6/17/97 08/876,953 Samuel et al
Match Making
System and Method for 4/23/98 09/065,763 Kwiatkowski
Spectator Server
Latency Measuring Servers 8/11/97 08/915,545 Rothschild
Spectator
Adaptable Score
Processing Computer 11/26/97 08/979,193 Grimm
Advertising Banners for 12/16/97 08/991,958 Roskowski
Destination Web Sites
Client Server Validation 3/6/98 09/036,593 Apgar et al
Interactive Dynamic Linking 2/12/98 60/074,546 Na Remote
of Virtual Machines
Software Inventory Control 4/98 Hastings
System (priority from 60/046,153)
Online Gaming Architecture 3/6/97 60/040,640 Rothschild et al
-10-
<PAGE>
SUPPLEMENT ONE
TO
PATENT AND TRADEMARK SECURITY AGREEMENT
This SUPPLEMENT ONE TO PATENT AND TRADEMARK SECURITY AGREEMENT ("Agreement"),
dated as of December 1, 1998, is entered into between MPATH INTERACTIVE, INC.,
a Delaware corporation ("Grantor"), which has a mailing address at 665 Clyde
Avenue, Mountain View, California 94043, and GREYROCK CAPITAL, a Division of
NationsCredit Division Commercial Corporation ("Greyrock"), which has a mailing
address at 10880 Wilshire Boulevard, Suite 950, Los Angeles, California 90024.
RECITALS
A. Grantor and Greyrock previously entered into a Patent and Trademark
Security Agreement dated as of July 29, 1998 (the "Original Agreement"), which
was recorded in the U.S. Patent and Trademark Office on August 10, 1998,
Reel/Frame 1768/0083, with respect to the trademarks identified therein and on
August 10, 1998, Reel/Frame 9360/0653, with respect to the patents identified
therein;
B. Grantor and Greyrock previously entered into that certain Loan and
Security Agreement dated July 29, 1998 ("Loan Agreement") and other instruments,
documents and agreements contemplated thereby or related thereto (collectively,
together with the Loan Agreement, the "Loan Documents"); and
C. Grantor is the owner of certain additional intellectual property,
identified below, in which Grantor is granting a security interest to Greyrock;
and
D. This Agreement contains the same provisions as the Original Agreement,
except for Section 3.1 which reflects the supplementation of Exhibits A and B
attached to the Original Agreement by the addition of the intellectual property
set forth on Exhibits A-1 and B-1 attached hereto. The Original Agreement shall
continue in full force and effect with respect to the Collateral described
therein.
NOW THEREFORE, in consideration of the mutual promises, covenants,
conditions, representations, and warranties hereinafter set forth and for other
good and valuable consideration, the parties hereto mutually agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. The following terms, as used in this Agreement, have the
following meanings:
"Code" means the California Uniform Commercial Code, as amended and
----
supplemented from time to time, and any successor statute.
"Collateral" means all of the following, whether now owned or
----------
hereafter acquired:
(i) Each of the trademarks and rights and interest which are
capable of being protected as trademarks (including trademarks, service
marks, designs, logos, indicia, tradenames, corporate names, company names,
business names, fictitious business names, trade styles, and other source
or business identifiers, and applications pertaining thereto), which are
presently, or in the future may be, owned, created, acquired, or used
-1-
<PAGE>
(whether pursuant to a license or otherwise) by Grantor, in whole or in part,
and all trademark rights with respect thereto throughout the world, including
all proceeds thereof (including license royalties and proceeds of infringement
suits), and rights to renew and extend such trademarks and trademark rights;
(ii) Each of the patents and patent applications which are
presently, or in the future may be, owned, issued, acquired, or used
(whether pursuant to a license or otherwise) by Grantor, in whole or in
part, and all patent rights with respect thereto throughout the world,
including all proceeds thereof (including license royalties and proceeds of
infringement suits), foreign filing rights, and rights to extend such
patents and patent fights;
(iii) All of Grantor's fight to the trademarks and trademark
registrations listed on Exhibit A attached to the Original Agreement, as
---------
supplemented by Exhibit A-1 attached hereto, as the same may be updated
-----------
hereafter from time to time;
(iv) All of Grantor's right, title, and interest, in and to
the patents and patent applications listed on Exhibit B attached to the
---------
Original Agreement, as supplemented by Exhibit B-1 attached hereto, as the
-----------
same may be updated hereafter from time to time;
(v) All of Grantor's right, title and interest to register
trademark claims under any state or federal trademark law or regulation of
any foreign country and to apply for, renew, and extend the trademark
registrations and trademark rights, the right (without obligation) to sue
or bring opposition or cancellation proceedings in the name of Grantor or
in the name of Greyrock for past, present, and future infringements of the
trademarks, registrations, or trademark rights and all rights (but not
obligations) corresponding thereto in the United States and any foreign
country;
(vi) All of Grantor's right, title, and interest in all
patentable inventions, and to file applications for patent under federal
patent law or regulation of any foreign country, and to request
reexamination and/or reissue of the patents, the right (without obligation)
to sue or bring interference proceedings in the name of Grantor or in the
name of Greyrock for past, present, and future infringements of the
patents, and all rights (but not obligations) corresponding thereto in the
United States and any foreign country;
(vii) the entire goodwill of or associated with the businesses
now or hereafter conducted by Grantor connected with and symbolized by any
of the aforementioned properties and assets;
(viii) All general intangibles relating to the foregoing and all
other intangible intellectual or other similar property of the Grantor of
any kind or nature, associated with or arising out of any of the
aforementioned properties and assets and not otherwise described above; and
(ix) All products and proceeds of any and all of the foregoing
(including, without limitation, license royalties and proceeds of
infringement suits) and, to the extent not otherwise included, all payments
under insurance, or any indemnity, warranty, or guaranty payable by mason
of loss or damage to or otherwise with respect to the Collateral.
"Obligations" means all obligations, liabilities, and indebtedness of
-----------
Grantor to Greyrock, whether direct, indirect, liquidated, or contingent, and
whether arising under this Agreement, the Loan Agreement, any other of the Loan
Documents, or otherwise, including all costs and expenses described in Section
9.8 hereof.
-2-
<PAGE>
1.2 Construction. Unless the context of this Agreement clearly requires
otherwise, references to the plural include the singular, references to the
singular include the plural, and the term "including" is not limiting. The words
"hereof," "herein," "hereby," "hereunder," and other similar terms refer to this
Agreement as a whole and not to any particular provision of this Agreement. Any
initially capitalized terms used but not defined herein shall have the meaning
set forth in the Loan Agreement. Any reference herein to any of the Loan
Documents includes any and all alterations, amendments, extensions,
modifications, renewals, or supplements thereto or thereof, as applicable.
Neither this Agreement nor any uncertainty or ambiguity herein shall be
construed or resolved against Greyrock or Grantor, whether under any role of
construction or otherwise. On the contrary, this Agreement has been reviewed by
Grantor, Greyrock, and their respective counsel, and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of Greyrock and Grantor as expressly
stated herein. Headings have been set forth herein for convenience only, and
shall not be used in the construction of this Agreement.
* as expressly stated herein
2. GRANT OF SECURITY INTEREST.
To secure the complete and timely payment and performance of all
Obligations, and without limiting any other security interest Grantor has
granted to Greyrock, Grantor hereby grants, assigns, and conveys to Greyrock a
security interest but not an ownership right, in Grantor's entire right, title,
and interest in and to the Collateral.
* , but not an ownership right,
3. REPRESENTATIONS, WARRANTIES AND COVENANTS.
Grantor hereby represents, warrants, and covenants, except as set forth in
Exhibit "A" to the Schedule to Loan and Security Agreement, that:
* , except as set forth in Exhibit "A" to the Schedule to Loan and Security
Agreement,
3.1 Trademarks; Patents.
(i) A true and complete schedule setting forth all federal
and state trademark registrations owned or controlled by Grantor or
exclusively licensed to Grantor, together with a summary description and
full information in respect of the filing or issuance thereof and
expiration dates is set forth on Exhibit A to the Original Agreement, as
---------
supplemented by Exhibit A-I attached hereto (Exhibit A to the Original
----------- ---------
Agreement, as supplemented by Exhibit A-1 attached hereto, is hereafter
-----------
referred to as Exhibit A);
----------
* exclusively
(ii) A true and complete schedule setting forth all patent and
patent applications owned or controlled by Grantor or exclusively licensed
to Grantor, together with a summary description and full information in
respect of the filing or issuance thereof and expiration dates is set forth
on Exhibit B to the Original Agreement, as supplemented by Exhibit B-1
--------- -----------
attached hereto (Exhibit B to the Original Agreement, as supplemented by
---------
Exhibit B-1 attached hereto, is hereafter referred to as Exhibit B).
---------
* exclusively
-3-
<PAGE>
3.2 Validity; Enforceability. Each of the patents and trademarks is valid
and enforceable, and Grantor is not presently aware of any past, present, or
prospective claim by any third party that any of the patents or trademarks are
invalid or unenforceable, or that the use of any patents or trademarks violates
the rights of any third person, or of any basis for any such claims.
3.3 Title. Grantor is the sole and exclusive owner of the entire and
unencumbered right, title, and interest in and to each of the patents, patent
applications, trademarks, and trademark registrations owned by Grantor, free and
clear of any liens, charges, and encumbrances, including pledges, assignments,
licenses, shop rights, and covenants by Grantor not to sue third persons.
3.4 Notice. Grantor has used and will continue to use proper statutory
notice in connection with its use of each of the patents and trademarks.
3.5 Quality. Grantor has used and will continue to use consistent
standards of high quality (which may be consistent with Grantor's past
practices) in the manufacture, sale, and delivery of products and services sold
or delivered under or in connection with the trademarks, including, to the
extent applicable, in the operation and maintenance of its merchandising
operations, and will continue to maintain the validity of the trademarks.
3.6 Perfection of Security Interest. Except for the filing of a financing
statement with the Secretary of State of California and filings with the United
States Patent and Trademark Office necessary to perfect the security interests
created hereunder, no authorization, approval, or other action by, and no notice
to or filing with, any governmental authority or regulatory body is required
either for the grant by Grantor of the security interest hereunder or for the
execution, delivery, or performance of this Agreement by Grantor or for the
perfection of or the exercise by Greyrock of its rights hereunder to the
Collateral in the United States.
4. AFTER-ACQUIRED PATENT OR TRADEMARK RIGHTS.
If Grantor shall obtain rights to any new trademarks, any new patentable
inventions or become entitled to the benefit of any patent application or patent
for any reissue, division, or continuation, of any patent, the provisions of
this Agreement shall automatically apply thereto. Grantor shall give prompt
notice in writing to Greyrock with respect to any such new trademarks or
patents, or renewal or extension of any trademark registration. Grantor shall
bear any expenses incurred in connection with future patent applications or
trademark registrations. Without limiting Grantor's obligation under this
Section 4, Grantor authorizes Greyrock to modify this Agreement by amending
Exhibits A or B to include any such new patent or trademark rights.
- ---------------
Notwithstanding the foregoing, no failure to so modify this Agreement or amend
Exhibits A or B shall in any way affect, invalidate or detract from Greyrock's
- ---------------
continuing security interest in all Collateral, whether or not listed on
Exhibits A or B.
- ---------------
5. LITIGATION AND PROCEEDINGS.
Grantor shall commence and diligently prosecute in its own name, as the
real party in interest, for its own benefit, and its own expense, such suits,
administrative proceedings, or other action for infringement or other damages as
are in its reasonable business judgment necessary to protect the Collateral.
Grantor shall provide to Greyrock any information with respect thereto requested
by Greyrock. Greyrock shall provide at Grantor's expense all necessary
cooperation in connection with any such suits, proceedings, or action,
including, without limitation, joining as a necessary party. Following Grantor's
becoming aware thereof, Grantor shall notify Greyrock of the institution of, or
any adverse determination in, any proceeding in the United States Patent and
Trademark Office, or any United States, state, or foreign court regarding
Grantor's claim of
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<PAGE>
ownership in any of the patents or trademarks, its right to apply for the same,
or its right to keep and maintain such patent or trademark rights.
6. POWER OF ATTORNEY.
Grantor hereby appoints Greyrock as Grantor's true and lawful attorney,
with full power of substitution, to do any or all of the following, in the name,
place and stead of Grantor: (a) file this Agreement (or an abstract hereof) or
any other document describing Greyrock's interest in the Collateral with the
United States Patent and Trademark Office; (b) execute any modification of this
Agreement pursuant to Section 4 of this Agreement; (c) take any action and
execute any instrument which Greyrock may reasonably deem necessary or advisable
to accomplish the purposes of this Agreement; and (d) following an Event of
Default (as defined in the Loan Agreement), (i) endorse Grantor's name on all
applications, documents, papers and instruments necessary for Greyr0ck to use or
maintain the Collateral; (ii) ask, demand, collect, sue for, recover, impound,
receive, and give acquittance and receipts for money due or to become due under
or in respect of any of the Collateral; (iii) file any claims or take any action
or institute any proceedings that Greyrock may deem necessary or desirable for
the collection of any of the Collateral or otherwise enforce Greyrock's fights
with respect to any of the Collateral, and (iv) assign, pledge, convey, or
otherwise transfer title in or dispose of the Collateral to any person.
* reasonably
7. RIGHT TO INSPECT.
Grantor grants to Greyrock and its employees and agents the right to visit
Grantor's plants and facilities which manufacture, inspect, or store products
sold under any of the patents or trademarks, and to inspect the products and
quality control records relating thereto at reasonable times during regular
business hours.
8. SPECIFIC REMEDIES.
Upon the occurrence of any Event of Default (as defined in the Loan
Agreement), Greyrock shall have, in addition to, other rights given by law or in
this Agreement, the Loan Agreement, or in any other Loan Document, all of the
rights and remedies with respect to the Collateral of a secured party under the
Code, including the following:
8.1 Notification. Greyrock may notify licensees to make royalty payments
on license agreements directly to Greyrock.
8.2 Sale. Greyrock may sell or assign the Collateral and associated
goodwill at public or private sale for such amounts, and at such time or times
as Greyrock deems advisable. Any requirement of reasonable notice of any
disposition of the Collateral shall be satisfied if such notice is sent to
Grantor five (5) days prior to such disposition. Grantor shall be credited with
the net proceeds of such sale only when they are actually received by Greyrock,
and Grantor shall continue to be liable for any deficiency remaining after the
Collateral is sold or collected. If the sale is to be a public sale, Greyrock
shall also give notice of the time and place by publishing a notice one time at
least five (5) days before the date of the sale in a newspaper of general
circulation in the county in which the sale is to be held. To the maximum extent
permitted by applicable law, Greyrock may be the purchaser of any or all of the
Collateral and associated goodwill at any public sale and shall be entitled, for
the purpose of bidding and making settlement or payment of the purchase price
for all or any portion of the Collateral sold at any public sale, to use and
apply all or any part of the Obligations as a credit on account of the purchase
price of any collateral payable by Greyrock at such sale.
-5-
<PAGE>
9. GENERAL PROVISIONS.
9.1 Effectiveness. This Agreement shall be binding and deemed effective
when executed by Grantor and Greyrock.
9.2 Notices. Except to the extent otherwise provided herein, all notices,
demands, and requests that either party is required or elects to give to the
other shall be in writing and shall be governed by the notice provisions of the
Loan Agreement.
9.3 No Waiver. No course of dealing between Grantor and Greyrock, nor any
failure to exercise nor any delay in exercising, on the part of Greyrock, any
right, power, or privilege under this Agreement or under the Loan Agreement or
any other agreement, shall operate as a waiver. No single or partial exercise of
any right, power, or privilege under this Agreement or under the Loan Agreement
or any other agreement by Greyrock shall preclude any other or further exercise
of such right, power, or privilege or the exercise of any other right, power, or
privilege by Greyrock.
9.4 Rights Are Cumulative. All of Greyrock's fights and remedies with
respect to the Collateral whether established by this Agreement, the Loan
Agreement, or any other documents or agreements, or by law shall be cumulative
and may be exercised concurrently or in any order.
9.5 Successors. The benefits and burdens of this Agreement shall inure to
the benefit of and be binding upon the respective successors and permitted
assigns of the parties; provided that Grantor may not transfer any of the
Collateral or any rights hereunder, without the prior written consent of
Greyrock, except as specifically permitted hereby.
9.6 Severability. The provisions of this Agreement are severable. If any
provision of this Agreement is held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such provision, or part thereof, in such jurisdiction, and shall not in any
manner affect such provision or part thereof in any other jurisdiction, or any
other provision of this Agreement in any jurisdiction.
9.7 Entire Agreement. This Agreement is subject to modification only by a
writing signed by the parties, except as provided in Section 4 of this
Agreement. To the extent that any provision of this Agreement conflicts with any
provision of the Loan Agreement, the provision giving Greyrock greater rights or
remedies shall govern, it being understood that the purpose of this Agreement is
to add to, and not detract from, the rights granted to Greyrock under the Loan
Agreement. This Agreement, the Loan Agreement, and the documents relating
thereto comprise the entire agreement of the parties with respect to the matters
addressed in this Agreement.
9.8 Fees and Expenses. Grantor shall pay to Greyrock on demand all costs
and expenses that Greyrock pays or incurs in connection with the negotiation,
preparation, consummation, administration, enforcement, and termination of this
Agreement, including: (a) reasonable attorneys' and paralegals' fees and
disbursements of counsel to Greyrock; (b) costs and expenses (including
reasonable attorneys' and paralegals' fees and disbursements) for any amendment,
supplement, waiver, consent, or subsequent closing in connection with this
Agreement and the transactions contemplated hereby; (c) costs and expenses of
lien and title searches conducted in connection with the enforcement and
termination of this Agreement; (d) taxes, fees, and other charges for filing
this Agreement at the United States Patent and Trademark Office, or for filing
financing statements, and continuations, and other actions to perfect, protect,
and continue the security interest created hereunder; (e) sums paid or incurred
to pay any amount or take any action required of Grantor under this Agreement
that Grantor fails to pay or take; (f) costs and expenses of preserving and
protecting the Collateral; and (g) costs and expenses (including reasonable
attorneys' and paralegals' fees and disbursements) paid or incurred to enforce
the security interest created hereunder, sell or otherwise realize upon the
Collateral, and
-6-
<PAGE>
otherwise enforce the provisions of this Agreement, or to defend any claims made
or threatened against the Greyrock arising out of the transactions contemplated
hereby (including preparations for the consultations concerning any such
matters). The foregoing shall not be construed to limit any other provisions of
this Agreement or the Loan Documents regarding costs and expenses to be paid by
Grantor. The parties agree that reasonable attorneys' and paralegals' fees and
costs incurred in enforcing any judgment are recoverable as a separate item in
addition to fees and costs incurred in obtaining the judgment and that the
recovery of such attorneys' and paralegals' fees and costs is intended to
survive any judgment, and is not to be deemed merged into any judgment.
* conducted in connection with the enforcement and termination of this
Agreement
9.9 Indemnity. Grantor shall protect, defend, indemnify, and hold harmless
Greyrock and Greyrock's assigns from all liabilities, losses, and costs
(including without limitation reasonable attorneys' fees) incurred or imposed on
Greyrock relating to the matters in this Agreement.
9.10 Further Assurances. At Greyrock's request, Grantor shall execute and
deliver to Greyrock any further instruments or documentation, and perform any
acts, that may be reasonably necessary or appropriate to implement this
Agreement, the Loan Agreement or any other agreement, and the documents relating
thereto, including without limitation any instrument or documentation reasonably
necessary or appropriate to create, maintain, perfect, or effectuate Greyrock's
security interests in the Collateral.
9.11 Release. At such time as Grantor shall completely satisfy all of the
Obligations and the Loan Agreement shall be terminated, Greyrock shall execute
and deliver to Grantor all assignments and other instruments as may be
reasonably necessary or proper to terminate Greyrock's security interest in the
Collateral, subject to any disposition of the Collateral which may have been
made by Greyrock pursuant to this Agreement and the power of attorney contained
in paragraph 6 above shall terminate. For the purpose of this Agreement, the
Obligations shall be deemed to continue if Grantor enters into any bankruptcy or
similar proceeding at a time when any amount paid to Greyrock could be ordered
to be repaid as a preference or pursuant to a similar theory, and shall continue
until it is finally determined that no such repayment can be ordered.
* and the power of attorney contained in paragraph 6 above shall terminate
9.12 Governing Law. The validity and interpretation of this Agreement and
the rights and obligations of the parties shall be governed by the laws of the
State of California, excluding its conflict of law roles to the extent such
rules would apply the law of another jurisdiction, and the United States. The
parties agree that all actions or proceedings arising in connection with this
Agreement shall be tried and litigated only in the state and federal courts
located in the County of Los Angeles, State of California or, at the sole option
of GBC, in any other court in which GBC shall initiate legal or equitable
proceedings and which has subject matter jurisdiction over the matter in
controversy, each of Grantor and GBC waives, to the extent permitted under
applicable law, any right they may have to assert the doctrine of forum non
conveniens or to object to venue to the extent any proceeding is brought in
accordance with this Section.
9.13 Waiver of Right to Jury Trial. GREYROCK AND GRANTOR 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 GREYROCK AND GRANTOR; OR (III) ANY
CONDUCT, ACTS OR OMISSIONS OF GREYROCK OR GRANTOR OR ANY OF THEIR DIRECTORS,
OFFICERS, EMPLOYEES,
-7-
<PAGE>
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH GREYROCK OR GRANTOR; IN
EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first written above.
GREYROCK BUSINESS CREDIT, a MPATH INTERACTIVE, INC.
Division of NationsCredit Commercial
Corporation
By /s/ Lisa Nagano By /s/ Lynn Heublein
------------------------------- --------------------------------
Title SVP Title
------------------------------- --------------------------------
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<PAGE>
Exhibit "A-1"
-------------
SUPPLEMENTAL LIST OF TRADEMARKS
-------------------------------
REGISTERED TRADEMARKS
---------------------
Trademark Registration Date Registration NO.
- --------- ----------------- ----------------
CATAPULT ENTERTAINMENT 06/17/97 2,072,133
SYNC-O-TRON 02/25/97 2,041,031
XBAND 01/06/98 2,127,521
MPATH INTERACTIVE 07/01/98 2,171,525
WANNA PLAY 07/28/98 2,177,219
PENDING TRADEMARKS
------------------
Mark Application Date Application No. Class(es)
- ---- ---------------- --------------- ---------
MPATH 05/19/88 75/487674
MPATH LOGO 06/23/98 75/507431
MPLAYER.COM 06/23/98 75/507435 El. 9 (US)
MPLAYER.COM 06/23/98 75/507436 C1. 25 (US)
MPLAYER.COM 06/23/98 75/507437 C1.35 (US)
MPLAYER.COM 06/23/98 75/507432 CI. 42 (US)
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<PAGE>
Exhibit "B-1"
-------------
SUPPLEMENTAL LIST OF PATENTS
----------------------------
PENDING PATENTS
---------------
Patent Description Filing Date Serial No. Name of Inventor
- ------------------ ----------- ---------- ----------------
Improved Video Game 12/97 08/991,490 Perlman et al.
With Enhancer Integral Modem
and Smart Card Interface
Software Inventory Control 05/98 09/075,310 Hastings
System (priority from
60/046,153)
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<PAGE>
SECURITY AGREEMENT IN COPYRIGHTED WORKS
This Security Agreement In Copyrighted Works (this "Agreement") is made at
Los Angeles, California as of July 29, 1998, is entered into between MPATH
INTERACTIVE, INC., a Delaware corporation ("Grantor"), which has a mailing
address at 665 Clyde Avenue, Mountain View, California 94043, and GREYROCK
BUSINESS CREDIT, a Division of NationsCredit Commercial Corporation ("GBC"),
which has a mailing address at 10880 Wilshire Blvd., Suite 950, Los Angeles, CA
90024.
RECITALS
A. GBC is providing financing to Grantor pursuant to the Loan and
Security Agreement of even date herewith between GBC and Grantor (as amended
from time to time, the "Loan Agreement"). Pursuant to the Loan Agreement,
Grantor has granted to GBC a security interest in all of Grantor's present and
future assets, including without limitation all of Grantor's present and future
general intangibles, and including without limitation the "Copyrights" (as
defined below), to secure all of its present and future indebtedness,
liabilities, guaranties and other obligations to GBC.
B. To supplement GBC's rights in the Copyrights, Grantor is executing and
delivering this Agreement.
NOW, THEREFORE, for valuable consideration, Grantor agrees as follows:
1. Assignment. To secure the complete and timely payment and performance
----------
of all "Obligations" (as defined in the Loan Agreement), and without limiting
any other security interest Grantor has granted to GBC, Grantor hereby
hypothecates to GBC and grants, assigns, and conveys to GBC a security interest,
but not an ownership right, in Grantor's entire right, title, and interest in
and to all of the following, now owned and hereafter acquired (collectively, the
"Collateral"):
(a) Registered Copyrights and Applications for Copyright Registrations.
------------------------------------------------------------------
All of Grantor's present and future United States registered copyrights and
copyright registrations, including, without limitation, the registered
copyrights listed in Schedule A to this Agreement (and including all of the
----------
exclusive rights afforded a copyright registrant in the United States under 17
U.S.C. (S) 106 and any exclusive rights which may in the future arise by act of
Congress or otherwise) and all of Grantor's present and future applications for
copyright registrations (including applications for copyright registrations of
derivative works and compilations) (collectively, the "Registered Copyrights"),
and any and all royalties, payments, and other amounts payable to Grantor in
connection with the Registered Copyrights, together with all renewals and
extensions of the Registered Copyrights, the right to recover for all past,
present, and future infringements of the Registered Copyrights, and all computer
programs, computer databases, computer program flow diagrams, source codes,
object codes and all tangible property embodying or incorporating the Registered
Copyrights, and all other rights of every kind whatsoever accruing thereunder or
pertaining thereto.
(b) Unregistered Copyrights. All of Grantor's present and future
-----------------------
copyrights which are not registered in-the United States Copyright Office (the
"Unregistered Copyrights"), whether now owned or hereafter acquired, including
without limitation the Unregistered Copyrights listed in Schedule B to this
----------
Agreement, and any and all royalties, payments, and other amounts payable to
Grantor in connection with the Unregistered Copyrights, together with all
renewals and extensions of the Unregistered Copyrights, the right to recover for
all past, present, and future infringements of the Unregistered Copyrights, and
all computer programs, computer databases, computer program flow diagrams,
source codes, object codes and all tangible property
-1-
<PAGE>
embodying or incorporating the Unregistered Copyrights, and all other rights of
every kind whatsoever accruing thereunder or pertaining thereto. The Registered
Copyrights and the Unregistered Copyrights collectively are referred to herein
as the "Copyrights."
(c) Licenses. All of Grantor's right, title and interest in and to any
--------
and all present and future license agreements with respect to the Copyrights,
including without limitation the license agreements listed in Schedule C to this
----------
Agreement (the "Licenses").
(d) Accounts Receivable. All present and future accounts, accounts
-------------------
receivable and other rights to payment arising from, in connection with or
relating to the Copyrights.
(e) Proceeds. All cash and non-cash proceeds of any and all of the
--------
foregoing.
2. Representations. Grantor represents and warrants except as set forth in
---------------
Exhibit "A" to Schedule to Loan and Security Agreement that:
(a) Each of the Copyrights is valid and enforceable (except to the
extent that the Unregistered Copyrights must be registered to be enforced);
(b) Except for the security interest granted hereby and the licenses
granted to Grantor's licensees with respect to the Copyrights in the ordinary
course of business of Grantor, Grantor is (and upon creation of all future
Copyrights, will be) the sole and exclusive owner of the entire and unencumbered
right, title, and interest in and to each of the Copyrights and other
Collateral, free and clear of any liens, charges, or encumbrances;
(c) There is no pending claim that the use of any of the Copyrights
does or may infringe upon or violate the rights of any third person nor does
Grantor have knowledge of any pending or threatened infringement of any of the
Copyrights by any third person.
(d) Listed on Schedules A and B are all software copyrights owned by
Grantor that fall within the scope of subdivision (g) below of this Section 2,
in which Grantor has an interest, or which are used in Grantor's business.
(e) Listed on Schedule C are all Licenses to which Grantor is a party.
(f) Each employee, agent and/or independent contractor who has
participated in the creation of the property constituting the Collateral has
either executed an assignment of his or her rights of authorship to Grantor or
is an employee of Grantor acting within the scope of his or her employment and
was such an employee at the time of said creation.
(g) All of Grantor's present and future (i) software, (ii) computer
programs and (iii) other works of authorship subject to United States copyright
protection, the sale, licensing or other disposition of which results in
royalties receivable, license fees receivable, accounts receivable or other sums
owing to Grantor (collectively, "Receivables"), shall be registered with the
United States Copyright Office within 60 days after the date Grantor accepts any
loan from GBC with respect to such Receivables and within 60 days after the date
Grantor includes any such Receivables in any accounts receivable aging,
borrowing base report or certificate or other similar report provided to GBC,
and Grantor shall provide to GBC copies of all such registrations promptly upon
the receipt of the same.
3. Covenants. Until all of the Obligations have been satisfied in full and
---------
the Loan Agreement has terminated:
(a) Grantor shall not grant a security interest in any of the
Copyrights or other Collateral to any other person and shall not enter into any
agreement or take any action that is
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<PAGE>
inconsistent with Grantor's obligations hereunder or Grantor's other Obligations
or would impair GBC's rights, under this Agreement or otherwise, without GBC's
prior written consent.
(b) Grantor shall ensure that each use of the Copyrights described in
Section 1 of this Agreement carries a complete and accurate copyright notice.
(c) Grantor shall use commercially reasonable efforts to preserve and
defend Grantor's rights in the Copyrights unless Grantor, with the concurrence
of GBC, reasonably determines that a Copyright is not worth preserving or
defending.
(d) Grantor shall undertake all reasonable measures to cause its
employees, agents and independent contractors to assign to Grantor all rights of
authorship to any copyrighted material in which Grantor has or may subsequently
acquire any right or interest.
4. License Rights. Grantor may license or sublicense the Copyrights only
--------------
in the ordinary course of business and only on a non-exclusive basis, and only
to the extent of Grantor's rights and subject to GBC's security interest and
Grantor's obligations under this Agreement.
5. GBC May Supplement. Grantor authorizes GBC to modify this Agreement by
--------------------
amending Schedule A or B to include any future software copyrights to be
included in the Copyrights. Grantor shall from time to time update the lists of
Registered Copyrights and Unregistered Copyrights on Schedules A and B and lists
of License Agreements on Schedule C as Grantor obtains or acquires copyrights or
grants or obtains licenses in the future. Notwithstanding the foregoing, no
failure to so modify this Agreement or amend Schedules A or B or C shall in any
way affect, invalidate or detract from GBC's continuing security interest in all
Copyrights, whether or not listed on Schedule A or B and all license agreements
whether or not listed on Schedule C.
6. Default. Upon an Event of Default (as defined in the Loan Agreement)
-------
GBC shall have, in addition to all of its other rights and remedies under the
Loan Agreement, all rights and remedies of a secured party under the Uniform
Commercial Code (as enacted in any jurisdiction in which the Copyrights or other
Collateral are located or deemed to be located) or other applicable law. Upon
occurrence of an Event of Default, Grantor shall, upon request of GBC, give
written notice to all parties to the Licenses that all payments thereunder shall
be made to GBC, and GBC may itself give such notice.
7. Fees and Expenses. On demand by GBC, without limiting any of the terms
-----------------
of the Loan Agreement, Grantor shall pay all reasonable fees, costs, and
expenses (including without limitation reasonable attorneys' fees and legal
expenses) incurred by GBC in connection with (a) preparing this Agreement and
all other documents relating to this Agreement, (b) consummating this
transaction, (c) filing or recording any documents (including all taxes in
connection therewith) in public offices; and (d) paying or discharging any
taxes, counsel fees, maintenance fees, encumbrances, or other amounts in
connection with protecting, maintaining, or preserving the Copyrights or
defending or prosecuting any actions or proceedings arising out of or related to
the Copyrights.
8. GBC's Rights. In the event that Grantor fails to use commercially
------------
reasonable efforts to preserve and defend Grantor's rights in the Copyrights
(except as permitted by paragraph 3(c) hereof) within a reasonable period of
time after learning of the existence of any actual or threatened infringement
thereof, upon twenty (20) days prior written notice to Grantor, GBC shall have
the right, but shall in no way be obligated to, bring suit or take any other
action, in its own name or in Grantor's name, to enforce or preserve GBC's or
Grantor's rights in the Copyrights. Grantor shall at the request of GBC and at
Grantor's expense do any lawful acts and execute any documents requested by GBC
to assist with such enforcement. In the event Grantor has not taken action to
enforce or preserve GBC's and Grantor's rights in the Copyrights and GBC
thereupon takes such action, Grantor, upon demand, shall promptly reimburse and
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<PAGE>
indemnify GBC for all costs and expenses incurred in the exercise of GBC's or
Grantor's rights under this Section 8.
9. No Waiver. No course of dealing between Grantor and GBC, nor any
---------
failure to exercise nor any delay in exercising, on the part of GBC, any right,
power, or privilege under this Agreement or under the Loan Agreement or any
other agreement, shall operate as a waiver. No single or partial exercise of any
right, power, or privilege under this Agreement or under the Loan Agreement or
any other agreement by GBC shall preclude any other or further exercise of such
right, power, or privilege or the exercise of any other right, power, or
privilege by GBC.
10. Rights Are Cumulative. All of GBC's rights and remedies with respect
---------------------
to the Copyrights and other Collateral whether established by this Agreement,
the Loan Agreement, or any other documents or agreements, or by law shall be
cumulative and may be exercised concurrently or in any order.
11. Copyright Office. At the request of GBC, Grantor shall execute any
----------------
further documents necessary or appropriate to create and perfect GBC's security
interest in the Copyrights, including without limitation any documents for
filing with the United States Copyright Office and/or any applicable state
office. GBC may record this Agreement, an abstract thereof, or any other
document describing GBC's interest in the Copyrights with the United States
Copyright Office, at the expense of Grantor.
12. Indemnity. Grantor shall protect, defend, indemnify, and hold harmless
---------
GBC and GBC's assigns from all liabilities, losses, and costs (including without
limitation reasonable attorneys' fees) incurred or imposed on GBC relating to
the matters in this Agreement, including, without limitation, in connection with
GBC's defense of any infringement action brought by a third party against GBC.
13. Severability. The provisions of this Agreement are severable. If any
------------
provision of this Agreement is held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such provision, or part thereof, in such jurisdiction, and shall not in any
manner affect such provision or part thereof in any other jurisdiction, or any
other provision of this Agreement in any jurisdiction.
14. Amendments; Entire Agreement. This Agreement is subject to
----------------------------
modification only by a writing signed by the parties, except as provided in
Section 5 of this Agreement. To the extent that any provision of this Agreement
conflicts with any provision of the Loan Agreement, the provision giving GBC
greater rights or remedies shall govern, it being understood that the purpose of
this Agreement is to add to, and not detract from, the rights granted to GBC
under the Loan Agreement. This Agreement, the Loan Agreement, and the documents
relating thereto comprise the entire agreement of the parties with respect to
the matters addressed in this Agreement.
15. Further Assurances. At GBC's request, Grantor shall execute and
------------------
deliver to GBC any further instruments or documentation, and perform any acts,
that may be reasonably necessary or appropriate to implement the express
provisions of this Agreement, the Loan Agreement or any other agreement, and the
documents relating thereto, including without limitation any instrument or
documentation reasonably necessary or appropriate to create, maintain, perfect,
or effectuate GBC's security interests in the Copyrights or other Collateral.
16. Release. At such time as Grantor shall completely satisfy all of the
-------
Obligations and the Loan Agreement shall be terminated, GBC shall execute and
deliver to Grantor all assignments and other instruments as may be reasonably
necessary or proper to terminate GBC's security interest in the Copyrights,
subject to any disposition of the Copyrights which may have been made by GBC
pursuant to this Agreement. For the purpose of this Agreement, the Obligations
shall be deemed to continue if Grantor enters into any bankruptcy or similar
proceeding at a time when any amount paid to GBC could be ordered to be repaid
as a preference
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<PAGE>
or pursuant to a similar theory, and shall continue until it is finally
determined that no such repayment can be ordered.
17. True and Lawful Attorney. Grantor hereby appoints GBC as Grantor's
------------------------
true and lawful attorney, with full power of substitution, to do any or all of
the following, in the name, place and stead of Grantor: (a) execute an abstract
of this Agreement or any other document describing GBC's interest in the
Copyrights, for filing with the United States Copyright Office; (b) execute any
modification of this Agreement pursuant to Section 5 of this Agreement; and (c)
following an Event of Default (as defined in the Loan Agreement) execute any
assignments, notices or transfer documents for purposes of transferring title or
right to receive any of the Copyrights or other Collateral to any person,
including without limitation GBC.
18. Successors. The benefits and burdens of this Agreement shall inure to
----------
the benefit of and be binding upon the respective successors and permitted
assigns of the parties; provided that Grantor may not transfer any of the
Collateral or any rights hereunder, without the prior written consent of GBC,
except as specifically permitted hereby.
19. Governing Law. The validity and interpretation of this Agreement and
-------------
the rights and obligations of the parties shall be governed by the laws of the
State of California, excluding its conflict of law rules to the extent such
rules would apply the law of another jurisdiction, and the United States.
20. Waiver of Right to Jury Trial. GBC and Grantor 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 GBC and Grantor; or (iii) any conduct,
acts or omissions of GBC or Grantor or any of their directors, officers,
employees, agents, attorneys or any other persons affiliated with GBC or
Grantor; in each of the foregoing cases, whether sounding in contract or tort or
otherwise.
WITNESS the execution hereof as of the date first written above.
Grantor:
Mpath Interactive, Inc.
By /s/ Lynn Heublein
-------------------------------------
Name (please print):
Lynn Heublein
-----------------------------------------
Title: Vice President
-----------------------------------
Chairman of the Board, President, or Vice
President
Accepted.
GBC:
GREYROK BUSINESS CREDIT,
a Division of NationsCredit Commercial Corporation
By /s/ Lisa Nagano
-------------------------------------
Name (please print):
Lisa Nagano
- ---------------------------------------
Title: SVP
---------------------------------
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<PAGE>
Schedule A
to
Security Agreement in Copyrighted Works
Mpath Interactive, Inc.
Registered Copyrights
U.S. Copyrights
- ---------------
TITLE OF WORK/YEAR OF REGISTRATION DATE
- --------------------- ------------ ----
CREATION NUMBER OF ISSUANCE
-------- ------ -----------
NONE
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<PAGE>
Schedule B
to
Security Agreement in Copyrighted Works
Mpath Interactive, Inc.
Unregistered Copyrights
(Where No Copyright Application Is Pending)
Copyright Description
---------------------
See attached list of software applications.
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<PAGE>
Schedule C
to
Security Agreement in Copyrighted Works
Mpath Interactive, Inc.
License Agreements
1. 4/15/96 Technology License Agreement with SegaSoft, Inc. amended by
11/27/96 Amendment #1, 3/28/97 Amendment #2, and 10/27/97 Amendment #3.
2. 3/31/97 Software Development and Internet Services Agreement with Sega of
America, Incorporated
3. 4/15/97 Development & License Agreement with SegaSoft, Inc.
4. 5/19/97 Billing Service Agreement with Origin Systems, Inc.
5. 10/3/97 Billing Service Agreement with Multitude, Inc.
6. 10/31/97 Technology License Agreement with LG Internet Inc. as amended by
2/26/98 Amendment #1
7. 11/18/97 Source Code License Agreement with Tacit Software, Inc.
8. 1/30/98 Source Code License Agreement with Multitude, Inc.
9. 2/4/98 Agreement with Hilltop New Media, Inc.
10. 2/25/98 Source Code License Agreement (Hearts) with LG Internet Inc.
11. 3/3/98 Source Evaluation License Agreement with Papyrus (expired)
12. 3/16/98 Source Code License Agreement (Yam) with LG Internet Inc.
13. 4/13/98 Classic Game Source Code License Agreement with LG Internet Inc.
14. 9/29/95 Software License and Services Agreement with Oracle Corporation
15. 11/17/95 LOI with Portal Information Network Inc.
16. 1/22/96 Software License Agreement with Voxware, Inc. notice given by
Mpath for 7/27/98 termination
17. 3/26/96 Publisher's License Agreement with PhotoDisc, Inc.
18. 8/31/96 BSAFE/TM//TIPEM/TM /OEM Master License Agreement with RSA Data
Security, Inc. (RSA code is no longer in use by Mpath)
19. 11/14/96 License and Distribution Agreement with Microsoft Corporation
20. 9/15/97 Netgravity Adserver License Agreement with Netgravity, Inc.
21. 12/18/97 RTPatch Professional License Agreement with Pocket Soft, Inc.
22. 1/13/98 Letter Agreement with Transactor Networks, Inc.
-8-
<PAGE>
23. 3/2/98 Purchase Agreement with Corporate Management Solutions, Inc.
24. License Agreement with Pocket Soft, Inc.
25. 7/17/95 On-line Distribution Agreement with Maxis, Inc.
26. 8/28/95 On-line Distribution Agreement with Apogee Software, Ltd.
27. 9/4/95 On-line Distribution Agreement with Apogee Software, Ltd.
28. 3/21/96 On-line Game Distribution Agreement with new World Computing
29. 4/5/96 On-line Game Distribution Agreement with IntraCorp Entertainment,
Inc. Terminated on bankruptcy of IntraCorp.
30. 4/15/96 Technology License Agreement with SegaSoft, Inc.
31. 4/18/96 Network License Agreement with Davidson & Associates, Inc.
(Blizzard)
32. 5/2/96 On-line Game Service Agreement with Accolade, Inc.
33. 5/1/96 On-line Distribution Agreement with Looking Glass Technologies,
Inc.
34. 5/3/96 On-line Distribution Agreement with Westwood Studios, Inc.
35. 5/8/96 On-line Distribution Agreement with Strategic Simulations, Inc.
36. 5/10/96 License Agreement with Id Software, Inc.
37. 6/24/96 On-line Game Service Agreem
38. ent with Domark Software, Inc. Domark subsequently assigned to Eidos.
39. 8/15/96 Letter of Agreement with Epicenter Inc. (Epicenter subsequently
changed corporate name to Timsink.)
40. 9/24/96 First Amendment to On-line Distribution Agreement with Strategic
Simulations, Inc.
41. 9/27/96 On-line Game Service Agreement with Reality Bytes, Inc.
42. 10/1/96 First Amendment to Network License Agreement with Davidson
(Blizzard)
43. 10/14/96 Software Purchase Agreement with Dubois, Paul
44. 10/18/96 On-line Game Service Agreement with Hasbro Interactive, Inc.
45. 12/9/96 Second Amendment to On-line Distribution Agreement with Strategic
Simulations, Inc.
46. 1/9/97 On-line Game Service Agreement with 7/~ /Level, Inc. (Amended
4/1/97)
47. 2/20/97 On-line Game Service Agreement with Interactive Magic Inc.
48. 3/20/97 Letter Agreement with Kirsch, Dave
49. 3/21/97 On-line Game Service Agreement with Megamedia Corporation
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<PAGE>
50. 3/26/97 Mplayer Game Service Agreement with Electronic Arts Inc.
51. 3/28/97 Letter Agreement Dnylchuck, Michael
52. 3/31/97 Letter Agreement with Fortress Software
53. 4/3/97 Second Amendment to On-line Distribution Agreement with Westwood
Studios, Inc.
54. 4/8/97 On-line Game Service Agreement with S.E.A. Multimedia
55. 5/8/97 On-line Game Service Agreement with Access Software, Inc.
56. 5/30/97 On-line Game Service Agreement with ABC Multimedia, Inc.
57. 6/16/97 Master Content Agreement with Electronic Arts Inc.
58. 6/17/97 On-line Game Service Agreement with MGM Interactive, Inc.
59. 6/25/97 On-line Game Service Agreement with Broderbund Software, Inc.
60. 6/29/97 On-line Game Service Agreement with Bethesda, a division of Media
Technology Limited
61. 7/25/97 On-line Game Service Agreement with Blue Byte Software GmbH
62. 8/11/97 On-line Game Service Agreement with Psygnosis Limited
63. 8/22/97 On-line Game Service Agreement with Kalisto Technologies S.A.
64. 9/12/97 On-line Game Service Agreement with Eidos Interactive Limited
65. 9/22/97 First Amendment to On-line Game Service Agreement with Blue Byte
Software GmbH
66. 10/13/97 On-line Game Service Agreement with Talonsoft, Inc.
67. 10/15/97 On-line Game Service Agreement with Objectmedia, Inc.
68. 10/20/97 Letter Agreement with Wright, David
69. 10/22/97 On-line Game Service Agreement with Panasonic Interactive Media
Company doing business as Ripcord
70. 10/30/97 Mplayer Game Service Agreement with Activision, Inc.
71. 11/7/97 License Agreement with Id Software, Inc.
72. 12/2/97 Unreal Software License Agreement with Epic MegaGames, Inc.
73. 12/30/97 Mplayer Game Service Agreement with Activision Inc.
74. 1/6/98 On-line Game Service Agreement with Simutronics Corporation
75. 3/10/98 On-line Game Service Agreement with Lyra LLC
76. 3/26/98 On-line Chessmaster Game Service Agreement with Mindscape, Inc.
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<PAGE>
77. 3/26/98 On-line Game Service Agreement with Mindscape, Inc.
78. 3/30/98 First Amendment to On-line Game Service Agreement with Bethesda, a
division of Media Technology Limited
79. 4/22/98 On-line Game Service Agreement with Red Storm Entertainment, Inc.
80. 4/22/98 On-line Game Service Agreement with FASA Interactive Technologies,
Inc.
81. 4/3/98 Web Content Agreement with Larry Green to provide strategy pages
for various games
82. 4/3/98 Web Content Agreement with Jacob Robinson to provide action game
news
83. 10/28/97 Technology License Agreement with LG Internet Inc. LG Internet is
licensed exclusively to operate mplayer.com in South Korea
84. 2/11/98 Preliminary Joint Operation Agreement with Eidos Interactive
Limited contemplates the operation, by Eidos, of mplayer.com in the United
Kingdom
85. 11/6/97 Email License with Jeffrey Donovan
86. 11/7/97 Email License with Karl Homell
87. 12/4/97 Email License with Steffen Solem
88. 1/21/98 Email License with Steve Baker
89. 1/22/98 Email License with Karl Homell
90. 1/22/98 Email License with Logic Bomb, Inc.
91. 1/26/98 Email License with Maciek Drejak
92. 4/10/98 Email License with Dan Suceava
93. 4/29/98 Email License with Eben Upton
-11
<PAGE>
EXHIBIT 10.16
PROPERTY ADDRESS
CYPRESS BUSINESS PARK
665 Clyde Avenue
Mountain View, CA 94043
INDUSTRIAL
LEASE
BETWEEN
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
LANDLORD
AND
MPATH INTERACTIVE, INC.
TENANT
December __, 1996
<PAGE>
INDUSTRIAL LEASE
----------------
THIS LEASE is made as of the __ day of December, 1996, between THE
PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation ("Landlord"),
and MPATH INTERACTIVE, INC., a Delaware corporation ("Tenant"), for space in the
building located at 665 Clyde Avenue Mountain View, CA 94043 (such building,
together with the land upon which it is situated, being herein referred to as
the "Building"). The following schedule (the "Schedule") sets forth certain
basic terms of this Lease:
<TABLE>
<CAPTION>
SCHEDULE
<S> <C> <C>
1. Premises 665 Clyde Avenue, Mountain View, CA
2. Rentable Square Feet of Premises: 28,800 rsf
3. Term Sixty (60) Months, Commencing on the
Commencement Date
4. Base Rent:
Period from/to Monthly Rent
-------------- ------------
Months 1-12 $ 32,256.00
13-60 $ (See Section 2.c)
5. Tenant's Share of CAM Charges: 24.42%
6. Security Deposit: $ (See Section 17)
7. Broker(s): Grubb & Ellis (Tenant)
CPS (Landlord)
8. Commencement Date February 1, 1997
9. Landlord's Notice Address: The Voit Companies
1111 Broadway, Suite 1510
Oakland, CA 94506
RE: Cypress Business Park
with a copy to: The Prudential Insurance
Company of America
2029 Century Park East, Suite 2050
Los Angeles, CA 90067
ATTN: Real Estate Investments,
Vice President
and The Prudential Insurance
Company of America
4 Embarcadero Center Suite 2700
San Francisco, CA 94111
ATTN: Regional Counsel
10. Tenant's Notice Address: Mpath Interactive, Inc.
665 Clyde Ave
Mountain View, CA 94043
ATTN: General Manager
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
11. Exhibits: A. Floor Plan
B. Tenant Improvement Agreement
C. Commencement Date Memorandum
D. Rules and Regulations
</TABLE>
3
<PAGE>
1. DEMISING CLAUSE
Landlord leases to Tenant and Tenant leases from Landlord the premises (the
"Premises") described in Item 1 of the Schedule and shown on the plan attached
------
hereto as Exhibit A. subject to the covenants and conditions set forth in this
---------
Lease, for a term (the "Term") commencing on the date described in Item 8 of the
------
Schedule (the "Commencement Date") and expiring on the last day of the Term
specified in the Schedule (the "Expiration Date"), unless terminated earlier as
otherwise provided in this Lease.
2. RENT
a. Definitions. For purposes of this Lease, the following terms shall have the
-----------
following meanings:
i. "Common Areas" shall mean the parking, landscaping, sidewalks and other
common areas of the Project.
ii. "Project" shall mean the project commonly known as Cypress Business Park.
iii. "Expenses" shall mean (1) all of Landlord's direct costs and expenses of
operation, repair and maintenance of the Building and Common Areas, including,
without limitation, reasonable management fees related to the Project, all as
determined by Landlord in accordance with generally accepted accounting
principles or other recognized accounting principles, consistently applied; (2)
costs, or a portion thereof, properly allocable to the Building or Common Areas
of any capital improvements made to the Building or Common Areas by Landlord
which comprise labor-saving devices or other equipment which improves the
operating efficiency of any system within the Building or Common Areas (such as
an energy management computer system), the costs, or allocable portion thereof,
to be amortized over the useful life thereof (as determined by generally
accepted accounting principles), together with interest upon the amortized
balance at a rate of ten percent (10%); and iv. costs properly allocable to the
Building or Common Areas of any capital improvements made to the Building or
Common Areas by Landlord that are required under any governmental law or
regulation that was not applicable to the Building and Common Areas at the time
the Commencement Date occurs, or that are reasonably required for the health and
safety of tenants in the Building, the costs, or allocable portion thereof, to
be amortized over the useful life thereof (as determined by generally accepted
accounting principles), together with interest upon the unamortized balance at
the rate of ten percent (10%).
v. "Rent" shall mean Base Rent, Adjustment Rent, and any other sums or charges
due from Tenant hereunder. This Lease is intended to be a triple net lease, with
all costs, expenses and charges (including the Expenses) to be paid by Tenant
except as otherwise specifically provided in this Lease.
vi. "Taxes" shall mean all taxes, assessments and fees levied upon the
Building, the property of Landlord located therein or the rents collected
therefrom, by any governmental entity based upon the ownership, leasing, renting
or operation of the Building, including all costs and expenses of protesting any
such taxes, assessments or fees in good faith. Taxes shall not include any net
income, capital stock, succession, transfer, franchise, gift, estate or
inheritance taxes interest on taxes or penalties resulting from Landlord's
failure to pay taxes, any increases in taxes attributable to additional
improvements to the Building unless such improvements are constructed for the
benefit of all tenants of the Project, real estate taxes resulting from
overstandard improvements made by other tenants or any assessments for public
improvements to the extent prepaid in advance of the date due pursuant to any
applicable amortization schedule; provided, however, if at any time during the
Term, a tax or excise on income is levied or assessed by any governmental
entity, in lieu of or as a substitute for, in whole or in part, real estate
taxes or other ad valorem taxes, such tax shall constitute and be included in
----------
Taxes. For the purpose of determining Taxes for any given year, the amount to be
included for such year (a) from special assessments payable in installments
shall be the amount of the installments (and any interest) due and payable
during such year, and (b) from all other Taxes shall be the amount due and
payable in such year.
vii. "Tenant's Share" shall mean the percentage set forth in Item 5 of the
Schedule.
b. Components of Rent. Tenant agrees to pay the following amounts to Landlord
-----------
at the office of the Building or at such other place as Landlord designates in
writing to Tenant reasonably in advance:
4
<PAGE>
i. Base rent ("Base Rent") to be paid in monthly installments in the amounts
set forth in Item 4 of the Schedule, in advance on or before the first day of
------
each month of the Term, without demand, except that Tenant shall pay the first
month's Base Rent upon execution of this Lease.
ii. Adjustment rent ("Adjustment Rent") in an amount equal to Tenant's Share of
Expenses and Taxes for any calendar year. Prior to each calendar year, or as
soon as reasonably possible, Landlord shall estimate and notify Tenant of the
amount of Adjustment Rent due for such year, as shown in said statement, and
Tenant shall pay Landlord one-twelfth of such estimate on the first day of each
month during such year. Such estimate may be revised by Landlord whenever it
obtains information relevant to making such estimate more accurate. Within one
hundred twenty (120) days after the end of each calendar year, Landlord shall
deliver to Tenant a statement setting forth in reasonable detail the actual
Expenses and Taxes for such calendar year and a statement of the amount of
Adjustment Rent that Tenant has paid and is payable for such year. Within thirty
(30) days after receipt of such statement, Tenant shall pay to Landlord the
amount of Adjustment Rent due for such calendar year minus any payments of
estimated Adjustment Rent made by Tenant for such year. If Tenant's estimated
payments of Adjustment Rent exceed the amount due Landlord for such calendar
year, Landlord shall apply such excess as a credit against Tenant's other
obligations under this Lease or promptly refund such excess to Tenant unless the
Term has already expired, and Tenant is not in default hereunder beyond any
applicable cure period, in which case such amount shall be refunded to Tenant.
In no event will Tenant be entitled to interest on any amount overpaid by Tenant
hereunder.
c. Increase of Rent. The Base Rent shall be adjusted upward every year of the
term hereof, based on the increase in the Consumer Price Index ("CPI"). The
first increase in Base Rent pursuant to this paragraph shall be effective
beginning with the rent payable on the first (1st) day of the thirteenth (13th)
month of the Term, and subsequent increases shall be effective every twelve (12)
months thereafter. Rent shall be determined based on the increase in the CPI
from the Commencement Date, or the last Rent Determination Date (as defined
herein), as the case may be, to a date that is thirty (30) days prior to the
effective date of any increase hereunder (the "Rent Determination Date"). "CPI"
shall mean the Consumer Price Index for Urban Wage Earners and Clerical Workers
(Revised Series) (CPI-W), All Items, for the locality in which the Building is
located (1982-1984 equals 100) of the United States Department of Labor Bureau
of Labor Statistics, over the relevant period. If such index is no longer
published at any time, the Consumer Price Index shall mean a comparable index
selected by Landlord. Notwithstanding the foregoing, in no event shall the Base
Rent for any twelve month period covered hereby be less than the Base Rent in
effect on any Rent Determination Date, and in no event shall any increase under
this paragraph be less than three percent (3%), nor more than seven percent (7%)
of the rent in effect as of the Rent Determination Date. Landlord shall notify
Tenant as soon as possible following the Rent Determination Date of the Base
Rent applicable for the next twelve month period.
d. Payment of Rent. The following provisions shall govern the payment of Rent:
---------------
i. if this Lease commences or ends on a day other than the first day or last day
of a calendar month, respectively, the Rent for such month shall be prorated
accordingly; ii. all Rent shall be paid to Landlord without offset or deduction,
and the covenant to pay Rent shall be independent of every other covenant in
this Lease; iii. any sum due from Tenant to Landlord which is not paid within
thirty (30) days of the date due shall bear interest from the date due until the
date paid at the annual rate of the lower of twelve percent (12%) per annum or
the maximum rate permitted by law (the "Default Rate"); and, in addition, in
recognition of the fact that Landlord will incur certain administration costs
and other damages, the amount of which are not readily quantifiable, but of
which the Late Charge (as defined herein) shall be an approximation, Tenant
shall, in addition to interest at the Default Rate, pay Landlord a late charge
for any Rent payment which is paid more than five (5) days after its due date
equal to five percent (5%) of such payment (the "Late Charge"); iv. Tenant shall
have the right to inspect Landlord's accounting records relative to Expenses and
Taxes during normal business hours at any time within sixty (60) days following
the furnishing to Tenant of the annual statement of Adjustment Rent; and, unless
Tenant shall take written exception to any item in any such statement within
such sixty (60) day period, such statement shall be considered as final and
accepted by Tenant. In the event Tenant takes exception to any item, it shall
specify the item objected to in reasonable detail and shall pay any and all
charges other than the disputed when required hereunder; v. in the event of the
termination of this Lease prior to the determination of any Adjustment Rent,
Tenant's agreement to pay any such sums and Landlord's obligation to refund any
such sums (provided Tenant is not in default hereunder) shall survive the
termination of this Lease; vi. no
5
<PAGE>
adjustment to the Rent by virtue of the operation of the rent adjustment
provisions in this Lease shall result in the payment by Tenant in any year of
less than the Base Rent shown on the Schedule; vii. Landlord may at any time
change the fiscal year of the Building; viii. each amount owed to Landlord under
this Lease for which the date of payment is not expressly fixed shall be due
within thirty days of Landlord's delivery of an invoice therefor; and ix. if
Landlord fails to give Tenant an estimate of Adjustment Rent prior to the
beginning of any calendar year, Tenant shall continue to pay Adjustment Rent at
the rate for the previous calendar year until Landlord delivers such estimate,
at which time Tenant shall pay retroactively the increased amount for all
previous months of such calendar year, or any surplus shall be credited to the
next payment of Adjustment Rent, or if the Lease has expired or been terminated,
and there shall be no obligations outstanding of Tenant to Landlord under the
Lease, shall be paid to Tenant promptly after discovery thereof. Landlord shall
keep at the Building for a period of at least twelve (12) months after the
expiration of each calendar year, full and accurate books, records and
supporting documents in connection with Landlord's annual statement of Expenses
and Taxes. Tenant shall have the right to challenge the accuracy of any Expenses
or Taxes within the period specified herein after Tenant's receipt of the annual
statement of Adjustment Rent, and, if Tenant challenges any Expenses or Taxes,
Landlord shall make Landlord's books and supporting documents available to
Tenant and Tenant may inspect the same. The Expenses and Taxes shall be
appropriately adjusted on the basis of such audit. Tenant shall pay the cost and
expense of such audit, unless such audit shows a discrepancy of at least four
percent (4%) of Expenses or, as the case may be, Taxes, in which event Landlord
shall pay the costs and expenses of such audit.
e. Allocation of Rent Abatement for Tax Purposes. Landlord and Tenant agree
---------------------------------------------
that no portion of the Base Rent paid by Tenant during the portion of the term
of this Lease occurring after the expiration of any period during which such
rent was abated shall be allocated, for income tax purposes, nor is such rent
intended by the parties to be allocable, for income tax purposes, to any
abatement period.
3. USE
a. Tenant agrees that it shall occupy and use the Premises only as general
offices and for sales, and for software development and other related uses and
for no other purposes. Tenant shall comply with all present and future federal,
state and municipal laws, ordinances and regulations and all covenants,
conditions and restrictions of record applicable to Tenant's use or occupancy of
the Premises, provided that the terms of such covenants, conditions and
restrictions do not conflict with or contravene the terms of this Lease. Without
limiting the foregoing, Tenant shall not cause, nor authorize any hazardous or
toxic substances to be brought upon, produced, stored, used, discharged or
disposed of in, on or about the Premises, other than commercially reasonable
amounts of such substances used for general office purposes ("Permitted
Hazardous Substances"), without the prior written consent of Landlord and then
only in compliance with all applicable environmental laws. If as a result of
Tenant's use of the Premises i. the amount of insurance premiums payable by
Landlord for insurance maintained for or in respect to the Building is
increased, ii. any such insurance coverage is decreased, or iii. cancellation or
refusal to renew any such insurance policy is threatened, Landlord shall so
notify Tenant, whereupon Tenant shall immediately pay any such increased premium
or cease any such use, failing which (or in the event of a threatened
cancellation or refusal to renew any such insurance policy which may not be
cured by the payment of an additional premium), Landlord shall have the right,
in addition to Landlord's other rights and remedies hereunder, to terminate this
Lease upon written notice to Tenant, effective on the date set forth in such
notice.
b. "Hazardous Substance" shall mean the substances including within the
definitions of the term "Hazardous Substance" under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Section 9601 et seq., and the California Carpenter-Presley-Tanner
------
Hazardous Substance Account Act, California Health & Safety Code Section 25300
et seq., and regulations promulgated thereunder, as amended. "Hazardous Waste"
------
shall mean (a) any waste listed as or meeting the identified characteristics of
a "Hazardous Waste" under the Resource Conservation and Recovery Act of 1976, 42
U.S.C. Section 6901 et seq., and regulations promulgated pursuant thereto,
------
collectively "RCRA", or (b) any waste meeting the identified characteristics of
"Hazardous Waste" under California Hazardous Waste Control Law, California
Health and Safety Code Section 25100 et. seq., and regulations promulgated
------
pursuant thereto, collectively "CHWCL". "Hazardous Waste Facility" shall mean a
hazardous waste facility as defined under CHWCL.
6
<PAGE>
i. Tenant covenants that, at its sole cost and expense, it will comply
with all applicable laws, rules, regulations, orders, permits, licenses and
operating plans of any governmental authority with respect to the use,
handling, generation, transportation, storage, treatment and/or disposal of
hazardous substances or wastes, and Tenant will provide Landlord with
copies of all permits, registrations or other similar documents that
authorize Tenant to conduct any such activities in connection with its
authorized use of the Premises. Additionally, Tenant agrees to comply with
the Rules and Regulations attached hereto as Exhibit D, the requirements of
-----------
the Board of Fire Underwriters or Landlord's insurance carrier, and to
comply with covenants, conditions and restrictions ("CC&R's") applicable to
the Building, provided that the terms of such covenants, conditions and
restrictions do not conflict with or contravene the terms of this Lease.
ii. Tenant agrees that it shall not operate on the Premises any facility
required to be permitted or licensed as a Hazardous Waste Facility or for
which interim status as such is required. Nor shall Tenant store any
Hazardous Wastes on the Premises for ninety (90) days or more other than
Permitted Hazardous Substances.
iii. Tenant agrees to comply with all applicable laws, rules, regulations,
orders, and permits relating to underground storage tanks (including any
installation, monitoring, maintenance, closure and/or removal of such
tanks) as such tanks are defined in California Health and Safety Code,
Section 25281(u), including, without limitation, complying with California
Health and Safety Code Sections 25280-25299.6 and the regulations
promulgated thereunder. Tenant shall furnish to Landlord copies of all
registrations and permits for any underground storage tanks installed or
operated by Tenant.
iv. If applicable, Tenant shall provide to Landlord in writing the
following information and/or documentation at the Commencement Date and
within sixty (60) days of any change in the required information and/or
documentation:
(1) A list of all hazardous substances and/or wastes that Tenant uses,
handles, generates, transports, stores, treats or disposes in
connection with its operations on the Premises that are not Permitted
Hazardous Substances.
(2) Copies of all Material Safety Data Sheets ("MSDS's") required to
be completed with respect to operations of Tenant at the Premises in
accordance with Title 8, California Code of Regulations Section 5194
or 42 U.S.C. Section 11021, or any amendments thereto. In lieu of this
requirement, Tenant may provide a Hazardous Materials Inventory Sheet
that details the MSDS's.
(3) Copies of all hazardous waste manifests, as defined in Title 22,
California Code of Regulations Section 66481, that Tenant is required
to complete in all connections with its operations at the Premises.
(4) A copy of any Hazardous Materials Management Plans required with
respect to Tenant's operations.
(5) Copies of any Contingency Plans and Emergency Procedures required
of Tenant due to its operations in accordance with Title 22, Chapter
30, Article 20, of the California Code of Regulations, and any
amendments thereto.
(6) Copies of any biennial reports to be furnished to California
Department of Health Services relating to hazardous substances or
wastes.
(7) Copies of all industrial waste water discharge permits.
c. Tenant shall secure Landlord's prior written approval for any proposed
receipt, storage, possession, use, transfer or disposal of "Radioactive
Materials" or "Radiation", as such materials are defined in Title 17,
California Code of Regulations Sections 30100(w) and (z) or possessing the
characteristics of the materials so defined, which approval Landlord may
withhold in its sole
7
<PAGE>
and absolute discretion. The Tenant in connection with any authorized
receipt, storage, possession, use, transfer or disposal of radioactive
materials or radiation shall:
i. Comply with all federal, state and local laws, rules, regulations,
orders, licenses and permits;
ii. Furnish Landlord with a list of all radioactive materials or
radiation received, stored, possessed, used, transferred or disposed;
and
iii. Furnish Landlord with all licenses, registration materials,
inspection reports, orders and permits in connection with the receipt,
storage, possession, use, transfer or disposal or radioactive
materials or radiation.
d. Tenant agrees to comply with any and all applicable laws, rules,
regulations, and orders with respect to the release into the environment by
Tenant of any hazardous wastes or substances or radiation or radioactive
materials. Tenant agrees to notify Landlord in writing of any unauthorized
release into the environment within twenty-four (24) hours of the time at
which Tenant becomes aware of such release.
e. Tenant shall indemnify, defend, and hold Landlord harmless from any and
all claims, losses, liabilities, costs, reasonable legal fees, and expenses
of any sort arising out of or relating to any unauthorized release into the
environment of hazardous substances or wastes or radiation or radioactive
materials by Tenant or any of Tenant's agents, contractors or invitees, or
Tenant's failure to comply with Subparagraphs (a)-(h) of this section of
the Lease.
f. Tenant agrees to cooperate with Landlord in furnishing Landlord with
complete information regarding Tenant's receipt, handling, use, storage,
transportation, generation, treatment and/or disposal of hazardous
substances or wastes or radiation or radioactive materials. Upon request,
Tenant agrees to grant Landlord reasonable access at reasonable times to
the Premises to inspect Tenant's receipt, handling, use, storage,
transportation, generation, treatment and/or disposal of hazardous
substances wastes or radiation or radioactive materials without being
deemed guilty of any disturbance of Tenant's use or possession and without
being liable to Tenant in any manner. Notwithstanding the foregoing,
Landlord agrees to conduct all such activities on the Premises in a manner
such as to minimize, to the extent reasonable, any interruption to the
business operations of Tenant or Tenant's use of the Premises.
Additionally, Landlord shall have the right at any time during the term if
it reasonably suspects that hazardous substances or hazardous wastes have
been disposed at the Premises in a manner or in such amounts as would
violate law, or within the last eight (8) months of the term, to conduct an
environmental audit of the Premises at Tenant's expense, and Tenant shall
reimburse Landlord for the cost of such audit within thirty (30) days after
billing. Notwithstanding the foregoing, any investigation or inspection
under this section f. shall be at Landlord's sole expense, unless such
investigations demonstrate that the hazardous substances were introduced
into the Premises or Project by Tenant or Tenant's agents, employees or
contractors.
g. Notwithstanding Landlord's rights of inspection and review under this
paragraph, Landlord shall have no obligation or duty to so inspect or
review, and no third party shall be entitled to rely on Landlord to conduct
any sort of inspection or review by reason of the provisions of this
paragraph.
h. On or before the Commencement Date, Landlord shall provide Tenant with
copies of any surveys in its possession regarding hazardous materials that
may be located in the Premises or Common Areas. Landlord hereby warrants to
Tenant that as of the date of this Lease, it has received no written notice
that the Premises, Project or Common Areas are in violation of any
applicable Hazardous Materials Laws. In addition, Tenant shall conduct any
and all investigations of the Property as it shall deem suitable to assure
itself of matters related to the environmental condition of the Property
and shall rely on its own investigations in assessing the environmental
condition of the Premises, Project and Common Areas.
8
<PAGE>
i. This Section 3 of the Lease shall survive termination of the Lease.
4. CONDITION OF PREMISES
Landlord warrants that the mechanical, electrical, plumbing and other building
systems, truck door, and the roof, sidewalks, parking areas and other structural
components of the building and the Common Areas are in good operating condition
as of the date of delivery of the Premises to Tenant for the purposes of
Tenant's commencement of its construction. Landlord further warrants that as of
the date of delivery of the Premises to Tenant for the purposes of Tenant's
commencement of its construction, it has received no written notice that the
buildings or Common Areas are in violation of any applicable building codes or
laws, including, without limitation, the Americans with Disabilities, Act, Title
24 or any relevant seismic or structural requirements. Subject to the foregoing
representations and warranties of Landlord, Tenant's taking possession of the
Premises shall be conclusive evidence that the Premises were in good order and
satisfactory condition when Tenant took possession, subject to the provisions of
Exhibit B and Landlord's representations set forth in the preceding sentence. No
- ---------
agreement of Landlord to alter, remodel, decorate, clean or improve the Premises
or the Building (or to provide Tenant with any credit or allowance for the
same), and no representation regarding the condition of the Premises or the
Building or the suitability of the Premises, Building or Project for Tenant's
business, have been made by or on behalf of Landlord or relied upon by Tenant,
except as provided in Exhibit B
---------
5. BUILDING SERVICES
a. Basic Services. Landlord shall provide landscaping services to the Project
--------------
and shall repair and maintain and operate the parking, sidewalks and other
Common Areas associated with the Project, in a manner consistent with properties
of similar age, condition and use in the Mountain View, California area, the
cost of which shall be charged as Expenses.
b. Electricity. The Premises shall be separately metered for electrical use.
-----------
Electricity shall be distributed to the Premises by the electric utility company
serving the Building. Tenant at its cost shall make all necessary arrangements
with the electric utility company for metering and paying for electric current
furnished to the Premises.
c. Telephones. Tenant shall arrange for telephone service directly with one or
----------
more of the public telephone companies servicing the Building and shall be
solely responsible for paying for such telephone service. If Landlord acquires
ownership of the telephone cables in the Building at any time, Landlord shall
permit Tenant to connect to such cables on such terms and conditions as Landlord
may reasonably prescribe. In no event does Landlord make any representation or
warranty with respect to telephone service in the Building, and Landlord shall
have no liability with respect thereto, unless an interruption in service shall
occur due to the gross negligence or willful misconduct of Landlord or its
agents, and provided further that in no event shall Landlord be liable for any
consequential damages related to such interruption in service.
d. Additional Services. Tenant shall contract for its own Water, Gas, Garbage
-------------------
Collection, Janitorial, Maintenance of the HVAC (as defined herein) unless
Landlord shall elect to maintain the HVAC pursuant to Section 8.b hereof and
other equipment serving the Premises and all other services that are not the
responsibility of the Landlord hereunder. Landlord shall not be obligated to
furnish any services other than those stated above.
e. Failure or Delay in Furnishing Services. Tenant agrees that Landlord shall
---------------------------------------
not be liable for damages for failure or delay in furnishing any service by any
of the public utilities that are required to furnish any such service,, unless
an interruption in service shall occur due to the gross negligence or willful
misconduct of Landlord or its agents, and provided further that in no event
shall Landlord be liable for any consequential damages related to such
interruption in service, nor shall any such failure or delay be considered to be
an eviction or disturbance of Tenant's use of the Premises, or relieve Tenant
from its obligation to pay any Rent when due or from any other obligations of
Tenant under this Lease.
9
<PAGE>
6. RULES AND REGULATIONS
Tenant shall observe and comply, and shall cause its subtenants, assignees,
invitees, employees, contractors and agents to observe and comply, with the
Rules and Regulations listed on Exhibit "D" attached hereto and with such
reasonable modifications and additions thereto as Landlord may make from time to
time, provided in the event of a conflict between any such modifications and the
terms of this Lease, the terms of this Lease shall prevail. Landlord shall not
be liable for failure of any person to obey the Rules and Regulations. Landlord
shall not be obligated to enforce the Rules and Regulations against any person,
and the failure of Landlord to enforce any such Rules and Regulations shall not
constitute a waiver thereof or relieve Tenant from compliance therewith,
provided, however, that Landlord shall not enforce such Rules and Regulations in
a manner which unreasonably interferes with Tenant's use of the Premises.
7. CERTAIN RIGHTS RESERVED TO LANDLORD
Landlord reserves the following rights, each of which Landlord may exercise
without notice to Tenant and without liability to Tenant, and the exercise of
any such rights shall not be deemed to constitute an eviction or disturbance of
Tenant's use or possession of the Premises and shall not give rise to any claim
for set-off or abatement of rent or any other claim: a. to change the name or
street address of the Building or the suite number of the Premises; b. to
install, affix and maintain any and all signs on the exterior or interior of the
Building; c. to make repairs, decorations, alterations, additions, or
improvements, whether structural or otherwise, in and about the Building, and
for such purposes to enter upon the Premises, temporarily close doors, corridors
and other areas in the Building and interrupt or temporarily suspend services or
use of common areas, and Tenant agrees to pay Landlord for overtime and similar
expenses incurred if such work is done other than during ordinary business hours
at Tenant's request; d. to retain at all times, and to use in appropriate
instances, keys to all doors within and into the Premises; e. to grant to any
person or to reserve unto itself the exclusive right to conduct any business or
render any service in the Building; f. to show or inspect the Premises at
reasonable times and, if vacated, to prepare the Premises for reoccupancy; g. to
install, use and maintain in and through the Premises pipes, conduits, wires and
ducts serving the Building, provided that such installation, use and maintenance
does not unreasonably interfere with Tenant's use of the Premises; and h. to
take any other action which Landlord deems reasonable in connection with the
operation, maintenance, marketing, or preservation of the Building. In the case
of any of the actions described in subsections a, c, f and g, Landlord will
provide tenant with reasonable advance written notice of the occurrence or
scheduling of the relevant event.
8. MAINTENANCE AND REPAIRS
a. Tenant's Obligation. Except as provided in subsection b, below Tenant, at
-------------------
all times during the Term and at Tenant's sole cost and expense, shall keep the
interior, non-structural portions of the Premises and every part thereof,
including, without limitation, the Heating, Ventilation and Air Conditioning
("HVAC") and other systems serving the Premises unless Landlord shall elect to
maintain the HVAC pursuant to Section 8.b hereof and Building in good condition
-----------
and repair, ordinary wear and tear and items that are the obligation of Landlord
under this Lease excepted. However, in no event shall Tenant's obligation to
repair under this subsection extend to (i) damage and repairs covered under any
insurance policy carried by Landlord in connection with the Building; (ii)
damage caused by any defects in the design, construction or materials of the
Building, including the Premises and improvements installed therein by Landlord;
(iii) damage caused in whole or in part by the negligence or willful misconduct
of Landlord or Landlord's agents, employees, invitees or licensees, except to
the extent such repairs would be covered by a policy of insurance required to be
maintained by Tenant under this Lease, (iv) repairs covered under Expenses; (v)
reasonable wear and tear; (vi) conditions covered under any warranties of
Landlord's contractors; or (vii) damage by fire and other casualties, or acts of
governmental authorities, or acts of God and the elements. Tenant shall, when
and if needed, make all repairs to the interior, non-structural portions of the
Premises, including, but not limited to; painting of the interior ceiling and
floors, painting of the interior, windows, doors, plate glass and all plumbing
electrical and sewage located in the Premises. Tenant hereby waives all right to
make repairs at the expense of Landlord or in lieu thereof to vacate the
Premises as provided in California Civil Code Section 1942 or any other law,
statute or ordinance now or hereafter in effect.
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b. Landlord's Obligations. Landlord, at Landlord's expense, shall repair and
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maintain the roof, foundations and structural exterior walls of the Building
except for repairs are caused in whole or in part by the negligence or willful
misconduct of Tenant, its agents, servants, employees or invitees, except to the
extent any such repairs would be covered by a policy of insurance required to be
maintained by Landlord pursuant to this Lease, in which case Tenant shall pay to
Landlord the cost of the maintenance and repairs caused in whole or in part by
Tenant and not covered or potentially covered by insurance. Landlord may, at its
option, elect to contract for the maintenance of the HVAC and charge the
allocable costs thereof to Tenant. There shall be no abatement of Rent and no
liability of Landlord by reason of any injury to or interference with Tenant's
business arising from the making of any repairs, alterations or improvements in
or to the fixtures, appurtenances and equipment therein caused by the gross
negligence or willful misconduct of Landlord or its agents, and provided further
that in no event shall Landlord be liable for any consequential damages related
to any such activities. Landlord shall maintain the Common Areas subject to
reimbursement of its expenses pursuant to Section 2. Notwithstanding the
foregoing, Tenant shall be solely responsible, at Tenant's sole expense, to
perform any alterations which are required due to Tenant's particular use or
configuration of the Premises (as opposed to office or industrial uses
generally) or because of any alterations voluntarily made to the Premises by
Tenant. Landlord shall be responsible, at Landlord's sole expense, for making,
maintaining and repairing any other alterations to the Premises or Building
required by law.
9. ALTERATIONS
a. Requirements. Tenant shall not make any replacement, alteration, improvement
------------
or addition to or removal from the Premises (collectively an "Alteration") that
shall either (a) cost in excess of $10,000 or (b) affect a Building system, or
the Building structure or external appearance without the prior written consent
of Landlord, which consent shall not be unreasonably withheld unless such
Alteration affects the structure or systems of the Building, the exterior
appearance of the Building or affects any other tenant's premises, in which case
Landlord may withhold its consent of any reason. Alterations permitted hereunder
without the consent of Landlord will be referred to as "Permitted Alterations."
In the event Tenant proposes to make any Alteration that is not a Permitted
Alteration, Tenant shall, prior to commencing such Alteration, submit to
Landlord for prior written approval: i. detailed plans and specifications; ii.
the names, addresses and copies of contracts for all contractors; iii. all
necessary permits evidencing compliance with all applicable governmental rules,
regulations and requirements; iv. certificates of insurance in form and amounts
required by Landlord, naming Landlord, its managing agent, and any other parties
designated by Landlord as additional insureds; and v. all other documents and
information as Landlord may reasonably request in connection with such
Alteration. Tenant agrees to pay Landlord's reasonable charges for review of all
such items and supervision of any Permitted Alteration. Neither approval of the
plans and specifications nor supervision of the Alteration by Landlord shall
constitute a representation or warranty by Landlord as to the accuracy,
adequacy, sufficiency or propriety of such plans and specifications or the
quality of workmanship or the compliance of such Alteration with applicable law.
Tenant shall pay the entire cost of the Alteration. Each Alteration shall be
performed in a good and workmanlike manner, in accordance with the plans and
specifications approved by Landlord, and shall meet or exceed the standards for
construction and quality of materials established by Landlord for the Building.
In addition, each Alteration shall be performed in compliance with all
applicable governmental laws and regulations and insurance company requirements.
Each Permitted Alteration shall, at the option of Tenant, be performed by
Landlord or under Landlord's supervision, and all Alterations shall be made in
harmony with Landlord's employees, contractors and other tenants. Each
Alteration, whether temporary or permanent in character, made by Landlord or
Tenant in or upon the Premises (excepting only Tenant's furniture, personal
property, equipment and trade fixtures) shall become Landlord's property and
shall remain upon the Premises at the expiration or termination of this Lease
without compensation to Tenant; provided, however, that Landlord shall have the
right to require Tenant to remove such Alteration at Tenant's sole cost and
expense in accordance with the provisions of Section 14 of this Lease, which
required removal shall be specified by Landlord when Landlord consents to
Tenant's requested Alterations.
b. Liens. In the case of any alteration performed by Tenant, upon completion of
-----
any alteration, Tenant shall promptly furnish Landlord with sworn owner's and
contractors' statements and full and final waivers of lien covering all labor
and materials included in such alteration. Tenant shall not permit any
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mechanic's lien to be filed against the Building, in connection with any work
conducted by Tenant, or any part thereof, arising out of any alteration
performed, or alleged to have been performed, by or on behalf of Tenant. If any
such lien is filed, Tenant shall within ten (10) days thereafter have such lien
released of record or diligently contest and deliver to Landlord a bond in form,
amount, and issued by a surety satisfactory to Landlord, indemnifying Landlord
against all costs and liabilities resulting from such lien and the foreclosure
or attempted foreclosure thereof. If Tenant fails to have such lien so released
or to contest and deliver such bond to Landlord, Landlord, without investigating
the validity of such lien, may pay or discharge the same; and Tenant shall
reimburse Landlord upon demand for the amount so paid by Landlord, including
Landlord's expenses and attorneys' fees.
c. Americans With Disabilities Act. Tenant shall perform, at Tenant's sole
expense, any alterations to the Premises or Building required by Title III of
the Americans with Disabilities Act of 1990 and the regulations promulgated
thereunder (collectively, the "ADA") as a result of either (i) Tenant's use of
the Premises as a "public accommodation" (as defined by the ADA), (ii)
alterations voluntarily made to the Premises by Tenant or (iii) the employment
by Tenant at the Premises of persons entitled to make a claim under the ADA.
10. INSURANCE AND INDEMNIFICATION
In consideration of the leasing of the Premises at the Rent stated herein,
Landlord and Tenant agree to provide insurance and allocate the risks of loss as
follows:
a. Tenant's Insurance. Tenant, at its sole cost and expense but for the mutual
------------------
benefit of itself and Landlord, agrees to purchase and keep in force and effect
during the Term hereof, insurance which is available at commercially reasonable
rates and otherwise commonly carried by tenants in the area, under policies
issued by insurers licensed to do business in the state in which the Building is
located with a Best's rating of A-, class VIII or higher on all alterations,
additions, and improvements owned by Tenant, and on all personal property owned
by Tenant located in the Premises, protecting Landlord and Tenant from damage or
other loss caused by perils covered under such property coverage as may be
maintained by prudent an Tenants in the market area of the Project in amounts
not less than the full insurable replacement value of such property. Such
insurance shall provide that it is specific and not contributory and shall name
the Landlord and its management agent as additional insureds and shall contain
an agreed amount endorsement.
Tenant also agrees to maintain commercial general liability insurance covering
Tenant as the insured party, and naming Landlord and its managing agent as an
additional insured, against claims for bodily injury and death and property
damage occurring in or about the Premises, with limits of not less than One
Million Dollars ($1,000,000.00) per occurrence, Two Million Dollars
($2,000,000.00) general aggregate.
Tenant shall, prior to commencement of the Term, furnish to Landlord
certificates evidencing such coverage, which certificates shall state that such
insurance coverage may not be changed or canceled without at least thirty (30)
days prior written notice to Landlord and Tenant. In the event Tenant shall fail
to procure such insurance, Landlord may at its option, after giving Tenant no
less than fourteen (14) days prior written notice of its election to do so,
procure the same for the account of Tenant and the cost thereof shall be paid to
Landlord as additional Rent upon receipt by Tenant of bills therefor. When used
in this Section 10. A the term "Landlord" shall include Landlord's partners,
officers, property managers, and employees and the employees and officers of
Landlord's property managers and the term "Tenant" shall include Tenant's
partners, beneficiaries, officers, agents, servants and employees.
b. Landlord's Insurance. Landlord agrees to purchase and keep in force and
--------------------
effect commercial general liability insurance in an amount not less than Three
Million Dollars ($3,000,000.00) per occurrence and Five Million Dollars
($5,000,000.00) general aggregate, and All Risk property insurance with an
agreed amount endorsement, on the Building and Common Areas, subject to the
reimbursement of the full amount thereof as Expenses.
c. Risk of Loss. By this Section 10, Landlord and Tenant intend that the risk
------------
of loss or damage as described above be borne by responsible insurance carriers
to the extent above provided, and Landlord and Tenant hereby agree to look
solely to, and to seek recovery only from, their respective insurance
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carriers in the event of a loss of a type described above to the extent that
such coverage is agreed to be provided hereunder. For this purpose, any
applicable deductible amount shall be treated as though it were recoverable
under such policies. Landlord and Tenant agree that applicable portions of all
monies collected from such insurance shall be used toward the full compliance
with the obligations of Landlord and Tenant under this Lease in connection with
damage resulting from fire or other casualty, unless this Lease is terminated in
connection with such casualty pursuant to the provisions hereof. Landlord and
Tenant shall both obtain from their respective property insurance carriers
endorsements waiving any rights of subrogation such carrier may have as a result
of a claim by the insured.
d. Indemnification of Landlord. Tenant shall indemnify and defend Landlord, its
---------------------------
employees and agents and save them harmless from and against any and all loss
and against all claims, actions, damages, liability and expenses, in connection
with loss of life, bodily and personal injury, or property damage arising from
any occurrence in, upon or at the Premises or any part thereof, or occasioned
wholly or in part by any act or omission of Tenant, its agents, contractors,
employees or invitees or by anyone permitted to be on the Premises by Tenant,
except to the extent caused by the sole negligence or willful misconduct of
Landlord, its employees or agents. Landlord shall indemnify and defend Tenant,
its employees and agents and save them harmless from and against any and all
loss and against all claims, actions, damages, liability and expenses, in
connection with loss of life, bodily and personal injury, or property damage
arising from the negligence or willful misconduct of Landlord or Landlord's
agents, employees or contractors. In case an indemnified party hereunder shall
be made a party to any litigation commenced by or against it, the indemnifying
party shall pay all costs, expenses, and reasonable attorneys' fees incurred or
paid by them in connection with such litigation. The obligations assumed herein
shall survive the expiration or sooner termination of this Lease, unless
specifically provided to the contrary hereunder.
11. FIRE OR OTHER CASUALTY
a. Destruction of the Building. If fifty percent (50%) of the area of the
---------------------------
Building should be substantially destroyed by fire or other casualty, either
party hereto may, at its option, terminate this Lease by giving written notice
thereof to the other party within thirty (30) days of such casualty.
Notwithstanding the foregoing, if the Premises is not affected by such casualty,
Landlord may not terminate this Lease unless the leases of any other the tenants
in the Building are also terminated. In such event, Rent shall be apportioned to
and shall cease as of the date of such casualty. In the event neither party
exercises this option, then the Premises shall be reconstructed and restored as
set forth below.
b. Destruction of the Premises. If the Premises should be rendered untenantable
for the purpose for which they were leased, by fire or other casualty, but the
Building is not substantially destroyed as provided above, then the parties
hereto shall have the following options:
i. If, in Landlord's reasonable judgment, the Premises cannot be reconstructed
or restored within one hundred eighty (180) days of such casualty to
substantially the same condition as they were prior to such casualty, Landlord
shall so notify Tenant within thirty (30) days of the casualty and either
Landlord or Tenant may elect, within fifteen (15) days thereafter, to terminate
this Lease. If Tenant makes no election within such fifteen (15) day period,
Landlord shall then have the right, to be exercised within fifteen (15) days
following the expiration of Tenant's election period, by giving written notice
to Tenant, to reconstruct and restore the Premises to substantially the same
condition as they were prior to the casualty. In such event this Lease shall
continue in full force and effect to the balance of the term, upon the same
terms, conditions and covenants as are contained herein; provided, however, that
the Rent shall be abated in the proportion which the approximate area of the
damaged portion bears to the total area in the Premises from the date of the
casualty until substantial completion of the reconstruction of the Premises. If
Landlord fails to exercise such right, this Lease shall be terminated as of the
date of the casualty, to which date Rent shall be apportioned and shall
thereafter cease.
Notwithstanding the above, if the casualty occurs during the last twelve (12)
months of the Term of this Lease, and the relevant restoration cannot be
completed in thirty (30) days, either party hereto shall have the right to
terminate this Lease as of the date of the casualty, which right shall be
exercised by written notice to be given by either party to the other party
within thirty (30) days therefrom. If this right is exercised, Rent shall be
apportioned to and shall cease as of the date of the casualty. If a casualty
occurs during the last twelve (12) months of the term of the Lease, Tenant may
not exercise any
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extension options without first obtaining Landlord's written consent.
ii. If, in Landlord's reasonable judgment, the Premises are able to be restored
within one hundred eighty (180) days to substantially the same condition as they
were prior to such casualty, Landlord shall so notify Tenant within fifteen (15)
days of the casualty, and Landlord shall then proceed to reconstruct and restore
the damaged portion of the Premises, at Landlord's expense, to substantially the
same condition as it was prior to the casualty; Rent shall be abated in the
proportion which the approximate area of the damaged portion bears to the total
area in the Premises from the date of the casualty until substantial completion
of the reconstruction repairs, and this Lease shall continue in full force and
effect for the balance of the Term.
iii. In the event Landlord undertakes reconstruction or restoration of the
Premises pursuant to subparagraph (i) or (ii) above, Landlord shall use
reasonable diligence in completing such reconstruction repairs, but in the event
Landlord fails to substantially complete the same within two hundred forty (240)
days from the date of the casualty, except as a result of any of the occurrences
set forth in subparagraph 25 (j) below, Tenant may, at its option, terminate
this Lease upon giving Landlord written notice to that effect, whereupon both
parties shall be released from all further obligations and liability hereunder.
12. CONDEMNATION
If the Premises or the Building is rendered untenantable by reason of a
condemnation (or by a deed given in lieu thereof), then either party may
terminate this Lease by giving written notice of termination to the other party
within thirty (30) days after such condemnation, in which event this Lease shall
terminate effective as of the date that possession of such property is required
to be delivered to the condemning authority. If this Lease so terminates, Rent
shall be paid through and apportioned as of the date of such condemnation. If
such condemnation does not render the Premises or the Building untenantable,
this Lease shall continue in effect and Landlord shall promptly restore the
portion not condemned to the extent reasonably possible to the condition
existing prior to the condemnation. In such event, however, Landlord shall not
be required to expend an amount in excess of the proceeds received by Landlord
from the condemning authority. Landlord reserves all rights to compensation for
any condemnation. Tenant hereby assigns to Landlord any right Tenant may have to
such compensation, and Tenant shall make no claim against Landlord or the
condemning authority for compensation for termination of Tenant's leasehold
interest under this Lease or interference with Tenant's business.
13. ASSIGNMENT AND SUBLETTING
a. Landlord's Consent. Tenant shall not, without the prior written consent of
------------------
Landlord, which shall not be unreasonably withheld or delayed: i. assign,
convey, mortgage or otherwise transfer this Lease or any interest hereunder, or
sublease the Premises, or any part thereof, whether voluntarily or by operation
of law; or ii. permit the use of the Premises by any person other than Tenant
and its employees. Any such transfer, sublease or use described in the preceding
sentence (a "Transfer") occurring without the prior written consent of Landlord
shall be void and of no effect. Landlord's consent to any Transfer shall not
constitute a waiver of Landlord's right to withhold its consent to any future
Transfer. Landlord's consent to any Transfer or acceptance of rent from any
party other than Tenant shall not release Tenant from any covenant or obligation
under this Lease. Landlord may require as a condition to its consent to any
assignment of this Lease that the assignee execute an instrument in which such
assignee assumes the obligations of Tenant hereunder. For the purposes of this
paragraph, the transfer (whether direct or indirect) of all or a majority of the
capital stock in a corporate Tenant (other than the shares of the capital stock
of a corporate Tenant whose stock is publicly traded) or the merger,
consolidation or reorganization of such Tenant and the transfer of all or any
general partnership interest in any partnership Tenant shall be considered a
Transfer.
b. Standards for Consent. If Tenant desires the consent of Landlord to a
---------------------
Transfer, Tenant shall submit to Landlord, at least thirty (30) days prior to
the proposed effective date of the Transfer, a written notice which includes
such information as Landlord may reasonably require about the proposed Transfer
and the transferee, together with a non-refundable processing fee in the amount
of five hundred dollars ($500.00). Tenant shall also pay all reasonable
attorneys' or other fees and expenses incurred by
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Landlord in connection with any proposed Transfer and paid to any third party,
whether or not Landlord consents to such Transfer. Landlord's consent or lack
thereof shall be provided within thirty (30) days of receipt of Tenant's notice.
Landlord shall not be deemed to have unreasonably withheld its consent if, in
the judgment of Landlord: i. the transferee is of a character or engaged in a
business which is not in keeping with the standards or criteria used by Landlord
in leasing the Building; ii. the financial condition of the transferee is such
that it may not be able to perform its obligations in connection with this
Lease; iii. the transferee is a tenant of or negotiating for space in the
Building; iv. the transferee is a governmental unit; v. Tenant is in Default
under this Lease; vi. in the judgment of Landlord, such a Transfer would violate
any term, condition, covenant, or agreement of the Landlord involving the
Building or any other tenant's lease within it; or vii. any other basis which
Landlord reasonably deems appropriate. If Landlord wrongfully withholds its
consent to any Transfer, Tenant's sole and exclusive remedy therefor shall be to
seek specific performance of Landlord's obligation to consent to such Transfer.
c. Recapture. Landlord shall have the right to terminate this Lease as to that
---------
portion of the Premises covered by a Transfer. Landlord may exercise such right
to terminate by giving notice to Tenant at any time within thirty (30) days
after the date on which Tenant has furnished to Landlord all of the items
required under Section 13.b above. If Landlord exercises such right to
terminate, Landlord shall be entitled to recover possession of, and Tenant shall
surrender such portion of, the Premises (with appropriate demising partitions
erected at the expense of Tenant) on the effective date of the proposed Transfer
(the "Termination Date"). In the event of a recapture in response to Tenant's
request to sublet a portion of the Premises, all liability or responsibility of
Tenant with respect to such space shall terminate as of the Termination Date,
except for liabilities that are expressly provided in this Lease to continue
beyond the termination date hereof, and, on or before the Termination Date,
Landlord and Tenant shall enter into an amendment to this Lease re-establishing
the Base Rent and Tenant's Share as a result of such recapture. If Landlord
exercises such right to terminate, Landlord shall have the right to enter into a
lease with the proposed transferee without incurring any liability to Tenant on
account thereof. If Landlord consents to any Transfer, Tenant shall pay to
Landlord 50% of all rent and other consideration received by Tenant in excess of
the Rent paid by Tenant hereunder for the portion of the Premises so
transferred. Such rent shall be paid as and when received by Tenant. Tenant
shall have the right to deduct from such excess rent, on a pro-rata basis,
Tenant's reasonable costs and expenses directly related to the Transfer
including, but not limited to, broker's commissions, tenant improvements, and
legal fees.
14. SURRENDER
Upon expiration or sooner termination of the Term or Tenant's right to
possession of the Premises, Tenant shall return the Premises to Landlord in the
condition delivered to Tenant, ordinary wear and damage by fire or other
casualty or other cause beyond the control of Tenant excepted, provided Tenant
shall remove the initial improvements constructed pursuant to Exhibit B hereto,
if Landlord elects to have such improvements removed pursuant to Exhibit B
requested by Landlord, at Tenant's sole cost and expense, prior to the surrender
of the Premises, and restore any portions of the Premises damaged by such
removal to the condition required under this paragraph. If Landlord requires
Tenant to remove any alterations pursuant to Section 9, then such removal shall
be done in a good and workmanlike manner; and upon such removal Tenant shall
restore the Premises to its condition prior to the installation of such
alterations, ordinary wear and damage by fire or other casualty or other cause
beyond the control of Tenant excepted. If Tenant does not remove such
alterations after request to do so by Landlord, Landlord may remove the same and
restore the Premises; and Tenant shall pay the cost of such removal and
restoration to Landlord upon demand. Tenant shall also remove its furniture,
equipment, trade fixtures and all other items of personal property from the
Premises prior to termination of the Term or Tenant's right to possession of the
Premises. If Tenant does not remove such items, Tenant shall be conclusively
presumed to have conveyed the same to Landlord without further payment or credit
by Landlord to Tenant; or at Landlord's sole option such items shall be deemed
abandoned, in which event Landlord may cause such items to be removed and
disposed of at Tenant's expense, which shall be 115% of Landlord's actual cost
of removal, without notice to Tenant and without obligation to compensate
Tenant.
15. DEFAULTS AND REMEDIES
a. Default. The occurrence of any of the following shall constitute a
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default (a "Default") by
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Tenant under this Lease: (i) Tenant fails to pay any Rent when due, including,
without limitation, Adjustment Rent and such failure is not cured within five
(5) days after Tenant's receipt of written notice from Landlord (which notice
may be in the form of a statutory notice to pay rent or quit); (ii) Tenant fails
to perform any other provision of this Lease and such failure is not cured
within thirty (30) days (or immediately if the failure involves a hazardous
condition) after notice from Landlord, provided that Tenant shall not be deemed
to be in default under this Section 15.a.(ii) if such default is incapable of
cure within said period and Tenant has commenced to complete the cure of such
default within said thirty (30) day period and proceeds diligently throughout
the period to effect a cure; (iii) the leasehold interest of Tenant is levied
upon or attached under process of law; (iv) Tenant vacates the Premises for more
than forty-five (45) days without notice to Landlord; or (v) any voluntary or
involuntary proceedings are filed by or against Tenant or any guarantor of this
Lease under any bankruptcy, insolvency or similar laws and, in the case of any
involuntary proceedings, are not dismissed within sixty (60) days after filing.
b. Remedies Upon Tenant's Default. Upon a Default, Landlord shall have
------------------------------
the following remedies, in addition to all other rights and remedies provided by
law, equity, statute or otherwise provided in this Lease, to which Landlord may
resort cumulatively or in the alternative:
Landlord may continue this Lease in full force and effect, and this Lease shall
continue in full force and effect as long as Landlord does not terminate
Tenant's right to possession, and Landlord shall have the right to collect Rent
when due. During the period Tenant is in default, Landlord may enter the
Premises and relet it, or any part of it, to third parties for Tenant's account,
provided that any Rent in excess of the Rent due hereunder shall be payable to
Landlord. Tenant shall be liable immediately to Landlord for all costs Landlord
incurs in reletting the Premises, including, without limitation, brokers'
commissions, expenses of cleaning and redecorating the Premises required by the
reletting and like costs. Reletting may be for a period shorter or longer than
the remaining Term of this Lease. Tenant shall pay to Landlord the Rent and
other sums due under this Lease on the dates the Rent is due, less the Rent and
other sums Landlord receives from any reletting. No act by Landlord allowed by
this Section 15.b shall terminate this Lease unless Landlord notifies Tenant in
writing that Landlord elects to terminate this Lease.
"The lessor has the remedy described in Civil Code Section 1951.4 (lessor
may continue the lease in effect after lessee's breach or abandonment and
recover rent as it becomes due, if lessee has the right to sublet or assign
subject only to reasonable limitations)."
Landlord may terminate Tenant's right to possession of the Premises at any time
by giving written notice to that effect. No act by Landlord other than giving
written notice to Tenant shall terminate this Lease. Acts of maintenance,
efforts to relet the Premises or the appointment of a receiver on Landlord's
initiative to protect Landlord's interest under this Lease shall not constitute
a termination of Tenant's right to possession. On termination, Landlord shall
have the right to remove all personal property of Tenant and store it at
Tenant's cost and to recover from Tenant as damages: (1) the worth at the time
of award of unpaid Rent and other sums due and payable which had been earned at
the time of termination; plus (2) the worth at the time of award of the amount
by which the unpaid Rent and other sums due and payable which would have been
payable after termination until the time of award exceeds the amount of the Rent
loss that Tenant proves could have been reasonably avoided; plus (3) the worth
at the time of award of the amount by which the unpaid Rent and other sums due
and payable for the balance of the Term after the time of award exceeds the
amount of the Rent loss that Tenant proves could be reasonably avoided; plus (4)
any other amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant's failure to perform Tenant's obligations under
this Lease, or which, in the ordinary course of things, would be likely to
result therefrom, including, without limitation, any costs or expenses incurred
by Landlord: (a)in retaking possession of the Premises, including reasonable
attorneys' fees and costs therefor; (b) maintaining or preserving the Premises
for reletting to a new tenant, including repairs or alterations to the Premises
for the reletting; (c)leasing commissions; (d) any other costs necessary or
appropriate to relet the Premises; and (e) at Landlord's election, such other
amounts in addition to or in lieu of the foregoing as may be permitted from time
to time by the laws of the State of California.
The "worth at the time of award" of the amounts referred to in Sections 15.b (1)
---
and (2) is computed by allowing interest at the lesser of twelve percent (12%)
----
per annum or the maximum rate permitted by law, on the unpaid Rent and other
sums due and payable from the termination date through the date of award. The
"worth at the time of award" of the amount referred to in Section 15.b.3 is
computed by discounting the amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award, plus
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one percent (1%). Tenant waives redemption or relief from forfeiture under
California Code of Civil Procedure Sections 1174 and 1179, or under any other
present or future law, if Tenant is evicted or Landlord takes possession of the
Premises by reason of any default of Tenant hereunder.
c. Other Remedies. Landlord may but shall not be obligated to perform any
--------------
obligation of Tenant under this Lease and if Landlord so elects, all costs and
expenses paid by Landlord in performing such obligation, together with interest
at the Default Rate, shall be reimbursed by Tenant to Landlord on demand. Any
and all remedies set forth in this Lease: (i) shall be in addition to any and
all other remedies Landlord may have at law or in equity, (ii) shall be
cumulative, and (iii) may be pursued successively or concurrently as Landlord
may elect. The exercise of any remedy by Landlord shall not be deemed an
election of remedies or preclude Landlord from exercising any other remedies in
the future.
d. Bankruptcy. If Tenant becomes bankrupt, the bankruptcy trustee shall
----------
not have the right to assume or assign this Lease unless the trustee complies
with all requirements of the United States Bankruptcy Code; and Landlord
expressly reserves all of its rights, claims, and remedies thereunder.
e. Waiver of Trial by Jury. Landlord and Tenant waive trial by jury in the
-----------------------
event of any action, proceeding or counterclaim brought by either Landlord or
Tenant against the other in connection with this Lease.
f. Counterclaims. Tenant hereby waives the right to interpose any
-------------
counterclaim other than a mandatory counterclaim, in any proceeding instituted
by Landlord against Tenant to terminate the Lease, to obtain possession of the
Premises, or to recover Rent.
g. Venue. If either Landlord or Tenant desires to bring an action against
-----
the other in connection with this Lease, such action shall be brought in the
federal or state courts located in the state in which the Building in located.
Landlord and Tenant consent to the jurisdiction of such courts and waive any
right to have such action transferred from such courts on the grounds of
improper venue or inconvenient forum.
16. HOLDING OVER
If Tenant retains possession of the Premises after the expiration or termination
of the Term or Tenant's right to possession of the Premises, Tenant shall pay
Base Rent during such holding over at one hundred twenty five percent (125%) the
Base Rent in effect immediately preceding such holding over, together with
Additional Rent and all other amounts payable under this Lease, computed on a
monthly basis for each month or partial month that Tenant remains in possession.
Tenant shall also pay, indemnify and defend Landlord from and against all claims
and damages, consequential as well as direct, sustained by reason of Tenant's
holding over. The provisions of this Section do not waive Landlord's right of
re-entry or right to regain possession by actions at law or in equity or any
other rights hereunder, and any receipt of payment by Landlord shall not be
deemed a consent by Landlord to Tenant's remaining in possession or be construed
as creating or renewing any lease or right of tenancy between Landlord and
Tenant.
17. SECURITY DEPOSIT
a. On or before the Commencement Date, Tenant shall deliver to Landlord i.
cash in the amount of $36,302.40 and ii. at Tenant's election as to the form of
security, cash or a letter of credit having a term of at least one year (the
"Letter of Credit") in an amount equal to the amounts expended by Landlord for
leasing commissions and the amount reimbursed to Tenant for Tenant Improvements
to be made pursuant to Exhibit B hereto, which amount is estimated by Landlord
to be approximately $165,136.00 (the Additional Security Deposit). As of the
second anniversary of the Commencement Date Landlord shall consider Tenant's
financial condition and provided there shall have been no Default under the
Lease during the preceding year and Tenant's financial condition shall be
satisfactory to Landlord in its reasonable discretion, Landlord may agree to
reduce the Additional Security Deposit by 20% each year for the remainder of the
term. Notwithstanding anything to the contrary contained in this Lease, at no
time shall the amount held by Landlord as security for the Tenant's performance
under the Lease be less than $36,302.40 (the "Minimum Balance"). While any
Letter of Credit is outstanding: 1. Tenant shall replace the letter of credit at
least thirty (30) days before the due date thereof, and if Tenant does not do so
within
17
<PAGE>
five (5) business days of Landlord's written request for replacement, Landlord
shall be entitled to draw on the Letter of Credit for the full amount thereof
and shall hold the proceeds thereof until applied as provided herein, or until
Tenant delivers to Landlord a substitute Letter of Credit; 2. the issuing bank
and the form of the Letter of Credit shall be satisfactory to Landlord in its
sole discretion; 3. if Landlord shall transfer the property, Tenant shall cause
its bank to issue a replacement letter of credit or amendment to any existing
Letter of Credit naming the new owner as beneficiary, and if it fails to do so
within ten (10) business days after Landlord's written request therefor,
Landlord is authorized to cash the Letter of Credit and deliver the proceeds
thereof to any successor owner; and 4) the Letter of Credit shall be security
for Tenant's timely performance of its obligations hereunder, and if a Default
shall occur under the Lease, Landlord may cash the Letter of Credit and apply
the proceeds thereof as described in the next succeeding subsection of this
Paragraph.
b The Letter of Credit and any cash held by Landlord pursuant to the
preceding subsection of this Paragraph (the "Security Deposit") shall be
security for the performance of Tenant's obligations under this Lease. Upon the
occurrence of a Default, Landlord may use all or any part of the Security
Deposit for the payment of any Rent or for the payment of any amount which
Landlord may pay or become obligated to pay by reason of such Default, or to
compensate Landlord for any loss or damage which Landlord may suffer by reason
of such Default. If any portion of the Security Deposit is used, Tenant shall
within five (5) business days after written demand therefor deposit cash with
Landlord in an amount sufficient to restore the Security Deposit to its original
amount. Landlord shall not be required to keep the Security Deposit separate
from its general funds, and Tenant shall not be entitled to interest on the
Security Deposit, except to the extent required by law. In no event shall the
Security Deposit be considered an advanced payment of Rent, and in no event
shall Tenant be entitled to use the Security Deposit for the payment of Rent. If
no default by Tenant exists hereunder, the Security Deposit or any balance
thereof shall be returned to Tenant within thirty (30) days after the expiration
of the Term and vacation of the Premises by Tenant. Landlord shall have the
right to transfer the Security Deposit to any purchaser of the Building. Upon
such transfer, Tenant shall look solely to such purchaser for return of the
Security Deposit; and Landlord shall be relieved of any liability with respect
to the Security Deposit.
18. [INTENTIONALLY DELETED]
19. ESTOPPEL CERTIFICATE
Tenant agrees that, from time to time upon not less than twenty (20) days' prior
request by Landlord, Tenant shall execute and deliver to Landlord a written
certificate certifying: (i) that this Lease is unmodified and in full force and
effect (or if there have been modifications, a description of such modifications
and that this Lease as modified is in full force and effect); (ii) the dates to
which Rent has been paid; (iii) that Tenant is in possession of the Premises, if
that is the case; (iv) that to the best of Tenant's knowledge, Landlord is not
in default under this Lease, or, if Tenant believes Landlord is in default, the
nature thereof in detail; (v) that Tenant has no off-sets or defenses to the
performance of its obligations under this Lease (or if Tenant believes there are
any off-sets or defenses, a full and complete explanation thereof); (vi) that
the Premises have been completed in accordance with the terms and provisions
hereof and that Tenant has accepted the Premises and the condition thereof and
of all improvements thereto and has no claims against Landlord or any other
party with respect thereto; and (vii) such additional matters as may reasonably
be requested by Landlord, it being agreed that such certificate may be relied
upon by any prospective purchaser, mortgagee, or other person having or
acquiring an interest in the Building.
20. SUBORDINATION
This Lease is and shall be expressly subject and subordinate at all times to (i)
any ground or underlying lease of the Building, now or hereafter existing, and
all amendments, renewals and modifications to any such lease, and (ii) the lien
of any mortgage or trust deed now or hereafter encumbering fee title to the
Building and/or the leasehold estate thereunder, and all amendments, renewals,
modifications and extensions thereof unless such ground lease or ground lessor,
mortgage or mortgagee, or trust deed or trustee or beneficiary, expressly
provides or elects that the Lease shall be superior to such lease, mortgage, or
trust deed. Without limiting the foregoing, such subordination may be effected
by notice by any ground lessor, mortgagee, trustee or beneficiary to Tenant, or
by a unilateral instrument of subordination executed by such mortgagee, trustee,
or ground lessor and recorded in the records of the
18
<PAGE>
county in which the Building is located, without the necessity of written notice
to or further agreement of Tenant. If any such mortgage or trust deed is
foreclosed, or if any such ground lease is terminated, upon request of the
mortgagee, holder or lessor, as the case may be and regardless of whether such
mortgagee or lessee shall have subordinated its interest to the interest of
Tenant under this Lease, Tenant will attorn to the purchaser at the foreclosure
sale or to the lessor under such lease, as the case may be on the terms and
conditions contained in this Lease, or shall execute a new lease with such
purchaser at the foreclosure sale or to the lessor under such lease, as the case
may be, on all of the terms and conditions contained in this Lease. The
foregoing provisions are declared to be self-operative and no further
instruments shall be required to effect such subordination and/or attornment;
provided, however, that Tenant agrees upon request by any such mortgagee,
holder, lessor or purchaser at foreclosure, to execute and deliver such
subordination and/or attornment instruments as may be reasonably required by
such person to confirm such subordination and/or attornment, or any other
documents required to evidence superiority of the ground lease or mortgage,
should ground lessor or mortgagee elect such superiority. Notwithstanding the
foregoing, the effective subordination of this Lease to any existing or future
mortgages, deeds of trust, other security interest or leases shall be subject to
the fulfillment of the conditions precedent that (i) the holder of such mortgage
or other lien on the Building or Premises shall agree that so long as Tenant is
not in Default, the Lease shall not be terminated by foreclosure or sale
pursuant to the terms of such mortgage or lien; and (ii) such subordination
shall not otherwise materially restrict or limit the rights or increase the
obligations of Tenant under this Lease. Landlord represents and warrants to
Tenant as of the date of this Lease that it has not created nor to its knowledge
is it obligated under any mortgage, deed of trust or ground lease affecting the
Premises.
21. QUIET ENJOYMENT
Landlord represents that it has the authority to enter into this Lease. As long
as no Default exists, Tenant shall peacefully and quietly have and enjoy the
Premises for the Term, free from interference by Landlord, subject, however, to
the provisions of this Lease. The loss or reduction of Tenant's light, air or
view will not be deemed a disturbance of Tenant's occupancy of the Premises nor
will it affect Tenant's obligations under this Lease or create any liability of
Landlord to Tenant.
22. BROKER
Landlord and Tenant each warrants and represents for the benefit of the other
that it has had no dealings with any real estate broker or agent in connection
with the negotiation of this Lease, except for any Brokers specified in Item 7
of the Schedule, and that it knows of no other real estate broker or agent who
is or might be entitled to a real estate brokerage commission or finder's fee in
connection with this Lease.
Each party shall indemnify and hold harmless the other from and against any
and all liabilities or expenses arising out of claims made by any broker (other
than the Brokers stated in Item 7 of the Schedule) or individual for commissions
or fees resulting from the actions of the indemnifying party in connection with
this Lease. Landlord shall indemnify and hold harmless Tenant from and against
any and all liabilities or expense arising out of claims made by the Brokers
stated in Item 7 of the Schedule for commissions or fees in connection with this
Lease. Landlord agrees to pay the Brokers stated in Item 7 of the Schedule a
commission in accordance with a separate agreement between Landlord and such
Brokers.
23. NOTICES
All notices and demands to be given by one party to the other party under this
Lease shall be given in writing, mailed or delivered to Landlord or Tenant, as
the case may be, at the address set forth in the Schedule or at such other
address as either party may hereafter designate. Notices shall be delivered by
hand or by United States certified or registered mail, postage prepaid, return
receipt requested, or by a nationally recognized overnight air courier service.
Notices shall be considered to have been given upon the earlier to occur of
actual receipt or two (2) business days after posting in the United States mail.
19
<PAGE>
24. MISCELLANEOUS
a. Successors and Assigns. Subject to Section 14 of this Lease, each provision
----------------------
of this Lease shall extend to, bind and inure to the benefit of Landlord and
Tenant and their respective legal representatives, successors and assigns; and
all references herein to Landlord and Tenant shall be deemed to include all such
parties. The term "Landlord" as used in this Lease, so far as covenants or
obligations on the part of Landlord are concerned, shall be limited to mean only
the owner or owners of the Building at the time in question.
b. Entire Agreement. This Lease, and the riders and exhibits, if any, attached
----------------
hereto which are hereby made a part of this Lease, represent the complete
agreement between Landlord and Tenant; and Landlord has made no representations
or warranties except as expressly set forth in this Lease. No modification or
amendment of or waiver under this Lease shall be binding upon Landlord or Tenant
unless in writing signed by Landlord and Tenant.
c. Time of Essence. Time is of the essence of this Lease and each and all of
---------------
its provisions.
d. Execution and Delivery. Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of space or an option for
lease, and it is not effective until execution and delivery by both Landlord and
Tenant. Execution and delivery of this Lease by Tenant to Landlord shall
constitute an irrevocable offer by Tenant to lease the Premises on the terms and
conditions set forth herein, which offer may not be revoked for fifteen (15)
days after such delivery.
e. Severability. The invalidity or unenforceability of any provision of this
------------
Lease shall not affect or impair any other provisions.
f. Governing Law. This Lease shall be governed by and construed in accordance
-------------
with the laws of the state in which the Building is located.
g. Attorneys' Fees. In any action or proceeding which Landlord or Tenant brings
---------------
to enforce its respective rights hereunder or to enforce any judgment granted in
connection therewith, the unsuccessful party shall pay all costs incurred by the
prevailing party (whether or not the action or proceeding is pursued to
judgment), including reasonable attorneys' fees, and said costs and attorneys'
fees shall be a part of the judgment in said action, if a final judgment is
entered in any such action.
h. Delay in Possession. In no event shall Landlord be liable to Tenant if
-------------------
Landlord is unable to deliver possession of the Premises to Tenant on the
Commencement Date for causes outside Landlord's reasonable control. If Landlord
is unable to deliver possession of the Premises to Tenant by the Commencement
Date, the Commencement Date shall be deferred until Landlord can deliver
possession to Tenant.
i. Joint and Several Liability. If Tenant is comprised of more than one party,
---------------------------
each such party shall be jointly and severally liable for Tenant's obligations
under this Lease.
j. Force Majeure. Neither Landlord nor Tenant shall be in default hereunder,
-------------
and neither party shall be excused from performing its obligations hereunder
(except the obligation to pay Rent) due to any accident, breakage, strike,
shortage of materials, acts of God or other causes beyond its reasonable control
("Force Majeure"), provided if a party is prevented from performing due to its
financial condition, in no event shall this eventuality be deemed "beyond the
reasonable control" of such party.
k. Captions. The headings and titles in this Lease are for convenience only and
--------
shall have no effect upon the construction or interpretation of this Lease.
l. No Waiver. No receipt of money by Landlord from Tenant after termination of
---------
this Lease or after the service of any notice or after the commencing of any
suit or after final judgment for possession of the Premises shall renew,
reinstate, continue or extend the Term or affect any such notice or suit. No
waiver of any default of Tenant shall be implied from any omission by Landlord
to take any action on account of such default if such default persists or is
repeated, and no express waiver shall affect any default other
20
<PAGE>
than the default specified in the express waiver and then only for the time and
to the extent therein stated.
m. Limitation of Liability. Any liability of Landlord under this Lease shall be
-----------------------
limited solely to its interest in the Building and the current income and
insurance proceeds thereof, and in no event shall any personal liability be
asserted against Landlord in connection with this Lease nor shall any recourse
be had to any other property or assets of Landlord.
25. PARKING
Tenant shall have the right to park in the Building's parking facilities in
common with other tenants of the Building upon terms and conditions as may from
time to time be established by Landlord, provided Tenant shall have at least 3.8
spaces per 1,000 rentable sq. ft of space occupied by Tenant allocated to it.
Tenant acknowledges that parking is currently on a first-come, first-served
basis. Tenant agrees not to use in excess of its proportionate share of parking
facilities and agrees to cooperate with Landlord and other tenants in the use of
the parking facilities. Landlord reserves the right, in its absolute discretion,
to determine whether the parking facilities are becoming crowded and to allocate
and assign parking spaces among Tenant and the other tenants. Landlord shall not
be liable to Tenant, nor shall this Lease be affected, if any parking is
impaired by moratorium, initiative, referendum, law, ordinance, regulation or
order passed, issued or made by any governmental or quasi-governmental body.
26. SIGNAGE
Tenant shall be entitled to a monument sign identifying its Premises of a
size and configuration consistent with the character of the Project and any
other signs in the Project, provided the sign shall be reasonably visible from
Highway 101 and provided further that the final plans relating to any such
monument sign shall be approved by Landlord in its reasonable discretion.
27. REPAIR OF DAMAGE
On or before the Commencement Date of the Lease, Landlord shall repair to a
condition comparable to the condition of areas of the Building not affected by
such damage, certain water damage that exists to certain of the concrete in
Tenant's Building.
28. SATELLITE DISH
Landlord shall not unreasonably withhold its consent to Tenant's
installation of a satellite dish on the roof of the Building, provided (a)
Landlord shall approve the plans and specifications relating to any such
satellite dish, and the construction methods to be used in connection with any
penetration of the roof membrane; (b) such dish shall be constructed in
compliance with all applicable laws, rules, regulations and ordinances; (c)
Tenant shall indemnify, defend and hold harmless Landlord against any and all
losses, costs, damages or causes of action arising out of the installation or
operation of the satellite dish; and (d) Tenant shall execute an agreement in
the form customarily required by Landlord of its tenants setting forth the
rights and obligations of Landlord and Tenant in connection with any such
satellite dish
29. RIGHT OF FIRST OFFER
21
<PAGE>
If at any time prior to nine (9) months before the expiration of the Term,
Landlord shall seek to offer to lease the space covered by this Lease to third
parties, Landlord shall provide Tenant with written notice of its intent to do
so, and shall include in the notice a good faith summary of the terms on which
it proposes to offer the space, including, without limitations, any terms that
shall vary materially from the terms of this Lease. Provided there shall have
been no Default under this Lease that shall remain uncured at the time that
Tenant receives this notice, Tenant shall have ten (10) calendar days to accept
or decline the terms set forth in Landlord's written notice by written notice by
Tenant to Landlord. If Tenant fails to accept Landlord's offer within such ten
(10) day period, it shall be deemed to have declined to lease the space. If
Tenant accepts Landlord's offer, then the parties shall enter into a new lease
or an amendment of this Lease that shall incorporate the terms of Landlord's
written offer to lease, within ten (10) business days after Tenant's acceptance.
If Tenant declines or is deemed to have declined to Lease the space, or if
Landlord's offer is not delivered nine (9) months prior to the expiration of the
Term, Landlord may market the space at any time after Tenant declines the space
or after the period beginning nine (9) months prior to the expiration of the
Term, on such terms as Landlord shall deem appropriate in its discretion,
without any further obligation to Tenant under this paragraph.
IN WITNESS WHEREOF, the parties hereto have executed this Lease in manner
sufficient to bind them as of the day and year first above written.
LANDLORD:
--------
VOIT MANAGEMENT COMPANY, L.P., Managing
Agent for THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA, a New Jersey Corporation
By: /s/ Mary Davis
---------------------------------------
Its: Vice President
---------------------------------------
TENANT:
------
MPATH INTERACTIVE, INC., a Delaware corporation
By: /s/ Paul Matteucci
---------------------------------------
Title: Paul Matteucci, Pres, CEO
-------------------------------------
22
<PAGE>
EXHIBIT A
TO LEASE DATED
December __, 1996
Between Prudential
and Mpath Interactive, Inc.
FLOOR PLAN
<PAGE>
EXHIBIT B
TO LEASE DATED
December __, 1996
Between Prudential
and Mpath Interactive, Inc.
TENANT IMPROVEMENTS CONSTRUCTION AGREEMENT
------------------------------------------
(Tenant Designs and Constructs with Landlord Supervision)
This Tenant Improvements Construction Agreement("Agreement")is part of the Lease
dated December --, 1996 between Prudential Insurance Company of America and
MPath Interactive Inc. ("Lease") relating to certain premises ("Premises") which
are more particularly described in Exhibit A of this Lease. Landlord and Tenant
agree as follows with respect to the Tenant Improvements to be installed in the
Premises:
1. PLANS AND SPECIFICATIONS. Plans and specifications and Working Drawings
------------------------
sufficient for the construction of the Tenant Improvements to be installed
in the Premises (the "Drawings") shall be prepared by Tenant's Architect
("Architect") and submitted to Landlord. Within ten (10) business days
after Drawings have been delivered to Landlord, Landlord shall reasonably
approve or disapprove the preliminary plans and specifications, provided
Landlord shall specify in writing any objections it shall have to the
Drawings. If Landlord fails to disapprove the Drawings, within fifteen (15)
business days after delivery thereof to Landlord, the Drawings shall be
deemed approved. If Landlord reasonably disapproves the Drawings, Landlord
shall, in its notice of disapproval, provide sufficient information to
Architect so that revised Drawings can be prepared. If Landlord and Tenant
shall disagree on any aspect of the Drawings, Landlord and Tenant will meet
and promptly attempt to resolve any differences. Architect shall revise the
Drawings based on Landlord's suggested changes or the changes agreed
between Landlord and Tenant, and resubmit the revised Drawings until the
parties are able to agree on the final form of Drawings. The parties will
agree on the final form of Drawings within twenty (20) business days of the
date of Architect's initial submittal, provided in any and all events
Landlord shall have at least three (3) business days to review and respond
to the final version of the Drawings. The working drawings and
specifications which have been approved by Landlord and Tenant are
hereinafter referred to as the "Approved Working Drawings." At the time of
final approval of the Working Drawings, Landlord shall specify which of the
improvements shown on the Working Drawings shall be required to be removed
by Tenant at Tenant's sole cost, upon the expiration of the Term and/or
surrender of the Premises.
2. CONSTRUCTION OF TENANT IMPROVEMENTS.
-----------------------------------
A. Tenant Improvement Allowance. Tenant shall be granted an allowance in
----------------------------
the amount of $100,800.00 ($3.50/rsf) to be applied for the purposes
provided in this Agreement (the "Tenant Improvement Allowance").
B. Construction by Tenant. Tenant shall cause construction of the Tenant
----------------------
Improvements to be completed in a good and workmanlike manner, in
compliance with all laws, including, without limitation, any provisions
of the Americans with Disabilities Act that may apply to the Tenant
Improvements, and at Tenant's sole cost and expense (except for the
items to be completed by Landlord hereunder), subject to the payment of
the Tenant Improvement Allowance. Tenant shall competitively bid the
work to be completed hereunder to at least two (2) general contractors
satisfactory to Landlord, and shall select the lowest bid, after
adjusting the assumptions of each bid to provide an "apples to apples"
comparison of cost. The final Construction Contract, including, without
limitation, the schedule of progress payments and the amount of
retention provided therein shall be subject to the approval of
Landlord. The Tenant Improvements cost ("Tenant Improvements Cost") to
be paid by Landlord, up to the Tenant Improvement Allowance shall
include, but not be limited to:
(i) Costs to demolish the existing Tenant Improvements and
fixtures on each floor;
<PAGE>
(ii) [Intentionally Deleted];
(iii) All costs of preliminary and final architectural and
engineering plans, drawings and specifications for the Tenant
Improvements, and engineering costs and calculations;
(iv) All costs of obtaining building permits and other necessary
authorizations from the applicable governmental authority
(e.g., the City in which the Building is located);
(v) All costs of interior design and finish schedule plans,
drawings and specifications including as-built drawings;
(vi) All direct and indirect costs of procuring and installing
Tenant Improvements in the Premises, including the contractor's
fee for overhead and profit, the cost of all of contractor's
on-site supervisory and administrative staff, office, equipment
and temporary services provided in connection with construction
of the Tenant Improvements;
(vii) Costs of reinforcing floors, installing telecommunications and
electrical facilities, equipment and wiring necessary for
Tenant's use;
(viii) Sewer connection fees, if any;
(ix) A supervision Fee payable to Landlord in the amount of two
percent (2%) of the total construction cost;
(x) Fire and Builder's Risk insurance and public liability
insurance premiums and fees maintained by Tenant's contractor
during construction with respect to the work; and
(xi) Tenant's moving costs and the costs to cable the Premises for
telephone and electrical service.
3. PAYMENT OF TENANT IMPROVEMENT COSTS. Tenant shall on or after the date of
-----------------------------------
substantial completion of the work, present Landlord with a request for
payment in an amount not to exceed the Tenant Improvement Allowance.
Together with such request for payment, Tenant shall provide (a) a
certificate of the Architect certifying the completion of the Tenant
Improvements in accordance with the Approved Working Drawings; (b) invoices
covering all items for which payment is requested; (c) unconditional, final
waivers of lien from the Contractor and each subcontractor or materials
supplier to be paid in connection with the work, covering the work
performed by such contractor subcontractor or materials supplier (d)
reasonably detailed working drawings showing the final improvements
constructed by Tenant and (e) a conditional certificate of occupancy
authorizing Tenant to occupy the Premises. If Tenant shall fail to provide
full and final unconditional waivers of lien for the contractor and all
subcontractors and material suppliers performing work or supplying
materials in connection with the work, Landlord may withhold payment of the
Tenant allowance until such time as the period for the filing of any liens
in connection with the work has expired. Otherwise, Landlord shall pay the
amount requested within twenty (20) days after Tenant's submittal of its
request for payment, together with all supporting information. If Tenant
prepares final "as-built" plans and specifications, it shall cause a copy
thereof to be prepared for Landlord and shall deliver such copy to Landlord
promptly after Tenant's receipt thereof. If the amount of the Tenant
Improvement Allowance shall not be disbursed within sixty (60) days after
the execution of the Commencement Date Memorandum, Landlord shall have no
further obligation to fund or credit any remaining Tenant Improvement
Allowance to Tenant
<PAGE>
4. [INTENTIONALLY DELETED]
5. CHANGE REQUESTS. No material changes to the Approved Working Drawings shall
---------------
be made without Landlord's prior approval, which approval shall not be
unreasonably withheld or delayed beyond seven (7) business days; provided,
however, that no change request shall affect the structure of the Building
and provided further if such change request is not disapproved by Landlord
within said seven (7) business day period, it will be deemed approved. Any
changes to the Approved Working Drawings shall be in writing and shall be
signed by both Landlord and Tenant prior to the change being made.
6. COOPERATION. Landlord and Tenant shall cooperate and diligently assist the
-----------
architect, engineer or space planner in completing the Approved Working
Drawings and specifications and the Contractor in completing construction
of the Tenant Improvements. Tenant shall comply with Landlord's reasonable
requirements in connection with the scheduling and conduct of the work in
order to minimize an disruption to the operation of the Building.
7. RENT COMMENCEMENT DATE. The "Commencement Date" of this Lease shall be
----------------------
February 1, 1997. Notwithstanding the foregoing, Landlord shall deliver
possession of the Premises to Tenant upon execution of this Lease by all
parties, for the purposes of constructing its improvements thereon, subject
to all of the terms and conditions of the Lease other than the obligation
to pay Rent. The Commencement Date with respect to any portion of the
Premises covered under this paragraph shall be deferred for one (1) day for
each day of Landlord Delay. The parties shall execute a Commencement Date
Memorandum in the form of Exhibit C to this Lease to confirm the
Commencement Date of the Lease.
8. LANDLORD DELAY. The term "Landlord Delay" as used in this Lease shall mean
--------------
any delay in the completion of work which is due to any act or omission of
Landlord (wrongful, negligent or otherwise), its employees, agents or
contractors (including acts or omissions while acting as agent or contractor for
Tenant). The term Landlord Delay shall include, but shall not be limited to, any
of the following, to the extent that such act or omission of Landlord actually
delays Tenant in the completion of the Tenant Improvements: (i) delay in the
giving of authorizations or approvals by Landlord beyond any period specified in
the Lease; (ii) delay attributable to the acts or failure to act, whether
willful, negligent or otherwise, of Landlord, its agents or contractors, where
such acts or failures to act delay the completion of the Tenant Improvements; or
(iii) delay attributable to the interference of Landlord, its agents or
contractors with the completion of the Tenant Improvements or the failure or
refusal of any such part to permit Tenant, its agents or contractors, access to
and use of the Building or any Building facilities or services, including
loading docks, which access and use are required for the orderly and continuous
performance of the work necessary to complete the Tenant Improvements. Tenant
shall give Landlord written notice of any alleged Landlord Delay. If the actions
giving rise to such Landlord Delay are not cured within one (1) business day of
the date of receipt of such notice, and Tenant is, in fact, delayed in its
completion of the Improvements by the alleged event, such event shall be deemed
a "Landlord Delay" for the purposes of this Lease and the Commencement Date
shall be delayed one (1) day for each day of Landlord Delay.
9. [INTENTIONALLY DELETED]
10. INDEMNITY. Tenant shall at all times after delivery of the Premises to
Tenant, during construction and prior to the Commencement Date, comply with any
and all provisions of the Lease, except the obligation to pay Rent. Tenant shall
indemnify defend and hold harmless Landlord and its agents, managers, employees,
affiliates, subsidiaries, successors and assigns from and against any and all
losses, claims (liquidated or unliquidated), damages, or expenses (including
without limitation, attorney's fees and costs), arising out of or in connection
with the work contemplated by this Agreement. The indemnity of Landlord by
Tenant contained herein will survive termination of the Lease.
<PAGE>
EXHIBIT C
TO LEASE DATED
December __, 1996
Between Prudential
and Mpath Interactive, Inc.
COMMENCEMENT DATE MEMORANDUM
----------------------------
LANDLORD: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation
TENANT: MPATH INTERACTIVE, INC., a California corporation
LEASE DATE: December __ ,1996
PREMISES: 665 Clyde Ave Mountain View, CA
Pursuant to Exhibit B of the above-referenced Lease, the Commencement Date
---------
hereby is established as ________________,19__, and the Expiration Date is
hereby established as______________________
20__.
Landlord
VOIT MANAGEMENT COMPANY, L.P.,
Managing Agent for THE PRUDENTIAL
INSURANCE COMPANY OF AMERICA, a New
Jersey Corporation
By: ___________________________________
Its: __________________________________
TENANT
MPATH INTERACTIVE, INC., a Delaware
corporation
By: ___________________________________
Title: ________________________________
<PAGE>
EXHIBIT D
TO LEASE DATED
December __, 1996
Between Prudential
and Mpath Interactive, Inc.
EXHIBIT D
---------
RULES AND REGULATIONS
---------------------
1. Except as provided in the Lease, no sign, placard, picture, advertisement,
name or notice shall be installed or displayed on any part of the outside
or inside of the Building without the prior written consent of Landlord.
Landlord shall have the right to remove, at Tenant's expense and with prior
notice, any sign installed or displayed in violation of this rule.
2. Except as consented to in writing by Landlord or in accordance with
Building standard improvements, no draperies, curtains, blinds, shades,
screens or other devices shall be hung at or used in connection with any
window or exterior door or doors of the Premises. No awning shall be
permitted on any part of the Premises. Tenant shall not place anything
against or near glass partitions or doors or windows which may appear
unsightly from outside the Premises.
3. No tenant and no employee or invitee of any tenant shall go upon the roof
of the Building or make any roof or terrace penetrations. Except for HVAC
and maintenance personnel.
4. If Tenant requires a burglar alarm or similar services, it shall first
obtain, and comply with, Landlord's instructions for their installation.
5. Tenant shall not place a load upon any floor of the Premises which exceeds
the maximum load per square foot which the floor was designed to carry (500
Ibs./sq.in.) and which is allowed by law. Tenant's business machines and
mechanical equipment which cause noise or vibration which may be
transmitted to any other tenant's premises, and which is objectionable to
any reasonable tenants of the Project, shall be placed and maintained by
Tenant, at Tenant's expense, on vibration eliminators or other devices
sufficient to eliminate noise or vibration.
6. Tenant shall not use or keep in the Premises any kerosene, gasoline or
inflammable or combustible fluid or material other than those limited
quantities necessary for the operation or maintenance of office equipment.
Tenant shall not use or permit to be used in the Premises any foul or
noxious gas or substance, or permit or allow the Premises to be occupied or
used in a manner offensive or objectionable to Landlord or other occupants
of the Project by reason of noise, odors or vibrations. No animal, except
seeing eye dogs when in the company of their masters, may be brought into
or kept in the Building.
7. Tenant shall close and lock the doors of its Premises, shut off all water
faucets or other water apparatus and turn off all lights and other
equipment which is not required to be continuously run. Tenant shall be
responsible for any damage or injuries sustained by other tenants or
occupants of the Building or Landlord for noncompliance with this Rule.
8. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall
not be used for any purpose other than that for which they were
constructed, and no foreign substance of any kind whatsoever shall be
placed therein. The expense of any breakage, stoppage or damage resulting
from any violation of this rule shall be borne by the tenant if its
employees or invitees, shall have caused it.
9. Tenant shall not, without the prior written consent of Landlord, install
any radio or television antenna, loudspeaker or other device on the roof or
exterior walls of the Building. Tenant shall not interfere with radio or
television broadcasting or reception from or in the Building or
<PAGE>
elsewhere.
10. Following completion of the initial Tenant Improvements, Tenant shall not
affix any floor covering to the floor of the Premises in any manner except
as approved by Landlord unless Landlord's approval is not required under
the Lease. Tenant shall repair, or be responsible for the cost of repair of
any damage resulting from noncompliance with this Rule.
11. Tenant shall store all its trash and garbage in a separate designated area.
Tenant shall not place in any trash box or receptacle any material which
cannot be disposed of in the ordinary and customary manner of trash and
garbage disposal in a separate designated area.
12. Use by Tenant of Underwriters' Laboratory approved equipment for brewing
coffee, tea, hot chocolate and similar beverages and microwaving food shall
be permitted, provided that the equipment and use is in accordance with all
applicable federal, state, county and city laws, codes, ordinances, rules
and regulations.
13. Tenant shall not use the name of the Project in connection with or in
promoting or advertising the business of Tenant, except as Tenant's
address, without the written consent of Landlord.
14. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental
agency. Tenant shall be responsible for any increased insurance premiums
attributable to Tenant's use of the Premises, Building or Property.
15. Tenant assumes any and all responsibility for protecting its Premises from
theft and robbery, which responsibility includes keeping doors locked and
other means of entry to the Premises closed.
16. Tenant shall not use the Premises, or suffer or permit anything to be done
on, in or about the Premises, which may result in an increase to Landlord
in the cost of insurance maintained by Landlord on the Building and Common
Areas.
17. Tenant shall not park its vehicles in any parking areas designated by
Landlord as areas for parking by visitors to the Building or other reserved
parking spaces. Tenant shall not leave vehicles in the Building parking
areas overnight, except for medical vans, nor park any vehicles in the
Building parking areas other than automobiles, motorcycles, motor driven or
non-motor driven bicycles or four-wheeled trucks. Tenant, its agents,
employees and invitees shall not park any one (1) vehicle in more than one
(1) parking space.
18. Landlord may waive any one or more of these Rules and Regulations for the
benefit of Tenant or any other tenant, but no waiver by Landlord shall be
construed as a waiver of the Rules and Regulations in favor of Tenant or
any other tenant, nor prevent Landlord from thereafter enforcing the Rules
and Regulations against any or all of the tenants of the Building.
19. These Rules and Regulations are in addition to, and shall not be construed
to in any way modify or amend, in whole or in part, the terms, covenants,
agreements and conditions of any lease of premises in the Building.
20. Landlord reserves the right to make other reasonable Rules and Regulations
as, in its judgment, may from time to time be needed for safety and
security, for care and cleanliness of the Building and for the preservation
of good order therein. Tenant agrees to abide by all Rules and Regulations
herein above stated and any additional rules and regulations which are
adopted.
21. Tenant shall be responsible for the observance of all of the foregoing
rules by Tenant's employees, agents, clients, customers, invitees and
guests.
<PAGE>
EXHIBIT C
TO LEASE DATED
December 24, 1996
--
Between Prudential
and Mpath Interactive, Inc.
COMMENCEMENT DATE MEMORANDUM
----------------------------
LANDLORD: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation
TENANT: MPATH INTERACTIVE, INC., a California corporation
LEASE DATE: December 24 ,1996
--
PREMISES: 665 Clyde Ave Mountain View, CA
Pursuant to Exhibit B of the above-referenced Lease, the Commencement Date
---------
hereby is established as February 01, ,1997, and the Expiration Date is
---------------- --
hereby established as January 31
----------
2002.
--
Landlord
VOIT MANAGEMENT COMPANY, L.P.,
Managing Agent for THE PRUDENTIAL
INSURANCE COMPANY OF AMERICA, a New
Jersey Corporation
By: Mary Davis
-----------------------------------
Its: Vice President
----------------------------------
TENANT
MPATH INTERACTIVE, INC., a Delaware
corporation
By: Carolyn Benson
-----------------------------------
Title: Corporate Controller
--------------------------------
<PAGE>
EXHIBIT C
TO LEASE DATED
December 24, 1996
--
Between Prudential
and Mpath Interactive, Inc.
COMMENCEMENT DATE MEMORANDUM
----------------------------
LANDLORD: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation
TENANT: MPATH INTERACTIVE, INC., a California corporation
LEASE DATE: December 24 ,1996
--
PREMISES: 665 Clyde Ave Mountain View, CA
Pursuant to Exhibit B of the above-referenced Lease, the Commencement Date
---------
hereby is established as February 01, ,1997, and the Expiration Date is
---------------- --
hereby established as January 31
----------
2002.
--
Landlord
VOIT MANAGEMENT COMPANY, L.P.,
Managing Agent for THE PRUDENTIAL
INSURANCE COMPANY OF AMERICA, a New
Jersey Corporation
By: Mary Davis
-----------------------------------
Its: Vice President
----------------------------------
TENANT
MPATH INTERACTIVE, INC., a Delaware
corporation
By: Carolyn Benson
-----------------------------------
Title: Corporate Controller
--------------------------------
<PAGE>
RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:
Fremont Investment & Loan
175 N. Riverview Drive
Anaheim, California 92808
Attention: Commercial Real Estate
Loan No.: 950113206
- --------------------------------------------------------------------------------
NONDISTURBANCE AND ATTORNMENT AGREEMENT
THIS NONDISTURBANCE AND ATTORNMENT AGREEMENT (the "Agreement") is made as of
February 25, 1998, by and among MARTIN CBP ASSOCIATES, L.P., a Delaware limited
partnership ("Landlord"), whose address is 100 Bush Street, 26th Floor, San
Francisco, California 94104, MPATH INTERACTIVE, INC., a Delaware corporation
("Tenant"), whose address is 665 Clyde Avenue, Mountain View, California 94043,
and FREMONT INVESTMENT & LOAN, a California industrial loan association
("Lender"), whose address is 175 N. Riverview Drive, Anaheim, California 92808,
Attn' Commercial Real Estate Department, Loan No. 950113206, with respect to the
following Recitals:
RECITALS
--------
A. Landlord is the owner of the real property described on Exhibit A attached
----------
hereto, together with the improvements now or hereafter located thereon
(collectively, the "Project").
B. Landlord and Lender are the parties to that certain Loan and Security
Agreement of even date herewith (the "Loan Agreement"), pursuant to the terms of
which Lender has agreed to make a loan of up to Thirteen Million Six Hundred
Thousand Dollars ($13,600,000) (the "Loan") to Landlord. The Loan is evidenced
by that certain Secured Promissory Note of even date herewith, in the original
principal amount of the Loan, executed by Landlord in favor of Lender (the
"Note"). The Note is secured, inter alia, by that certain Deed of Trust and
----------
Fixture Filing of even date herewith executed by Landlord, as trustor, to the
trustee named therein, in favor of Lender, as beneficiary (the "Deed of Trust")
encumbering the Project, recorded concurrently herewith in the Official Records
of Santa Clara County, California (the "Official Records"), and by that certain
Assignment of Rents and Leases of even date herewith executed by Landlord in
favor of Lender (the "Assignment of Rents") encumbering the Project, recorded
concurrently herewith in the Official Records. The Loan Agreement, the Note, the
Deed of Trust, the Assignment of Rents and all other documents securing, or
executed in connection with, the Loan, together with all renewals,
substitutions, extensions, modifications or replacements thereof, are
collectively referred to herein as the "Loan Documents."
C. Tenant and Landlord have entered into that certain lease dated December
__, 1996 (the "Lease"), pursuant to which Landlord leased to Tenant a portion of
the Project more particularly described in the Lease (the "Leased Premises").
D. Lender has required the execution and delivery of this Agreement as a
condition precedent to the closing of the Loan.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing recitals and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Loan Disbursements,
-------------------
Tenant agrees and acknowledges that in making disbursements of the Loan,
Lender is under no obligation or duty to, nor has Lender represented that it
will, see to the application of the Loan proceeds by the person or persons to
whom Lender disburses the Loan proceeds, and any application or use of the Loan
proceeds for purposes other than those provided for in the Loan Documents shall
not defeat in whole or in part the agreements set forth herein.
2. Nondisturbance and Attornment.
------------------------------
If the interest of Landlord under the Lease is transferred by reason of any
foreclosure of the Deed of Trust or by deed in lieu or in aid thereof, Purchaser
(as hereinafter defined) shall be bound to Tenant, and Tenant shall be bound to
Purchaser, under all of the terms, covenants and conditions of the Lease (except
as provided in Section 5 hereof) for the balance of the term thereof, with the
----------
same force and effect as if Purchaser were the original landlord under the
Lease. Tenant does hereby attorn to Purchaser as the landlord under the Lease,
which attornment shall be effective and self-operative without the execution of
any further instruments upon Purchaser's succeeding to the interest of the
landlord under the Lease. Tenant expressly acknowledges and agrees that a
default by Tenant under the Lease, after the expiration of any applicable notice
and cure periods specifically provided for under the Lease, (a) shall terminate
Lender's nondisturbance agreements set forth herein only at Lender's election in
its sole discretion, and (b) shall not terminate Tenant's attornment agreement
or any other agreements by Tenant set forth herein. Without limiting the
generality of this Section 2, within ten (10) business days after the request of
Landlord, Lender or any Purchaser, Tenant shall execute and deliver such
documents as are reasonably requested by such party to reflect such attornment.
Within twenty (20) business days after the request of any Purchaser, Tenant
shall enter into a new lease of the Leased Premises with such Purchaser for the
balance of the then remaining term of the Lease and upon the same terms and
conditions as are then contained in the Lease. As used herein, "Purchaser" shall
mean a transferee (including, without limitation, Lender and its affiliates and
subsidiaries) which acquires the interest of Landlord in the Leased Premises
through a foreclosure of the Deed of Trust or a deed in lieu or in aid thereof,
and its successors and assigns.
3. Tenant Agreements.
------------------
Tenant agrees that:
A. Tenant shall send a copy of any notice of a default by Landlord under the
Lease to Lender at the same time such notice is sent to Landlord; and
B. without Lender's prior written consent, Tenant shall not (i) pay any rent
(however denominated) or other charges under the Lease more than one (1) month
in advance, (ii) cancel, terminate or surrender the Lease, except at the normal
expiration of the Lease term or as expressly provided in the Lease or pursuant
to applicable law, or (iii) enter into any amendment or modification of the
Lease. Lender's consent to any amendment or modification of the Lease shall not
be unreasonably withheld or delayed. Any amendment or modification entered into
without Lender's consent shall not be valid; and
- 2 -
<PAGE>
C. Upon the occurrence of any event of default by Landlord under the Loan
Documents and the expiration of any applicable cure periods expressly provided
for under the Loan Documents, Lender, at all times, independent of Landlord,
shall have the standing and right to enforce, by injunction or otherwise, all or
any provisions in the Lease as though Lender originally was a party thereto.
4. Assignment of Rents.
--------------------
Tenant agrees to recognize the assignment from Landlord to Lender of the
Lease and the amounts payable thereunder pursuant to the Assignment of Rents
and, in the event of any default by Landlord under the Loan Documents and the
expiration of any applicable cure period expressly set forth therein, Tenant
shall pay to Lender, as such assignee, the rents and other amounts which are or
become due under the Lease from and after the date on which Lender gives Tenant
notice that such rent and other amounts are to be paid to Lender pursuant to the
Assignment of Rents. In complying with the provisions of this Section 4, Tenant
---------
shall be entitled to rely solely upon the notices given by Lender pursuant to
the Assignment of Rents. Tenant shall be entitled to full credit under the Lease
for any rents paid to Lender in accordance with the provisions hereof. Any
dispute between Lender (or any other Purchaser) and Landlord as to the existence
or nature of a default by Landlord under the terms of the Loan Documents or with
respect to the foreclosure of the Deed of Trust, shall be dealt with and
adjusted solely between Lender (or such other Purchaser) and Landlord, and
Tenant shall not be made a party thereto (unless joinder is required by law).
5. Lender's Obligations.
---------------------
Nothing in this Agreement and no action taken by Lender to enforce any
provision in the Lease shall be deemed or construed to constitute an agreement
by Lender to perform or assume any covenant of Landlord as landlord under the
Lease unless and until Lender obtains title to the Leased Premises by
foreclosure of the Deed of Trust or a deed in lieu or in aid thereof. Without
limiting any of Tenant's rights against Landlord under the Lease, in the event
Lender acquires title to the Leased Premises, Lender shall:
A. only be liable for any damage or other relief attributable to any act
or omission accruing during Lender's period of ownership of the Leased Premises,
regardless of whether such acts or omissions commenced prior to such period of
ownership. For example, if the Lease provides that the failure of the Landlord
to repair a hole in the roof entitles the Tenant to offset rent for the number
of days that the roof is not repaired, and if the hole in the roof occurred 60
days prior to Lender's acquisition of title and was not repaired for another 30
days thereafter, Tenant would only be entitled to offset against its rental
obligations owed to Lender 30 days rental and would retain a claim against
Landlord for 60 days rental;
B. only be responsible for representations, warranties and covenants of
Landlord to the extent that such representations, warranties and covenants apply
to the Project and relate to the operation of the Project during Lender's period
of ownership of the Leased Premises;
C. be liable only for any security deposit actually delivered to Lender;
and
D. have its obligations and liabilities limited to the then interest, if
any, of Lender in the Project, without consideration of any mortgage liens
placed on the Project by Lender. Tenant shall look exclusively to such interest
of Lender, if any, in the Project for the payment and discharge of any
obligations imposed upon Lender hereunder or under the Lease and Tenant releases
Lender from any other liability hereunder and under the Lease.
- 3 -
<PAGE>
Nothing contained in this Section shall be deemed to limit or affect Tenant's
claims against Landlord for any breaches of the Landlord's obligations under the
Lease, or for any breaches of Landlord's representations, warranties and
covenants under the Lease, or for return of any security deposit under the
Lease, and no transfer of the Project to Lender shall release Landlord from any
of its Lease obligations, notwithstanding anything to the contrary in the Lease.
6. Estoppel Certificate.
---------------------
Tenant agrees, from time to time, within ten (10) business days after
Lender's request, to execute and deliver to Lender or Lender's designee, any
estoppel certificate reasonably requested by Lender, stating that the Lease is
in full force and effect, the date to which rent has been paid, that Landlord is
not in default under the Lease (or specifying in detail the nature of Landlord's
default), and such other matters relating to the Lease as may be reasonably
requested by Lender.
7. No Merqer.
----------
The parties agree that, without Lender's prior written consent, Landlord's
estate in and to the Project and the leasehold estate created by the Lease shall
not merge but shall remain separate and distinct, notwithstanding the union of
such estates in Landlord, Tenant or any third party by purchase, assignment or
otherwise.
8. Entire Agreement.
-----------------
This Agreement shall be the whole and only agreement with regard to the
matters set forth herein, and shall supersede and cancel any prior agreements
with respect thereto, including, without limitation, any provisions contained in
the Lease relating thereto.
9. Counterparts.
-------------
This Agreement may be executed in any number of counterparts, each of which
when so executed and delivered shall be deemed to be an original and all of
which counterparts taken together shall constitute but one and the same
instrument. Signature and acknowledgment pages may be detached from the
counterparts and attached to a single copy of this Agreement to physically form
one document, which may be recorded.
10. Modifications, Successors and Assigns.
--------------------------------------
This Agreement may only be modified in writing signed by all of the parties
hereto or their respective successors in interest. This Agreement, including
without limitation, the provisions of Section 5, shall inure to the benefit of,
-----------
and be binding upon, the parties hereto and their respective successors and
assigns.
11. Attorneys' Fees.
----------------
If any lawsuit or other proceeding is commenced which arises out of, or
which relates to this Agreement, including any alleged tort action, the
prevailing party shall be entitled to recover from each other party such sums as
the court or other party presiding over such action or proceeding may adjudge to
be reasonable attorneys' fees and costs in the action or proceeding, in addition
to costs and expenses otherwise allowed by law. Any such attorneys' fees and
costs incurred by any party in enforcing a judgment in its favor under this
Agreement shall be recoverable separately from and in
- 4 -
<PAGE>
addition to any other amount included in such judgment and shall survive and not
be merged into any such judgment. The obligation to pay such attorneys' fees and
costs is intended to be severable from the other provisions of this Agreement.
12. Governing Law.
--------------
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of California.
13. Notices.
--------
Any notice, or other document or demand required or permitted under this
Agreement shall be in writing addressed to the appropriate address set forth
above and shall be deemed delivered on the earliest of (a) actual receipt, (b)
the next business day after the date when sent by recognized overnight courier,
or (c) the second business day after the date when sent by registered or
certified mail, postage prepaid. Any party may, from time to time, change the
address at which such written notices or other documents or demands are to be
sent, by giving the other parties written notice of such change in the manner
hereinabove provided.
- 5 -
<PAGE>
Nothing contained in this Section shall be deemed to limit or affect Tenant's
claims against Landlord for any breaches of the Landlord's obligations under the
Lease, or for any breaches of Landlord's representations, warranties and
covenants under the Lease, or for return of any security deposit under the
Lease, and no transfer of the Project to Lender shall release Landlord from any
of its Lease obligations, notwithstanding anything to the contrary in the Lease.
6. Estoppel Certificate.
---------------------
Tenant agrees, from time to time, within ten (10) business days after
Lender's request, to execute and deliver to Lender or Lender's designee, any
estoppel certificate reasonably requested by Lender, stating that the Lease is
in full force and effect, the date to which rent has been paid, that Landlord is
not in default under the Lease (or specifying in detail the nature of Landlord's
default), and such other matters relating to the Lease as may be reasonably
requested by Lender.
7. No Merger.
----------
The parties agree that, without Lender's prior written consent, Landlord's
estate in and to the Project and the leasehold estate created by the Lease shall
not merge but shall remain separate and distinct, notwithstanding the union of
such estates in Landlord, Tenant or any third party by purchase, assignment or
otherwise.
8. Entire Agreement.
-----------------
This Agreement shall be the whole and only agreement with regard to the
matters set forth herein, and shall supersede and cancel any prior agreements
with respect thereto, including, without limitation, any provisions contained in
the Lease relating thereto.
9. Counterparts.
-------------
This Agreement may be executed in any number of counterparts, each of which
when so executed and delivered shall be deemed to be an original and all of
which counterparts taken together shall constitute but one and the same
instrument. Signature and acknowledgment pages may be detached from the
counterparts and attached to a single copy of this Agreement to physically form
one document, which may be recorded.
10. Modifications, Successors and Assigns.
--------------------------------------
This Agreement may only be modified in writing signed by all of the parties
hereto or their respective successors in interest. This Agreement, including
without limitation, the provisions of Section 5, shall inure to the benefit of,
-----------
and be binding upon, the parties hereto and their respective successors and
assigns.
11. Attorneys' Fees.
----------------
If any lawsuit or other proceeding is commenced which arises out of, or
which relates to this Agreement, including any alleged tort action, the
prevailing party shall be entitled to recover from each other party such sums as
the court or other party presiding over such action or proceeding may adjudge to
be reasonable attorneys' fees and costs in the action or proceeding, in addition
to costs and expenses otherwise allowed by law. Any such attorneys' fees and
costs incurred by any party in enforcing a judgment in its favor under this
Agreement shall be recoverable separately from and in
-4-
<PAGE>
addition to any other amount included in such judgment and shall survive and not
be merged into any such judgment. The obligation to pay such attorneys' fees and
costs is intended to be severable from the other provisions of this Agreement.
12. Governing Law.
--------------
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of California.
13. Notices.
--------
Any notice, or other document or demand required or permitted under this
Agreement shall be in writing addressed to the appropriate address set forth
above and shall be deemed delivered on the earliest of (a) actual receipt, (b)
the next business day after the date when sent by recognized overnight courier,
or (c) the second business day after the date when sent by registered or
certified mail, postage prepaid. Any party may, from time to time, change the
address at which such written notices or other documents or demands are to be
sent, by giving the other parties written notice of such change in the manner
hereinabove provided.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
"Lender"
FREMONT INVESTMENT & LOAN, a California
industrial loan association
By:_______________________________________
Its:_________________________________
"Tenant"'
MPATH INTERACTIVE, INC.,
a Delaware corporation
By: /s/ Lynn Heublein
----------------------------------------
Its: GM
------------------------------------
By:________________________________________
Its:____________________________________
"Landlord"
MARTIN CBP ASSOCIATES, L.P.,
a Delaware limited partnership
By: MARTIN/CYPRESS, LLC,
a California limited liability company,
general partner
By: THE MARTIN GROUP OF
COMPANIES, INC., a California
corporation, managing member
By:________________________________
Its:_________________________
By:________________________________
Its:_________________________
S-1
<PAGE>
[LANDLORD NOTARY]
STATE OF CALIFORNIA )
) SS.
COUNTY OF ____________ )
On __________, before me, _________, a Notary Public, personally
appeared ______________, and ____________________, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person whose name
is subscribed to the within instrument and acknowledged to me that he/she
executed the same in his/her authorized capacity, and that by his/her signature
on the instrument the person, or the entity upon behalf of which the person
acted, executed the instrument.
WITNESS my hand and official seal.
__________________________
Notary Public
<PAGE>
[TENANT NOTARY]
STATE OF CALIFORNIA )
) SS.
COUNTY OF Santa Clara )
-----------
On February 26, 1998, before me, Lorelie C. Perez, a Notary Public,
----------------- ----------------
personally appeared Lynn Anne Heublein, and ______________, personally known
to me (or proved to me on the basis of satisfactory evidence) to be the person
whose name is subscribed to the within instrument and acknowledged to me that
he/she executed the same in his/her authorized capacity, and that by his/her
signature on the instrument the person, or the entity upon 'behalf of which the
person acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Lorelie C. Perez
__________________________
Notary Public
<PAGE>
[LENDER NOTARY]
STATE OF CALIFORNIA )
) SS.
COUNTY OF ___________ )
On ___________, before me, _________, a Notary Public, personally
appeared ______________, and _____________________, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person whose name
is subscribed to the within instrument and acknowledged to me that he/she
executed the same in his/her authorized capacity, and that by his/her signature
on the instrument the person, or the entity upon 'behalf of which the person
acted, executed the instrument.
WITNESS my hand and official seal.
__________________________
Notary Public
<PAGE>
EXHIBIT A
Legal Description of the Project
--------------------------------
That certain real property located in the City of Mountain View, County of Santa
Clara, State of California, having a street address of 625-685 Clyde Avenue,
more particularly described as follows:
[Attached]
A-1
<PAGE>
LEGAL DESCRIPTION
Order No.: 39253899
The land referred to herein is situated in the State of California, County of
Santa Clara, City of Mountain View described as follows:
All that certain real property situate in the City of Mountain View, County of
Santa Clara, State of California, which property is described as Parcel "A", as
said Parcel "A" is shown on that certain Parcel Map entitled, "A portion of Lot
6 as shown on that certain Map entitled Map of the partition of that part of the
Rancho Pastoria De Las Borregas patented to Martin Murphy Jr. City of Mountain
View California", which Parcel Map was filed for record in Book 270 of Maps, at
Page 56, on July 28, 1970, Official Records of Santa Clara County, California,
said Parcel "A" being more fully described as follows:
Beginning at the most Easterly corner of Parcel "A" as said Parcel "A" is shown
on the above described Parcel Map; thence from said point of beginning South 16
deg. 25' 55" West 429.98 feet; thence South 15 deg. 10' 20" West 13.95 feet to a
point on the Northerly right-of-way line of Clyde Avenue, which point is on a
curve and tangent to the course North 11 deg. 15' 06" West; thence along said
right-of way line of Clyde Avenue in a general Northwesterly direction along the
arc of a curve to the left with a radius of 335.00 feet, through a central angle
of 62 deg. 26' 54" for an arc distance of 365.13 feet; thence North 73 deg. 42'
00" West 227.15 feet; thence along the arc of a curve to the right with a radius
of 265.00 feet, through a central angle of 990 deg. 00' 00" for an arc distance
of 416.26 feet; thence North 16 deg. 18' 00" East 384.76 feet; thence along the
arc of a curve to the left with a radius of 70.00 feet, through a central angle
of 88 deg. 20' 18" for an arc distance of 107.93 feet; to the point of a cups,
which point is on the Southerly right-of-way line of Bayshore Freeway; thence
along said Southerly line of Bayshore Freeway South 80 deg. 16' 53" East 71.44
feet; thence South 76 deg. 45' 31" East 296.68 feet; thence South 67 deg. 42'
30" East 76.64 feet to a point; thence leaving said Southerly right-of-way line
of Bayshore Freeway South 16 deg. 25' 55" West 478.98 feet; thence South 74 deg.
40' 35" East 415.56 feet to the point of beginning ;said described Parcel "A".
APN: 160-55-020
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CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT
[FORM]
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 2 to the Registration Statement on Form S-1 of our report dated
January 29, 1999, except as to Note 15, which is as of February 12, 1999,
relating to the financial statements of Mpath Interactive, Inc., which appears
in such Prospectus. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Jose, CA
March 30, 1999
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