<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 2, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ADFORCE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7374 77-0505214
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification no.)
</TABLE>
10101 NORTH DE ANZA BOULEVARD, SUITE 210
CUPERTINO, CALIFORNIA 95014
(408) 873-3680
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
JOHN A. TANNER
CHIEF FINANCIAL OFFICER
10101 NORTH DE ANZA BOULEVARD, SUITE 210
CUPERTINO, CALIFORNIA 95014
(408) 873-3680
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------
COPIES TO:
GORDON K. DAVIDSON, ESQ. STEVEN M. SPURLOCK, ESQ.
LAIRD H. SIMONS, III, ESQ. MICHAEL P. KENNEDY, ESQ.
MARK A. LEAHY, ESQ. ERIC E. KEPPLER, ESQ.
EDWARD M. URSCHEL, ESQ. GUNDERSON DETTMER STOUGH VILLENEUVE
FENWICK & WEST LLP FRANKLIN & HACHIGIAN, LLP
TWO PALO ALTO SQUARE 155 CONSTITUTION DRIVE
PALO ALTO, CALIFORNIA 94306 MENLO PARK, CALIFORNIA 94025
(650) 494-0600 (650) 321-2400
----------------
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 of 1933, 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 of 1933, 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 of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / ________________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM
TITLE OF EACH CLASS AGGREGATE
OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) AMOUNT OF REGISTRATION FEE
<S> <C> <C>
Common Stock, $0.001 par value per share.................. $55,000,000 $15,290
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act of 1933.
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 2, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
UNDERWRITERS MAY NOT CONFIRM SALES OF THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BECOMES EFFECTIVE.
THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
<PAGE>
PROSPECTUS
SHARES
[LOGO]
COMMON STOCK
This is an initial public offering of common stock by AdForce, Inc. All
of the shares of common stock are being sold by AdForce. The estimated initial
public offering price will be between $ and $ per share.
--------------
There is currently no public market for the common stock. AdForce has
applied to have the common stock approved for quotation on the Nasdaq National
Market under the symbol ADFC.
--------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------------- ----------
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to AdForce, before expenses........................ $ $
</TABLE>
AdForce has granted the underwriters an option for a period of 30 days
to purchase up to additional shares of common stock.
--------------
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
-------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
HAMBRECHT & QUIST
LEHMAN BROTHERS
VOLPE BROWN WHELAN & COMPANY
CHARLES SCHWAB & CO., INC.
, 1999
<PAGE>
[INSIDE FRONT COVER]
TITLE: THE ADFORCE ADVANTAGE
The top half of the page contains three columns of text bearing the
headings "Buyers," "The AdForce Advantage" and "Sellers." The "Buyers" column
reads: "AdForce enables advertising agencies and advertisers to plan and manage
Internet advertising intelligently for maximum effectiveness. Ads can be
targeted to reach key audiences and tracked post-campaign to measure return on
investment." The "AdForce Advantage" column reads: "Centralized, online, on-time
ad delivery--AdForce simplifies the process of Internet ad management and
delivery. From beginning to end, AdForce offers a single, reliable
point-of-contact for both buyers and sellers of Internet advertising. From
planning and scheduling to auditing and billing, AdForce ensures fast and
accurate ad selection and delivery. Even better, AdForce customers do not need
to buy or maintain hardware or software." The "Sellers" column reads: "AdForce
helps Web sites maximize the value of their inventory enabling them to command
higher rates for their advertising space. AdForce's advanced inventory
forecasting system allows sellers to monitor sold and unsold inventory
accurately, allowing them to sell more inventory more effectively." The bottom
half of the page contains a large, rectangular bar bearing the name "AdForce"
with four smaller rectangles above the bar and four smaller rectangles below the
bar. The four rectangles above the central bar are connected to it by lines and
bear the labels "Advertisers" and "Ad Agencies." The four rectangles below the
central bar are connected to it by lines and bear the labels "Web Sites" and "Ad
Rep Firms."
[FLOW DIAGRAM UNDER SERVICES HEADING (P. 37)]
TITLE: LIFETIME CUSTOMER VALUE
A circular flow chart containing four icons. The icon at the top of the
flow chart reads "Deliver Ad" and contains a truck graphic. A clockwise arrow
leads to an icon that reads "Track User Activity" and contains a lighthouse
graphic. Another clockwise arrow leads to an icon that reads "Measure Results"
and contains a chart graphic. A clockwise arrow leads to an icon that reads
"Target User" and contains a target graphic. A final arrow leads from the icon
that reads "Target User" to the icon that reads "Deliver Ad." Text at the center
of the flow chart reads: "Lifetime Customer Value--AdForce closed-loop marketing
services help advertisers find, attract and retain their target customers."
[ICONS AT LEFT MARGIN UNDER SERVICES HEADING (PP. 37-38)]
First icon reads "Media Planning" and contains a file folder graphic.
Second icon reads "Campaign Scheduling" and contains an appointment book
graphic. Third icon reads "Inventory Management" and contains a file boxes
graphic. Fourth icon reads "Targeting" and contains a target graphic. Fifth icon
reads "Ad Delivery" and contains a truck graphic. Sixth icon reads
"Transactions" and contains a lighthouse graphic. Seventh icon reads "Reporting"
and contains a chart graphic. Eighth icon reads "Auditing and Accounting" and
contains an abacus graphic. Ninth icon reads "Analysis" and contains a
microscope graphic.
[INSIDE BACK COVER]
TITLE: ADFORCE MAKE THE RIGHT IMPRESSION
The AdForce logo is centered at the top of the page. A circular flow
chart is at the center of the page containing four icons. The icon at the top of
the flow chart reads "Deliver Ad" and contains a truck graphic. A clockwise
arrow leads to an icon that reads "Track User Activity" and contains a
lighthouse graphic. Another clockwise arrow leads to an icon that reads "Measure
Results" and contains a chart graphic. A clockwise arrow leads to an icon that
reads "Target User" and contains a target graphic. A final arrow leads from the
icon that reads "Target User" to the icon that reads "Deliver Ad." Text at the
center of the flow chart reads: "Lifetime Customer Value--AdForce closed-loop
marketing services help advertisers find, attract and retain their target
customers." The bottom of the page contains the text "End-To-End Ad Management."
Nine icons appear below this text representing media planning, campaign
scheduling, inventory management, targeting, ad delivery, transactions,
reporting, auditing and accounting and analysis.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary........................................... 4
Risk Factors................................................. 6
Forward-Looking Statements................................... 17
Use of Proceeds.............................................. 18
Dividend Policy.............................................. 18
Capitalization............................................... 19
Dilution..................................................... 20
Selected Financial Data...................................... 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 22
Business..................................................... 30
Management................................................... 43
Certain Transactions......................................... 55
Principal Stockholders....................................... 59
Description of Capital Stock................................. 61
Shares Eligible for Future Sale.............................. 64
Underwriting................................................. 66
Legal Matters................................................ 68
Experts...................................................... 68
Additional Information....................................... 68
Index to Financial Statements................................ F-1
</TABLE>
Information contained on our Web site is not a part of this prospectus.
AdForce is one of our service marks. This prospectus also includes
trademarks and trade names of other companies.
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD
CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY, INCLUDING "RISK FACTORS" AND THE FINANCIAL STATEMENTS,
BEFORE MAKING AN INVESTMENT DECISION.
ADFORCE
AdForce is a leading provider of centralized, outsourced ad management
and delivery services on the Internet. Our highly reliable, scalable technology
infrastructure and data center currently deliver up to 160 million ads per day.
Our services, AdForce for Advertisers and AdForce for Publishers, offer
sophisticated campaign design, inventory management, targeting, ad delivery,
tracking, measuring and reporting capabilities. Our services and technology
infrastructure leverage the advantages of Internet advertising and direct
marketing and allow our customers to:
- Reach large or targeted audiences across multiple Web sites on our
common platform;
- Maximize return on advertising investments for advertisers and ad
agencies;
- Maximize the value of page view inventories for Web sites and ad rep
firms;
- Monitor and measure the effectiveness of ad campaigns in near real
time;
- Modify ad campaigns based on near real-time campaign performance data;
- Aggregate large numbers of sites into a single network and segment the
network into groups of special interest content such as "sports" or
"finance"; and
- Take advantage of direct marketing opportunities using sophisticated
targeting technologies supported by our large and growing database of
user information.
By outsourcing the technically complex and operationally demanding ad
management and delivery functions to AdForce, our customers can utilize our high
performance systems, technology and personnel while focusing on their own core
competencies.
The rapid expansion of the Internet has led to significant growth in
electronic commerce. The growth of the Internet generally and electronic
commerce in particular has spurred traditional businesses to devote larger
portions of their marketing budgets to Internet advertising, and has prompted
Internet and electronic commerce companies to increase their spending on
Internet advertising. Jupiter Communications estimates that spending on Internet
advertising will grow from $1.9 billion in 1998 to $7.7 billion in 2002, and the
Direct Marketing Association estimates that spending on Internet direct
marketing will grow from an estimated $603 million in 1998 to $5.3 billion in
2003.
AdForce's objective is to be the primary technology and service
infrastructure for advertising and direct marketing on the Internet. We intend
to achieve our objective by enhancing and expanding our core technology
infrastructure, leveraging and expanding our customer base, maintaining our
neutrality between the buyers and sellers of advertising, leveraging our
database marketing capabilities and targeting additional advertising media as
they converge with the Internet.
During 1998, we delivered 13.6 billion ads with increasing quarterly ad
volumes of 0.9 billion, 1.6 billion, 3.2 billion and 7.9 billion. Through
relationships with key customers, including GeoCities, Netscape, 24/7 Media,
2CAN Media and ModemMedia.PoppeTyson, we have achieved a broad reach over the
Internet. According to Media Metrix, an Internet research firm, in December 1998
AdForce served ads to approximately 58% of U.S. Internet users.
We incorporated in California on January 16, 1996 as Imgis, Inc. and
intend to reincorporate in Delaware as AdForce, Inc. in March 1999. Our address
is 10101 North De Anza Boulevard, Suite 210, Cupertino, California 95014, and
our telephone number is (408) 873-3680.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by AdForce.............. shares
Common stock to be outstanding after this
offering..................................... shares
Use of proceeds.............................. For general corporate purposes, including
working capital. See "Use of Proceeds."
Proposed Nasdaq National Market symbol....... ADFC
</TABLE>
--------------
ALL INFORMATION IN THIS PROSPECTUS RELATING TO ADFORCE'S CAPITAL STOCK,
OPTIONS AND WARRANTS IS AS OF DECEMBER 31, 1998. UNLESS OTHERWISE INDICATED, THE
INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE OVER-ALLOTMENT OPTION WILL NOT
BE EXERCISED AND REFLECTS THE CONVERSION OF ALL PREFERRED STOCK INTO COMMON
STOCK, THE REINCORPORATION OF ADFORCE IN DELAWARE AND THE ADOPTION OF NEW
EMPLOYEE BENEFIT PLANS, ALL OF WHICH WILL OCCUR BEFORE THE CONSUMMATION OF THIS
OFFERING. ALL CAPITAL STOCK NUMBERS AND PER SHARE AMOUNTS IN THIS PROSPECTUS
HAVE BEEN ADJUSTED TO REFLECT THE EFFECT OF A TWO-FOR-ONE STOCK SPLIT THAT
OCCURRED IN FEBRUARY 1998. PLEASE SEE "CAPITALIZATION" FOR A MORE COMPLETE
DISCUSSION REGARDING ADFORCE'S CAPITAL STOCK, OPTIONS AND WARRANTS AND RELATED
MATTERS. THE TERMS "ADFORCE," "WE," "US" AND "OUR" REFER TO ADFORCE, INC., A
DELAWARE CORPORATION, AND ITS CALIFORNIA PREDECESSOR.
--------------
THE SUMMARY FINANCIAL DATA PRESENTED BELOW ARE DERIVED FROM THE
FINANCIAL STATEMENTS OF ADFORCE. THE PRO FORMA WEIGHTED AVERAGE COMMON SHARES
INCLUDE PREFERRED STOCK (ON AN AS-CONVERTED BASIS) AS WELL AS COMMON STOCK. THE
AS ADJUSTED BALANCE SHEET DATA SUMMARIZED BELOW REFLECT THE RECEIPT OF THE NET
PROCEEDS FROM THE SALE OF THE SHARES OF COMMON STOCK OFFERED BY ADFORCE
AT AN ASSUMED INITIAL PUBLIC OFFERING PRICE OF $ AND AFTER DEDUCTING THE
ESTIMATED UNDERWRITING DISCOUNTS AND COMMISSIONS AND OFFERING EXPENSES.
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED DECEMBER
JANUARY 16, 1996 31,
(INCEPTION) TO --------------------
DECEMBER 31, 1996 1997 1998
----------------- --------- ---------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue........................................................... $ -- $ 320 $ 4,286
Gross loss............................................................ -- (1,188) (773)
Loss from operations.................................................. (3,383) (5,596) (14,869)
Net loss.............................................................. (3,452) (5,704) (15,020)
Basic and diluted net loss per share.................................. $ (1.40) $ (3.48) $ (5.28)
Weighted average common shares -- basic and diluted................... 2,465 1,639 2,844
Pro forma basic and diluted net loss per share........................ $ (1.38)
Pro forma weighted average common shares -- basic and diluted......... 10,877
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
QUARTERLY STATEMENT OF OPERATIONS DATA:
Net revenue............................................................ $ 414 $ 784 $ 1,064 $ 2,024
Gross profit (loss).................................................... (396) (616) (151) 390
Net loss............................................................... (2,483) (3,910) (3,807) (4,820)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................... $ 10,045
Working capital......................................................................... 7,975
Total assets............................................................................ 19,875
Long-term portion of capital lease obligations.......................................... 3,089
Total stockholders' equity.............................................................. 12,981
</TABLE>
5
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND ALL OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE PURCHASING OUR COMMON STOCK.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. ANY OF THE
FOLLOWING RISKS COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS, RESULTS OF
OPERATIONS AND FINANCIAL CONDITION AND COULD RESULT IN A COMPLETE LOSS OF YOUR
INVESTMENT.
WE HAVE A LIMITED OPERATING HISTORY
We were incorporated in January 1996 and have a limited operating
history. Before buying our common stock, you should consider the risks and
difficulties frequently encountered by early stage companies in new and rapidly
evolving markets, particularly those companies whose businesses depend on the
Internet. These risks and difficulties include, among other things, our
inability to predict future results of operations accurately due to our lack of
operating history and the unavailability of comparable business models. We
cannot assure you that our business strategy will be successful or that we will
address these risks and difficulties successfully. Please see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
detailed information on our limited operating history.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE AND OUR FUTURE OPERATING RESULTS
REMAIN UNCERTAIN
Our quarterly results of operations have varied in the past, and you
should not rely on quarter-to-quarter comparisons of our results of operations
as an indication of our future performance. It is likely that in future periods
our results of operations will be below the expectations of public market
analysts and investors. In this event, the price of our common stock would
likely decline. Our revenue and results of operations depend on a variety of
factors, many of which are beyond our control. These factors include:
- the timing and costs of improvements in our ad management and delivery
infrastructure, including the addition of more capacity;
- our ability to satisfy and retain our existing customers;
- any loss of existing customers due to consolidation in the industry;
- the ability of our existing customers to maintain or increase their
Internet traffic or market share;
- our ability to expand our customer base and the timing of new
customers commencing service with us;
- changes in our pricing policies or those of our competitors resulting
from competitive pressures and other factors;
- our ability to provide reliable and scalable service, including our
ability to avoid potential system failures;
- the announcement or introduction of new technology or services by us
or our competitors, including database marketing capabilities;
- seasonal trends in our business; and
- general economic and market conditions.
We anticipate making significant capital expenditures as we increase the
capacity and reliability of our existing technology infrastructure and data
center. We also intend to open additional ad management and delivery centers in
the future. In addition, we intend to increase our sales and marketing
operations and to continue to allocate a large portion of our budget for
research and development. We would likely be unable to adjust spending quickly
enough to offset any unexpected revenue shortfall. If we have a shortfall in
revenue relative to our expenses, our business, results of operations and
financial condition
6
<PAGE>
would be materially and adversely affected. Please see "Management's Discussion
and Analysis of Financial Condition and Results of Operations" for detailed
information on our quarterly results of operations.
WE HAVE A HISTORY OF LOSSES AND EXPECT FUTURE LOSSES
We have not achieved profitability and expect to continue to incur net
losses on a quarterly and annual basis for the foreseeable future. We incurred
net losses of $3.5 million for the period from January 16, 1996 (inception) to
December 31, 1996, $5.7 million for the year ended December 31, 1997, and $15.0
million for year ended December 31, 1998. As of December 31, 1998, our
accumulated deficit was $24.2 million. We expect to continue to incur
significant operating and capital expenditures and, as a result, we will need to
generate significantly greater revenue than we have generated to date to achieve
and maintain profitability. In addition, our operating costs are relatively
fixed, and cannot be lowered quickly even if we fail to generate significant
revenue. Although we have experienced significant growth in revenue in recent
periods, we expect that future revenue growth, if any, will not be as rapid as
in recent periods. We may never achieve profitability on a quarterly or an
annual basis. Even if we do achieve profitability, we cannot assure you that we
can sustain or increase profitability on a quarterly or annual basis in the
future. If revenue does not grow or grows more slowly than we anticipate, or if
operating or capital expenditures exceed our expectations and cannot be adjusted
accordingly, our business, results of operations and financial condition will be
materially and adversely affected. Please see "Selected Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for detailed information on our history of losses and expectation of
continued losses.
WE DEPEND ON A SMALL NUMBER OF CUSTOMERS FOR OUR REVENUE
We derive a substantial portion of our net revenue from a small number
of Web sites and ad rep firms. Our three largest customers for each quarter of
1998 represented 94%, 81%, 60% and 63%, respectively, of our net revenue. In
January 1999, three of our customers, GeoCities, 24/7 Media and Netscape,
accounted for approximately 71% of our net revenue. Our business, results of
operations and financial condition would be materially and adversely affected by
the loss of any of these customers or any significant reduction in net revenue
generated from these customers. Our customer agreements, including those with
GeoCities, 24/7 Media and Netscape, can generally be terminated at any time with
little or no penalty. Certain of our customers also use other ad management and
delivery systems for a portion of their ad serving needs and could reduce their
use of our services. Please see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for detailed information on our
customer concentration.
CONSOLIDATION IN THE INTERNET INDUSTRY MAY ADVERSELY AFFECT OUR RELATIONSHIPS
WITH OUR CUSTOMERS
Many of our principal customers are now and may in the future be
affected by rapid consolidation in the Internet industry. Our business, results
of operations and financial condition would be materially and adversely affected
by the loss of any of these customers or any significant reduction that we
derive from them. GeoCities, our largest customer, has entered into an agreement
to be acquired by Yahoo!. Netscape, another of our key customers, has entered
into an agreement to be acquired by America Online, one of our principal
stockholders. 2CAN Media recently entered into an agreement to be acquired by
AdSmart, a subsidiary of CMG Investments. CMG Investments owns Engage, which
recently acquired Accipiter, one of our competitors. Both Yahoo! and America
Online currently operate their own proprietary ad management and delivery
technologies. 24/7 Media acquired its own ad management and delivery technology
in 1998, and currently uses this technology to serve a portion of its
advertising needs. If our customers choose to use the proprietary ad serving
technologies of the companies that acquire them or other ad serving
technologies, our business, results of operations and financial condition would
be materially and adversely affected. Please see "Business--Key Customers" and
"--Competition" for detailed information on our customers and industry
consolidation.
7
<PAGE>
INSUFFICIENT SYSTEM CAPACITY WOULD ADVERSELY AFFECT OUR BUSINESS
Our success will be highly dependent on our ability to continue to scale
our technology infrastructure to meet the rapidly expanding market for Internet
advertising. If our traffic increases because of heightened demand from existing
or new customers, we will need to accommodate large increases in the number of
ads that we manage and deliver and the amount of data that we store. We will
also need to support the introduction of new and evolving types of advertising
and direct marketing that require greater system resources than traditional
banner ads. Our technology and infrastructure may not be able to support higher
volumes of ads, additional customers or new types of advertising or direct
marketing.
We currently deliver ads from our data center in Costa Mesa, California,
and plan to begin delivering ads from an additional data center in Cupertino,
California in the second quarter of 1999. Although we have been successful in
scaling our system in the past, we may be unable to continue to scale our Costa
Mesa data center or begin operations from our second data center on time or
within budget. The uninterrupted performance of our data centers is critical to
our success. We expect to add more ad management and delivery centers to improve
redundancy and to increase capacity. Adding this new capacity will be expensive,
and we may not be able to do so successfully. In addition, we cannot assure you
that we will be able to protect our new or existing data centers from unexpected
events as we scale our systems. To the extent that we do not address any
capacity constraints effectively, our business, results of operations and
financial condition would be materially and adversely affected. Please see
"Business-- Technology and Data Center Operations" for detailed information on
our system capacity.
WE MUST BE ABLE TO RESPOND TO RAPID TECHNOLOGICAL CHANGE
If we are unable to improve our technology infrastructure to respond to
technological change, changes in customer requirements or preferences, or
emerging new industry standards, our business, results of operations and
financial condition would be materially and adversely affected. The Internet and
the Internet advertising industry are characterized by rapid technological
change, changes in customer requirements and preferences, frequent new service
offerings and the emergence of new industry standards and practices that could
render our technology and systems obsolete. To remain competitive, we must
continue to improve the performance, functionality and features of our
technology infrastructure. We must be able to steadily increase our system
capacity, improve our existing services, and introduce new service offerings
without interrupting or interfering with our 24 hours a day, seven days a week
operation, and we must be able to do so in a timely and cost-effective manner.
We must ensure that our technology infrastructure is flexible enough to
accommodate technology advancements, including our ability to deliver ads to a
customer base that uses multiple browsers and multiple versions of those
browsers. We must also ensure that our technology infrastructure is flexible
enough to accommodate new customer requirements and preferences, such as the
delivery of "rich media" ads. We cannot assure you that we can make any of these
improvements in a timely or cost-effective manner, if at all. For example, in
August 1998, we encountered difficulties transitioning GeoCities from an on-site
ad server to our service, AdForce for Publishers, causing them to revert to
their existing on-site ad server for that month. The difficulties were resolved
and GeoCities resumed using our service in September 1998. Please see
"Business--Technology and Data Center Operations" for detailed information on
our technology infrastructure.
OUR SUCCESS WILL DEPEND ON ADVERTISERS AND AD AGENCIES ACCEPTING OUR SERVICES
We currently have no agreements with individual advertisers, and ad
agencies account for only a small portion of our net revenue. If we fail to
develop advertisers and ad agencies as customers or do so more slowly than we
anticipate, our business, results of operations and financial condition would be
materially and adversely affected. The service and support requirements of
advertisers and ad agencies are significantly different from those of Web sites
and ad rep firms, and advertisers and ad agencies may not accept third-party
Internet ad management and delivery services or may not choose our services over
8
<PAGE>
those offered by others. Moreover, advertisers and ad agencies may find Internet
advertising services to be too complex, ineffective or otherwise unsatisfactory
for managing and delivering their ad campaigns. Please see "Business--Industry
Background" and "--The AdForce Solution" for detailed information on the
challenges and benefits of Internet advertising for advertisers and ad agencies.
THE MARKET FOR INTERNET AD MANAGEMENT AND DELIVERY SERVICES IS EXTREMELY
COMPETITIVE
The market for Internet ad management and delivery services is extremely
competitive, and we expect this competition to increase in the future. We may be
unable to compete successfully, and competitive pressures may materially and
adversely affect our business, results of operations and financial condition.
Our ability to compete successfully in this market depends upon many factors
within and beyond our control, including:
- the performance, reliability, ease of use and price of services that
we or our competitors offer;
- market acceptance of centralized, outsourced ad management and
delivery systems as compared to internally-developed or site-specific
software and hardware solutions;
- our ability, relative to our competitors, to scale our technology
infrastructure as our customer needs grow;
- timeliness and market acceptance of new services and enhancements to
existing services introduced by us or our competitors;
- consolidation among existing customers, potential customers and our
competitors;
- sales and marketing efforts by us or our competitors; and
- customer service and support efforts by us or our competitors.
The market for Internet ad management and delivery services is still
evolving and is subject to intense competition as companies attempt to establish
a market presence. Some of our competitors are seeking to grow their market
presence without regard to profitability, which may result in significant price
reductions and reduced gross margins. This trend may lead us to reduce the
prices for our services in order to compete, which could materially and
adversely affect our net revenue and gross margins.
A small number of Web sites account for a majority of the traffic on the
Internet, and this number is getting smaller, partly as a result of
consolidation. As the number of heavily-trafficked Web sites decreases, the
number of potential customers for our services also decreases, which can lead to
fewer customers for us and our competitors. Increased competition for the
remaining customers may result in price reductions, reduced gross margins and
loss of market share, any of which could materially and adversely affect our
business, results of operations and financial condition.
We currently compete with providers of outsourced ad services, including
DoubleClick and MatchLogic, as well as providers of ad server software and
hardware solutions, such as NetGravity. Many of our current competitors have
substantially greater resources and more developed sales and marketing
strategies than we do. We may be unable to compete effectively against these
competitors now or in the future. In addition, several large Web sites, such as
America Online and Yahoo!, possess proprietary ad serving technologies and could
decide to enter the market for outsourced Internet advertising solutions, or
could reduce our customer base by acquiring existing or potential customers and
shifting those customers to their internal systems. As a result, it is possible
that new competitors may emerge and rapidly acquire significant market share.
Increased competition would likely result in price reductions, reduced gross
margins and loss of market share.
Barriers to entering the Internet advertising market are relatively low.
We may encounter new competitors, such as Microsoft or IBM, that have longer
operating histories, greater name recognition,
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larger customer bases or significantly greater financial, technical and
marketing resources than we do. These qualities may allow them to respond more
quickly than we can to new or emerging technologies and changes in customer
requirements or to devote greater resources than we can to the development,
promotion and sale of products and services. Our current and potential
competitors also may establish cooperative relationships or consolidate among
themselves or with third parties to increase their ability to address the needs
of prospective customers. New competitors may also engage in more extensive
research and development, undertake more far-reaching marketing campaigns, adopt
more aggressive pricing policies and make more attractive offers to existing and
potential employees, strategic partners and customers than we can. If such
companies decided to enter the market, we may be unable to compete effectively
against them. Please see "Business--Competition" for detailed information on
competition.
MANY OF OUR CUSTOMERS HAVE LIMITED OPERATING HISTORIES AND ARE UNPROFITABLE
Many of our leading customers, including GeoCities, 24/7 Media and 2CAN
Media, have limited operating histories and have not achieved profitability. You
should evaluate the ability of these companies to meet their payment obligations
to us in light of the risks, expenses and difficulties encountered by companies
with limited operating histories, particularly in the evolving Internet market.
Some of our customers have failed to pay for our services on a timely basis. If
one or more of our customers is unable to pay for our services, or pays more
slowly than we anticipate, our business, results of operations and financial
condition could be materially and adversely affected. Please see "Business--Key
Customers" for a list of our key customers.
SYSTEM FAILURES OR DELAYS WOULD ADVERSELY AFFECT OUR BUSINESS
Our operations are dependent on our ability to protect our computer
systems against damage from fire, water, power loss, telecommunications
failures, computer viruses, vandalism and other malicious acts, and similar
unexpected adverse events. Interruptions or slowdowns in our services have
resulted from the failure of our telecommunications providers to supply the
necessary data communications capacity in the time frame we require, as well as
from deliberate acts. Despite precautions we have taken, unanticipated problems
affecting our systems could in the future cause temporary interruptions or
delays in the services we provide. Our customers may become dissatisfied by any
system failure or delay that interrupts our ability to provide service to them
or slows our response time. Sustained or repeated system failures or delays
would affect our reputation, which would materially and adversely affect our
business, results of operations and financial condition. Slow response times or
system failures could also result from straining the capacity of our software or
hardware due to an increase in the volume of advertising delivered through our
servers. We do not carry business interruption insurance, and our business,
results of operations and financial condition could be materially and adversely
affected by any serious or prolonged emergency. Please see "Business--Technology
and Data Center Operations" for detailed information on our technology
infrastructure.
WE WILL INCREASINGLY DEPEND ON THE ABILITY TO TARGET ADVERTISEMENTS
New technology allowing Internet advertisers to target their ads to
particular consumers will likely develop at a rapid pace in the near future. If
we are unable to continue to meet the needs of our customers or the marketplace
for more sophisticated advertising solutions, our business, results of
operations and financial condition would be materially and adversely affected.
As more advertisers demand such targeting solutions, we will need to develop
increasingly effective tools and larger databases that can provide greater
demographic precision in ad management and delivery. The development of these
tools and databases is technologically challenging and expensive. We cannot
assure you that we can develop any of these tools or databases in a
cost-effective and timely manner, if at all. In addition, the use of
demographically targeted advertisements may become subject to adverse
governmental regulation or public
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pressure, which could deter some potential customers from using our services.
Please see "Business-- Services" for detailed information on our services and
planned service enhancements.
CONCERNS FOR PRIVACY ON THE INTERNET MAY ADVERSELY AFFECT OUR BUSINESS
Increased regulation of privacy poses a potential risk to our business.
We have invested and continue to invest in technology that could make it easier
to target advertisements to users in specific demographic groups. Advocates of
privacy rights voice concern over the implications of such technology. The
resolution of privacy issues could adversely affect the growth both of the
Internet and of our business. Our business also depends on placing certain
information, often referred to as "cookies," on a user's hard drive without the
user's knowledge or consent. Our technology uses this information to track the
Web interactions of individual users and to limit the frequency with which the
user is shown a particular advertisement. Certain currently available Internet
browser programs allow users to modify their browser settings to disable this
information at any time or to prevent this information from being stored on
their hard drives. In addition, some Internet commentators, privacy advocates
and governmental bodies have suggested limiting or eliminating the use of this
information. The effectiveness of our technology and the success of our business
model would be severely limited by any reduction or limitation in the use of
such user information. Please see "Business--Services" for detailed information
on our services and planned service enhancements, and "--Privacy Policy" for
detailed information on our privacy policy.
OUR SUCCESS WILL DEPEND ON THE SUCCESS AND ACCEPTANCE OF THE INTERNET AS AN
ADVERTISING MEDIUM
The Internet advertising market has only recently begun to develop and
is evolving rapidly. This market may not prove to be viable or, if it becomes
viable, may not continue to grow. Our future growth largely depends on the
continued growth in Internet advertising generally, and on the willingness of
advertisers, ad agencies, Web sites and ad rep firms to outsource their Internet
advertising and direct marketing needs. Our growth also depends on our ability
to market our ad management and delivery services in a cost-effective manner to
a sufficiently large number of customers. If the Internet advertising market
fails to develop or develops more slowly than expected, or if our services do
not achieve market acceptance, our business, results of operations and financial
condition would be materially and adversely affected.
Demand and market acceptance for Internet advertising services are
uncertain. Companies doing business on the Internet, including us, must compete
with traditional media, including television, radio, cable and print, for a
share of advertisers' total advertising budgets. Advertisers may be reluctant to
devote a significant portion of their advertising budgets to Internet
advertising if they perceive the Internet to be a limited or ineffective
advertising medium. Entities that have historically relied upon traditional
media for advertising may be reluctant to adopt new ways of conducting business,
exchanging information and advertising products and services on the Internet.
Substantially all of our revenue is derived from the delivery of banner
advertisements. If advertisers determine that banner ads are ineffective or
unattractive as an advertising medium, we may be unable to make the transition
to any other form of Internet advertising. Also, there are "filter" software
programs that limit or prevent advertising from being delivered to a user's
computer. The commercial viability of Internet advertising, and our business,
results of operations and financial condition, would be materially and adversely
affected by Internet users' widespread adoption of these software programs.
Please see "Business--Industry Background" for detailed information on the
Internet advertising industry.
WE DEPEND ON THE VIABILITY AND CONTINUED GROWTH IN THE INTERNET INFRASTRUCTURE
Our success is largely dependent upon the viability and continued growth
of the Internet infrastructure. We depend on the Internet infrastructure to
provide the performance, capacity and reliability needed to support the growth
of the Internet and Internet advertising. There have recently been
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some highly publicized failures in the Internet network infrastructure, and
there are likely to be more in the future, which may have the effect of
undermining advertisers' confidence in the Internet as a viable commercial
medium. Particularly, if the Internet continues to experience an increase in
users, an increase in frequency of use or an increase in the capacity
requirements of users, we cannot assure you that the Internet infrastructure
will be able to support the demands placed upon it. Any actual or perceived
degradation in the performance of the Internet as a whole could undermine the
benefits of our services. In addition, the Internet could lose its viability as
a commercial medium due to delays in the development or adoption of new
technology required to accommodate increased levels of Internet activity or due
to increased government regulation. Changes in, or insufficient availability of,
telecommunications services to support the Internet could result in slower
response times and could hamper use of the Internet generally. If the Internet
infrastructure fails to support the growth of the Internet for any of these
reasons, our business, results of operations and financial condition would be
adversely affected. Even if the required infrastructure, standards, protocols
and complementary products, services and facilities are developed, we may be
required to spend heavily to adapt our solutions to emerging technologies.
Please see "Business-- Industry Background" for detailed information on the
Internet.
WE DEPEND ON OUR KEY PERSONNEL
Our future success depends to a significant extent on the continued
service of our key technical, sales and senior management personnel and their
ability to execute our growth strategy. Recently, we have experienced
significant changes in our management team. One of our founders and former
President, Chad Steelberg, who originally developed some of our core
technologies, left AdForce in November 1998. In addition, in January 1999, we
hired a new Executive Vice President, Development and Operations, a new Vice
President, Sales and Business Development and a new Vice President, Marketing.
The loss of the services of any of our senior level management, or certain other
key employees, would likely have a material adverse effect on our business,
results of operations and financial condition. Our future performance will
depend, in part, on our ability to integrate our newly hired executive officers
effectively into our management team. We cannot assure you that our executive
officers, who have worked together for only a short time, will be successful in
carrying out their duties or running our company. Any dissent among executive
officers could adversely affect our ability to make strategic decisions quickly
in a rapidly changing market.
Our future success also depends on our ability to attract, retain and
motivate highly skilled employees. Competition for employees in our industry is
intense. We may be unable to retain our key employees or to attract, assimilate
and retain other highly qualified employees in the future. We have from time to
time in the past experienced, and we expect in the future to continue to
experience, difficulty in hiring and retaining highly skilled employees with
appropriate qualifications. Please see "Management" for detailed information on
our key personnel.
OUR INABILITY TO MANAGE OUR GROWTH WOULD ADVERSELY AFFECT OUR BUSINESS
We have grown our workforce substantially, from 52 employees on March
31, 1998 to 97 employees on December 31, 1998, and we plan to continue to expand
our research and development, data center operations, sales, marketing and
customer service organizations. Our growth has placed, and the anticipated
future growth in our operations will continue to place, a significant strain on
our management systems and resources. We expect that we will need to continue to
improve our financial and managerial controls and reporting systems and
procedures, and will need to continue to expand, train and manage our workforce.
If we are not able to manage our internal growth effectively to keep pace with
the expansion of the Internet advertising market or our competitors' growth, our
business, results of operations and financial condition would be materially and
adversely affected. Please see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for detailed information on our
internal growth.
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WE DEPEND ON PROPRIETARY RIGHTS TO DEVELOP AND PROTECT OUR TECHNOLOGY
Our success and ability to compete are substantially dependent on our
internally developed technologies and trademarks, which we protect through a
combination of patent, copyright, trade secret and trademark laws. We have filed
two patent applications in the United States. In addition, we have applied to
register certain trademarks in the United States. We cannot assure you that our
patent applications or trademark registrations will be approved. Even if they
are approved, our patents or trademarks may be successfully challenged by others
or invalidated. If our trademark registrations are not approved because third
parties own such trademarks, our use of these trademarks would be restricted
unless we enter into arrangements with the third-party owners, which may not be
possible on commercially reasonable terms.
Our technology collects and utilizes data derived from user activity on
the Internet. Although we believe that we have the right to use this information
and to compile it in our database, we cannot assure you that any trade secret,
copyright or other protection will be available for such information. We also
cannot assure you that any of our proprietary rights will be viable or of value
in the future since the validity, enforceability and scope of protection of
certain proprietary rights in Internet-related industries are uncertain and
still evolving.
We generally enter into confidentiality or license agreements with our
employees, consultants and corporate partners, and generally control access to
and distribution of our technologies, documentation and other proprietary
information. Despite our efforts to protect our proprietary rights from
unauthorized use or disclosure, parties may attempt to disclose, obtain or use
our solutions or technologies. We cannot assure you that the steps we have taken
will prevent misappropriation of our solutions or technologies, particularly in
foreign countries where laws or law enforcement practices may not protect our
proprietary rights as fully as in the United States.
We have licensed, and we may license in the future, certain proprietary
rights to third parties. In particular, we have licensed our proprietary
software to America Online and Euroserve Media. In addition, prior to our
acquisition of Starpoint, Starpoint licensed its software to GeoCities and two
other parties. While we attempt to ensure that the quality of our brand is
maintained by these business partners, they may take actions that could
materially and adversely affect the value of our proprietary rights or our
reputation. In addition, we cannot assure you that these business partners will
take the same steps we have taken to prevent misappropriation of our solutions
or technologies.
THIRD PARTIES MAY ASSERT INFRINGEMENT CLAIMS AGAINST US OR OUR CUSTOMERS
Third parties may assert infringement claims against us or our
customers. We do not believe that our technological processes infringe upon the
proprietary rights of others, but we cannot assure you that third parties will
not assert claims that we violate their rights. In addition, we believe that we
have the right to use the user data we collect for our database, but we cannot
assure you that third parties will not assert claims that we violate their trade
secrets or copyrights. Although there has not been any claim of this type in the
past, any claims or litigation, should they occur, could subject us to
significant liability for damages or could result in invalidation of our rights.
In addition, even if we prevail, litigation could be time-consuming and
expensive to defend, and could result in diversion of our time and attention,
which could materially and adversely affect our business, results of operations
and financial condition. Any claims or litigation from third parties might also
result in limitations on our ability to use the trademarks and other
intellectual property subject to these claims or litigations unless we enter
into arrangements with the third parties responsible for the claims or
litigation, which might be unavailable on commercially reasonable terms, if at
all.
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OUR CONTRACTUAL RELATIONSHIP WITH AMERICA ONLINE MAY ADVERSELY AFFECT OUR
BUSINESS
We have granted to America Online a royalty-free, perpetual license to
our ad management and delivery technology, including source and object code, and
any improvements to it. Under the terms of this license agreement, America
Online could also require us to customize a version of our technology for the
exclusive use of America Online and its affiliates. We are obliged under the
license agreement to provide these services for an indefinite period of time
with little potential for significant profit, which could significantly strain
our development resources. We have also entered into a demographic data
agreement with America Online. Under the terms of this agreement, America Online
may elect to make demographic information available to us at any time within
three years, triggering substantial payment obligations from us even if we do
not use this information and even if we have contracted to obtain similar
information from an alternative source. If America Online makes the demographic
data available to us and then later limits or denies access to the demographic
information or significantly changes its advertising or privacy policies, our
ability to market our technology and services with enhanced targeting abilities
and to generate additional revenue could be severely limited, which would have a
material and adverse effect on our business, results of operations and financial
condition. Please see "Certain Transactions" for detailed information on our
relationship with America Online.
GOVERNMENT REGULATION OF THE INTERNET MAY ADVERSELY AFFECT OUR BUSINESS
The applicability to the Internet of existing laws governing issues such
as property ownership, libel and personal privacy is uncertain. In addition,
governmental authorities may seek to further regulate the Internet with respect
to issues such as user privacy, pornography, acceptable content, electronic
commerce, taxation, and the pricing, characteristics and quality of products and
services. Finally, the global nature of the Internet could subject us to the
laws of a foreign jurisdictions in an unpredictable manner. Any new legislation
regulating the Internet could inhibit the growth of the Internet and decrease
the acceptance of the Internet as a communications and commercial medium, which
could have a material and adverse effect on our business, results of operations
and financial condition.
The potential imposition of liability upon us for our content or
services could require us to implement measures to reduce our exposure to this
liability, which might require us to expend substantial resources or to
discontinue certain service offerings. While we carry general liability
insurance, this insurance may not be adequate to compensate us in the event we
become liable for our services. Any liability in excess of our insurance could
have a material and adverse effect on our business, results of operations and
financial condition.
In addition, the growing use of the Internet has burdened the existing
telecommunications infrastructure and has caused interruptions in telephone
service. Telephone carriers have petitioned the government to regulate the
Internet and impose usage fees on Internet service providers. Any regulations of
this type could increase the costs of using the Internet and impede its growth,
which could in turn decrease the demand for our services or otherwise have a
material adverse effect on our business, results of operations and financial
condition.
POTENTIAL YEAR 2000 RISKS MAY ADVERSELY AFFECT OUR BUSINESS
Beginning in the year 2000, the date fields coded in certain computer
systems and software products will need to accept four-digit entries in order to
distinguish between 21st century and 20th century dates. There is significant
uncertainty in the software industry regarding the potential effects associated
with Year 2000 compliance issues. To address these concerns, we have reviewed
internally developed software included in our ad management and delivery
systems. Further, we are working with our external suppliers and service
providers with respect to both third-party applications in our ad management and
delivery systems and third-party applications in our information technology
infrastructure
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to ensure that these third-party systems and applications will be able to
interoperate with our hardware and software infrastructure where necessary and
support our needs into the year 2000. Based on these efforts, we believe we have
no significant Year 2000 issues within our systems or services. We have not
engaged in any official process designed to independently verify our Year 2000
readiness or to assess potential costs associated with Year 2000 risks, nor have
we procured any Year 2000 specific insurance or made any contingency plans to
address such risks. Further, we have not deferred any of our ongoing development
efforts to address Year 2000 issues, and do not anticipate any material payments
to vendors to remediate Year 2000 problems. However, there can be no assurance
that unanticipated costs associated with any Year 2000 compliance will not
exceed our present expectations and have a material adverse effect on our
business, financial condition and results of operations.
We depend heavily on the uninterrupted availability of the Internet
infrastructure to conduct our business as a centralized management and delivery
service. We also rely heavily on the continued operations of our customers, in
particular Web sites hosting advertisements, for our revenue. We are thus
heavily dependent upon the success of the Year 2000 compliance efforts of the
many service providers that support the Internet, and the Year 2000 compliance
efforts of our customers. Interruptions in the Internet infrastructure affecting
us or our customers, or the failure of the Year 2000 compliance efforts of one
or more of our customers, could have a material adverse effect on our business,
results of operations and financial condition. Further, the purchasing patterns
of advertisers and ad agencies could be affected by Year 2000 issues as
companies expend significant resources to correct their current systems for the
year 2000. These expenditures may result in reduced funds available for Internet
advertising, which could in turn materially and adversely affect our business,
results of operations and financial condition. Please see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Compliance" for detailed information on our Year 2000 readiness.
OUR FUTURE CAPITAL NEEDS ARE UNCERTAIN
We expect the net proceeds from this offering, our current cash and cash
equivalents and borrowings from lease financings to meet our working capital and
capital expenditure needs for at least the next twelve months. After that, we
may need to raise additional funds, and we cannot be certain that we would be
able to obtain additional financing on favorable terms, if at all. Further, if
we issue equity securities, stockholders may experience additional dilution or
the holders of the new equity securities may have rights, preferences or
privileges senior to those of existing holders of common stock. If we cannot
raise funds, when needed, on acceptable terms, we may not be able to develop or
enhance our services, take advantage of future opportunities or respond to
competitive pressures or unanticipated requirements, which could seriously harm
our business, results of operations and financial condition. Please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" for detailed information on our
anticipated sources and uses of funds.
We are devoting substantial resources to begin operations at our new
facility in Cupertino, California and will need to devote additional substantial
resources as we establish new ad management and delivery centers. Expenses may
include leasing real estate, purchasing equipment and hiring network,
administrative and customer support personnel. Moreover, we expect to make
significant investments in sales and marketing and the development of new
services as part of our business strategy. The failure to generate sufficient
cash flows or to raise sufficient funds to finance this growth could require us
to delay or abandon some or all of our plans or otherwise forego market
opportunities, making it difficult for us to respond to competitive pressures.
Please see "Business--Sales and Marketing" and "--Technology and Data Center
Operations" for detailed information on our expansion plans.
THE PRICE OF OUR COMMON STOCK IS LIKELY TO BE VOLATILE AND SUBJECT TO WIDE
FLUCTUATIONS
The market prices of the securities of Internet-related companies have
been especially volatile and these securities may be overvalued. Thus, the
market price of our common stock is likely to be subject
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to wide fluctuations. If our revenue does not grow or grows more slowly than we
anticipate, or if operating or capital expenditures exceed our expectations or
cannot be adjusted accordingly, or if some other event adversely affects us, the
market price of our common stock could be materially and adversely affected. In
addition, if the market for Internet-related stocks or the stock market in
general experiences a loss in investor confidence or otherwise falls, the market
price of our common stock could be materially and adversely affected for reasons
unrelated to our business, results of operations and financial condition.
Investors may be unable to resell their shares of our common stock at or above
the offering price. In the past, companies that have experienced volatility in
the market price of their stock have been the subject of securities class action
litigation. If we were the subject of securities class action litigation, it
could result in substantial costs and a diversion of management's attention and
resources.
NO PUBLIC MARKET FOR OUR COMMON STOCK CURRENTLY EXISTS
Prior to this offering, you could not buy or sell our common stock on a
public market. An active public market for our common stock may not develop or
be sustained after the offering. Although the assumed initial public offering
price was determined based on a number of factors, the initial public offering
price may significantly vary from the market price after the offering. Please
see "Underwriting" for detailed information on the factors used to determine the
initial public offering price.
CERTAIN PROVISIONS IN OUR CHARTER DOCUMENTS MAY DETER ACQUISITION BIDS FOR
ADFORCE
We have adopted a classified board of directors and our stockholders are
unable to call special meetings of stockholders, to act by written consent, to
remove any director or the entire Board of Directors without cause, or to fill
any vacancy on the Board of Directors. These provisions and other provisions
under Delaware law could make it more difficult for a third party to acquire us,
even if doing so would benefit our stockholders. Please see "Management" and
"Description of Capital Stock" for detailed information on these protective
provisions.
OUR OFFICERS AND DIRECTORS EXERT SUBSTANTIAL INFLUENCE OVER ADFORCE
We anticipate that our executive officers, our directors and entities
affiliated with them will beneficially own, in the aggregate, approximately
% of our outstanding common stock following the completion of this offering.
These stockholders may be able to exercise substantial influence over all
matters requiring approval by our stockholders, including the election of
directors and approval of significant corporate transactions. This concentration
of ownership may also have the effect of delaying or preventing a change in
control of AdForce. Please see "Management" and "Principal Stockholders" for
detailed information on our officers and directors.
WE WILL HAVE BROAD DISCRETION TO USE THE PROCEEDS OF THIS OFFERING
We plan to use the proceeds from this offering for general corporate
purposes. Therefore, we will have broad discretion as to how we spend the
proceeds, which could be in ways with which you and the other stockholders would
not agree. It is also possible that we will invest the proceeds in ways that do
not yield a favorable return. Please see "Use of Proceeds" for detailed
information on our planned use of proceeds.
FUTURE SALES OF SHARES BY EXISTING STOCKHOLDERS COULD AFFECT OUR STOCK PRICE
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could decline. Based on shares outstanding as of December 31, 1998, upon
completion of this offering we will have outstanding shares of common stock
(assuming no exercise of the underwriters' over-allotment option). Of these
shares, will be eligible for sale in the public market. After the lockup
agreements with the underwriters of this offering
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expire 180 days from the date of this prospectus, an additional shares will
be eligible for sale in the public market.
These share numbers exclude 3,217,546 shares subject to outstanding
options and warrants and 702,768 shares reserved for future issuance under our
stock plans as of December 31, 1998. Please see "Management--Employee Benefit
Plans," "Shares Eligible for Future Sale" and "Underwriting" for detailed
information about the ability of our stockholders, option holders and warrant
holders to sell their shares after this offering.
YOU WILL INCUR SUBSTANTIAL DILUTION
The initial public offering price is expected to be substantially higher
than the pro forma net book value per share of the outstanding common stock. As
a result, investors purchasing common stock in this offering will incur
immediate substantial dilution in the amount of $ . In addition, we have
issued options and warrants to acquire common stock at prices significantly
below the initial public offering price. To the extent these outstanding options
and warrants are exercised, there will be further dilution to investors in this
offering. Please see "Dilution" for detailed information on this dilution.
FORWARD-LOOKING STATEMENTS
Certain statements under the captions "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere in this
prospectus are forward-looking statements. These forward-looking statements
include, but are not limited to, statements about our plans, objectives,
expectations and intentions and other statements contained in the prospectus
that are not historical facts. When used in this prospectus, the words
"expects," "anticipates," "intends," "plans," "believes," "seeks" and
"estimates" and similar expressions are generally intended to identify
forward-looking statements. Because these forward-looking statements involve
risks and uncertainties, there are important factors that could cause actual
results to differ materially from those expressed or implied by these
forward-looking statements, including our plans, objectives, expectations and
intentions and other factors discussed under "Risk Factors."
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USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the shares
of common stock will be approximately $ million, at an assumed initial public
offering price of $ per share and after deducting the estimated underwriting
discounts and commissions and offering expenses. If the underwriters'
over-allotment option is exercised in full, we estimate that our net proceeds
will be approximately $ million.
We intend to use the net proceeds from this offering primarily for
general corporate purposes, including working capital. We may also use a portion
of the net proceeds from this offering to acquire or invest in businesses,
technologies or services that are complementary to our business. We have no
present plans or commitments and are not currently engaged in any negotiations
with respect to any transactions. Pending such uses, we intend to invest the net
proceeds from this offering in short-term, interest-bearing, investment-grade
securities. Please see "Risk Factors--Our Future Capital Needs Are Uncertain"
and
"--We Will Have Broad Discretion to Use the Proceeds of this Offering."
DIVIDEND POLICY
We have never declared or paid any cash dividends on shares of our
capital stock. We intend to retain any future earnings to finance future growth
and do not anticipate paying any cash dividends in the foreseeable future.
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CAPITALIZATION
The following table sets forth (1) the actual capitalization of AdForce
as of December 31, 1998, (2) the capitalization as of that date on a pro forma
basis to give effect to the conversion of each outstanding share of preferred
stock into two shares of common stock upon the closing of this offering and (3)
the pro forma capitalization as adjusted to reflect the receipt of the net
proceeds from the sale of the shares of common stock offered by AdForce
at an assumed initial public offering price of $
per share and after deducting the estimated underwriting discounts and
commissions and offering expenses.
The information set forth in the table below is qualified by, and should
be read in conjunction with, the more detailed financial statements of AdForce
and the notes thereto appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term portion of capital lease obligations............ $ 3,089 $ 3,089 $ 3,089
--------- ----------- -----------
Stockholders' equity:
Preferred stock, $0.001 par value; 6,238,163 shares
authorized, 4,733,559 shares issued and outstanding,
actual; 5,000,000 shares authorized, no shares issued
and outstanding, pro forma and pro forma as
adjusted.............................................. 5 -- --
Common stock, $0.001 par value; 40,000,000 shares
authorized, 5,016,603 shares issued and outstanding,
actual; 100,000,000 shares authorized, pro forma and
pro forma as adjusted; 14,483,721 shares issued and
outstanding, pro forma; shares issued and
outstanding, pro forma as adjusted.................... 5 14
Additional paid-in capital.............................. 39,879 39,875
Deferred stock compensation............................. (2,662) (2,662) (2,662)
Note receivable from stockholder........................ (70) (70) (70)
Accumulated deficit..................................... (24,176) (24,176) (24,176)
--------- ----------- -----------
Total stockholders' equity............................ 12,981 12,981
--------- ----------- -----------
Total capitalization................................ $ 16,070 $ 16,070 $
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
The outstanding share information set forth in the table above excludes:
- 1,294,686 shares of common stock issuable upon the exercise of
outstanding warrants, at a weighted average per share exercise price
of $6.19;
- 1,922,860 shares of common stock issuable upon the exercise of
outstanding stock options, at a weighted average per share exercise
price of $0.76;
- 702,768 shares of common stock available for future grant under the
1997 Plan;
- 2,200,000 shares available for future grant under the 1999 Equity
Incentive Plan or the 1999 Directors Stock Option Plan; and
- 300,000 shares initially available for issuance under the 1999
Employee Stock Purchase Plan, which number is subject to automatic
annual increases up to a maximum of 3,000,000 shares over the term of
the Purchase Plan.
19
<PAGE>
DILUTION
The pro forma net tangible book value of AdForce as of December 31, 1998
was $9,379,000, or $0.65 per share of common stock. Pro forma net tangible book
value per share represents the amount of AdForce's total tangible assets less
total liabilities, divided by 14,483,721 shares of common stock outstanding
after giving effect to the conversion of all outstanding shares of preferred
stock into shares of common stock upon completion of this offering. After giving
effect to the receipt of the net proceeds from the sale of the shares of
common stock offered by AdForce (based upon an assumed initial public offering
price of $ per share and after deducting the estimated underwriting discounts
and commissions and offering expenses), the pro forma net tangible book value of
AdForce as of December 31, 1998 would have been approximately $ million, or
$ per share. This represents an immediate increase in pro forma net tangible
book value of $ per share to existing stockholders and an immediate dilution
of $ per share to new investors purchasing shares at the initial public
offering price. The following table illustrates the per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share............................. $
Pro forma net tangible book value per share as of December 31, 1998....... $ 0.65
Increase per share attributable to new investors..........................
---------
Pro forma net tangible book value per share after offering..................
---------
Dilution per share to new investors......................................... $
---------
---------
</TABLE>
The following table summarizes as of December 31, 1998, on the pro forma
basis described above, the number of shares of common stock purchased from
AdForce, the total consideration paid to AdForce and the average price per share
paid by existing stockholders and by investors purchasing shares of common stock
in this offering (before deducting the estimated underwriting discounts and
commissions and offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ 14,483,721 % $31,087,000 % $ 2.15
New investors........................
--------- ----------- ---------- -----------
Total.............................. 100.0% $ 100.0%
--------- ----------- ---------- -----------
--------- ----------- ---------- -----------
</TABLE>
The foregoing discussion and tables assume no exercise of any stock
options or warrants outstanding as of December 31, 1998. As of December 31,
1998, there were options and warrants outstanding to purchase a total of
3,217,546 shares of common stock with a weighted average exercise price of $2.94
per share. To the extent that any of these options or warrants are exercised,
there will be further dilution to new public investors. Please see
"Capitalization," "Management--Employee Benefit Plans" and Note 8 of Notes to
Financial Statements.
20
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction
with, and are qualified by reference to, the financial statements and notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing elsewhere in this prospectus. The statement of
operations data for the period from January 16, 1996 (inception) to December 31,
1996 and the years ended December 31, 1997 and 1998, and the balance sheet data
at December 31, 1996, 1997 and 1998, are derived from our financial statements,
which have been audited by Ernst & Young LLP, independent auditors, and (except
for the balance sheet as of December 31, 1996) are included elsewhere in this
prospectus. Historical results are not necessarily indicative of future results.
We have paid no cash dividends on our common stock.
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 16,
1996 YEAR ENDED DECEMBER
(INCEPTION) TO 31,
DECEMBER 31, --------------------
1996 1997 1998
--------------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue................................................................ $ -- $ 320 $ 4,286
Cost of revenue:
Data center operations................................................... -- 1,508 4,439
Amortization of intangible assets and deferred stock compensation........ -- -- 620
------ --------- ---------
Total cost of revenue.................................................. -- 1,508 5,059
------ --------- ---------
Gross loss................................................................. -- (1,188) (773)
------ --------- ---------
Operating expenses:
Research and development................................................. 1,561 2,236 4,665
Marketing and selling.................................................... 1,485 1,054 4,863
General and administrative............................................... 337 1,118 1,839
Amortization of intangible assets and deferred stock compensation........ -- -- 2,729
------ --------- ---------
Total operating expenses............................................... 3,383 4,408 14,096
------ --------- ---------
Loss from operations....................................................... (3,383) (5,596) (14,869)
Interest expense, net...................................................... (69) (108) (151)
------ --------- ---------
Net loss................................................................... $ (3,452) $ (5,704) $ (15,020)
------ --------- ---------
------ --------- ---------
Basic and diluted net loss per share....................................... $ (1.40) $ (3.48) $ (5.28)
------ --------- ---------
------ --------- ---------
Weighted average shares of common stock outstanding used in computing basic
and diluted net loss per share........................................... 2,465 1,639 2,844
------ --------- ---------
------ --------- ---------
Pro forma basic and diluted net loss per share............................. $ (1.38)
---------
---------
Weighted average shares used in computing pro forma basic and
diluted net loss per share............................................... 10,877
---------
---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................... $ 681 $ 1,680 $ 10,045
Working capital (deficit)........................................................... (22) 1,173 7,975
Total assets........................................................................ 1,855 4,269 19,875
Long-term portion of capital lease obligations...................................... -- 1,744 3,089
Total stockholders' equity.......................................................... 1,078 1,375 12,981
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS, INCLUDING BUT NOT
LIMITED TO STATEMENTS WITH RESPECT TO OUR FUTURE FINANCIAL PERFORMANCE, RESULTS
OF OPERATIONS, PLANS AND OBJECTIVES. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THOSE CURRENTLY ANTICIPATED DEPENDING UPON A VARIETY OF FACTORS, INCLUDING THOSE
DESCRIBED BELOW UNDER THE SUB-HEADING, "FLUCTUATIONS IN RESULTS OF OPERATIONS."
OVERVIEW
AdForce is a leading provider of centralized, outsourced ad management
and delivery services on the Internet. We began operations on January 16, 1996
as Imgis, Inc. and spent the first 15 months of our operations developing
technology that could be used to manage and deliver Internet advertising images
("ads") for advertisers, ad agencies, Web sites and ad rep firms. Initially, we
did not have an internal sales force dedicated to selling our services. To
generate business for AdForce, we relied primarily on the sales forces of ad rep
firms that used our services to manage and deliver ads to the Web site customers
they represented. In December 1997, we began to build a direct sales force to
allow us to penetrate the market for our services more effectively.
We began delivering ads and recognizing revenue during the second
quarter of 1997 and increased our revenue as the ad volumes delivered by our ad
rep firm customers grew. 24/7 Media and its predecessor firms were responsible
for 92% of net revenue in 1997. In November 1997, we also contracted to deliver
ads for Netcom and Fortune City, and began to demonstrate the applicability of
our services to Web sites. In 1998, we continued to add customers with material
amounts of ad volume. 2CAN Media and Netscape began using our services in early
1998, and GeoCities began using our services in the latter half of June 1998.
Though we continue to derive the majority of our net revenue from a limited
number of customers, we broadened our customer base in 1998. In the first
quarter of 1998, 24/7 Media and Netcom accounted for 76% and 14%, respectively,
of our net revenue. By the fourth quarter, our top five customers, 24/7 Media,
GeoCities, Fortune City, 2CAN Media and Netscape, accounted for 27%, 26%, 10%,
6% and 6%, respectively, of our net revenue.
In 1997 and 1998, we earned the vast majority of our revenue by managing
and delivering ads for ad agencies, Web sites and ad rep firms. We expect to
begin marketing our services directly to advertisers during 1999. We also
charged customers for other services, such as developing custom reports,
although revenue to date from these services has not been significant. We plan
to continue to develop and offer new services such as advanced consumer
targeting capabilities and expect that an increasing proportion of our revenue
will be generated by these services.
We charge our customers based on each 1,000 ads delivered. Customers
with higher ad volumes than average generally receive discounts. During 1998,
the monthly volume of ads we delivered increased significantly as Internet
traffic increased and we gained market share. However, the average rate we
charged declined during 1998. We believe that pricing competition and
volume-based discounts were the primary reasons for this decline in average
rates charged. We expect those factors to cause future declines in average rates
charged.
Our centralized ad management system has significant favorable cost
economies when compared to on-site ad delivery alternatives available to
individual Web sites. Our average cost to manage and deliver each ad is
significantly influenced by ad volume moving through our system. As we continue
to aggregate Web sites and their ad volumes on our system, and add additional
advertisers, ad agencies and ad rep firms as customers, we expect the average
cost to deliver each ad to decline. In addition, a portion of our research and
development efforts is devoted to continually improving the performance and
efficiency of our systems. As these efforts are integrated into our system, we
expect fewer resources will be required to deliver the same number of ads and
the average cost to deliver each ad will decline. We believe that these
favorable economies for centralized ad management will increase if greater and
greater
22
<PAGE>
volumes are served by our system. During 1998, the average cost to deliver each
ad declined more significantly than the decrease in the average rate charged,
resulting in improved gross margins.
In the operating areas of research and development, sales and marketing,
and general and administrative costs, the single most significant cost is
personnel, including the related payroll, facilities, and other overhead costs.
Historically, our personnel requirements in these operating areas have increased
at significantly lower rates than revenue.
We have recorded deferred stock compensation expense for options granted
after February 1998. As of December 31, 1998, we had recorded aggregate deferred
stock compensation of $3.7 million; in addition, in January 1999, we recorded
additional deferred stock compensation of $4.7 million. The related stock
compensation expense is amortized over the vesting periods of the stock options.
AdForce recognized a total of $1.0 million in stock compensation expense during
1998. In addition, we recorded stock compensation expense of $1.4 million during
1998 related to the unvested founders' stock that was not repurchased. Since a
certain portion of these charges was related to persons involved in running data
center operations, we allocated that portion to cost of revenue, and thus
reduced our gross margin. The total charges to be recognized in future years
from amortization of deferred stock compensation, including amounts capitalized
in the first quarter of 1999, are anticipated to be approximately $3.9 million,
$2.0 million, $1.0 million and $404,000 for 1999, 2000, 2001 and 2002,
respectively.
In February 1998, AdForce acquired StarPoint Software, Inc., principally
by exchanging AdForce shares for StarPoint shares. We accounted for this
transaction as a purchase with a total purchase price of $2.6 million. The
purchase price was primarily allocated to intangible assets, including purchased
technology that is being amortized over the respective lives of those assets;
and in-process technology of $100,000, which was expensed at the time of the
acquisition. Amortization charges of $849,000 related to this purchase were
recognized during 1998, and further amortization charges of $926,000, $587,000
and $46,000 are expected to be recognized in 1999, 2000 and 2001, respectively.
We incurred net losses of $3.5 million for the period from January 16,
1996 (inception) to December 31, 1996, $5.7 million for the year ended December
31, 1997, and $15.0 million for year ended December 31, 1998. As of December 31,
1998, our accumulated deficit was $24.2 million. We expect to continue to incur
significant operating and capital expenditures and, as a result, we will need to
generate significantly greater revenue than we have generated to date to achieve
and maintain profitability. In addition, our operating costs are relatively
fixed, and cannot be quickly lowered even if we fail to generate significant
revenue. Although we have experienced significant growth in revenue in recent
periods, we expect the growth rate to decline substantially. We expect to
continue to incur net losses on a quarterly and annual basis for the foreseeable
future.
23
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain line items from our unaudited
statements of operations and these line items as a percentage of net revenue for
the periods indicated. Annual statement of operations data may be found above
under "Selected Financial Data." Figures below are rounded to the nearest whole
percentage, and thus line items presenting subtotal and total percentages may
differ, due to rounding, from the sum of the percentages for each line item.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenue..................................... $ 414 $ 784 $ 1,064 $ 2,024
Cost of revenue:
Data center operations........................ 709 1,235 1,044 1,451
Amortization of intangible assets and deferred
stock compensation.......................... 101 165 171 183
----------- ----------- ----------- -----------
Total cost of revenue....................... 810 1,400 1,215 1,634
----------- ----------- ----------- -----------
Gross profit (loss)............................. (396) (616) (151) 390
Operating expenses:
Research and development...................... 818 972 1,241 1,634
Marketing and selling......................... 613 1,221 1,389 1,640
General and administrative.................... 390 453 509 487
Amortization of intangible assets and deferred
stock compensation.......................... 163 571 554 1,441
----------- ----------- ----------- -----------
Total operating expenses.................... 1,984 3,217 3,693 5,202
----------- ----------- ----------- -----------
Loss from operations............................ (2,380) (3,833) (3,844) (4,812)
Interest income (expense), net.................. (103) (77) 37 (8)
----------- ----------- ----------- -----------
Net loss........................................ $ (2,483) $ (3,910) $ (3,807) $ (4,820)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<CAPTION>
AS A PERCENTAGE OF NET REVENUE
--------------------------------------------------
<S> <C> <C> <C> <C>
Net revenue..................................... 100% 100% 100% 100%
Cost of revenue:
Data center operations........................ 171 158 98 72
Amortization of intangible assets and deferred
stock compensation.......................... 24 21 16 9
----------- ----------- ----------- -----------
Total cost of revenue....................... 196 179 114 81
----------- ----------- ----------- -----------
Gross margin.................................... (96) (79) (14) 19
Operating expenses:
Research and development...................... 198 124 117 81
Marketing and selling......................... 148 156 131 81
General and administrative.................... 94 58 48 24
Amortization of intangible assets and deferred
stock compensation.......................... 39 73 52 71
----------- ----------- ----------- -----------
Total operating expenses.................... 479 410 347 257
----------- ----------- ----------- -----------
Loss from operations............................ (575) (489) (361) (238)
Interest income (expense), net................ (25) (10) 3 --
----------- ----------- ----------- -----------
Net loss........................................ (600 )% (499 )% (358 )% (238 )%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
24
<PAGE>
NET REVENUE
We experienced quarterly revenue growth in each quarter of 1998. When
compared to the immediately preceding quarter, quarterly net revenue grew by
97%, 89%, 36% and 90% during the first, second, third and fourth quarters of
1998, respectively. The increases in net revenue for all periods presented were
primarily due to increases in the volumes of ads that we delivered on behalf of
our customers, offset by declines in the average rates charged for delivering
these ads. The ad volume increases resulted from both the addition of new
customers and the growth in ad volumes experienced by many of our existing
customers as the market for Internet advertising increased. The declines in
average rates charged were primarily the result of competitive pricing pressure
and large-contract pricing. In 1998, we added several large customers with
significant ad volumes. We expect the pricing pressure from competitors and
discounts related to large-contract pricing to continue for at least the next
several quarters.
The growth in net revenue between the first and second quarters of 1998
was due primarily to increased ad volumes delivered for 24/7 Media and, to a
lesser extent, to significant ad volume increases from Fortune City and several
new ad agency and Web site customers. The growth in net revenue between the
second and third quarters of 1998 was largely due to the revenue contribution of
GeoCities, which became a customer in late June 1998, and of ad agencies and
other Web sites that became customers during the third quarter. The increase in
net revenue from these customers in the third quarter was partially offset by a
decline in net revenue from 24/7 Media, as it moved a portion of its ad volume
from our systems to its own proprietary server. The revenue growth rate from the
second to the third quarter was significantly less than the revenue growth rate
in previous quarters as we encountered issues in transitioning GeoCities from an
on-site ad server to our service, AdForce for Publishers, causing them to revert
to their existing on-site ad server for the month of August 1998. The issues
were resolved and GeoCities resumed using our centralized service in September
1998, and our quarterly revenue growth rate in the fourth quarter returned to
earlier levels. The growth in net revenue between the third and fourth quarters
of 1998 was due to significantly greater net revenue from GeoCities, from 24/7
Media as it began to move ad volume from its proprietary server back to the
AdForce service, and from Netscape and other customers. Although Netscape became
a customer in the first quarter of 1998, it did not generate significant revenue
for us until the fourth quarter of 1998. We expect that future revenue growth,
if any, will not be as dramatic as in recent periods.
Our net revenue increased from $320,000 in 1997 to $4.3 million in 1998.
We had no revenue in the period from January 16, 1996 (inception) to December
31, 1996 (the "Inception Period"). The annual increases in net revenue were
primarily due to the increased number of ads that we served on behalf of our
customers, offset in part by a decline in the average rates charged for serving
these ads. The increase in ad volume resulted both from the addition of new
customers and from increasing ad volumes for existing and new customers. The
decline in the average rates charged that we obtained for delivering ads
resulted from significant pricing pressure from competitors and volume-based
pricing discounts.
GROSS PROFIT (LOSS)
Gross margin increased sequentially from negative 96% in the first
quarter to negative 79% in the second quarter to negative 14% in the third
quarter and to positive 19% in the fourth quarter of 1998. Although our average
rates charged declined during 1998 as a result of competition and discounts to
customers with large ad volumes, our average cost to manage and deliver ads
declined at a faster pace. Our average cost to manage and deliver each ad is
significantly influenced by ad volume moving through our system. When a larger
number of ads is delivered, the average cost to deliver each ad declines. In
addition, a portion of our research and development efforts is devoted to more
efficient design and deployment of capital assets used in managing and
delivering ads. As this work is integrated into the AdForce system, we expect
fewer resources will be required to deliver the same number of ads and the
average cost to deliver each ad will continue to decline.
25
<PAGE>
Total cost of revenue primarily consists of capital asset costs,
telecommunications costs, facilities costs, and personnel related costs incurred
to operate our data center. It also includes non-cash charges for amortization
of deferred stock compensation to data center personnel who received options
with exercise prices below the fair market value of the underlying shares on the
date of grant, as well as charges for amortization of intangible assets acquired
in the purchase of StarPoint.
Our gross margin was negative 371% in 1997 and negative 18% in 1998. The
improvement in gross margin from 1997 to 1998 was primarily due to increased
revenue and an improved technology infrastructure that allowed us to deploy our
resources to deliver ads more efficiently. These efficiency improvements were
offset in part by declining average rates charged to our customers.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses consist primarily of personnel and
related costs associated with developing technology, primarily software, for use
in providing our services to customers. These expenses increased sequentially
from the first quarter to the fourth quarter of 1998, as personnel were added to
enhance both features and performance of our services. In the fourth quarter of
1998, we also incurred consulting costs in connection with a review of our
technology in order to identify potential ways to enhance future performance and
reliability. Our research and development expenses were $1.6 million in the
Inception Period, $2.2 million in 1997 and $4.7 million in 1998. These expenses
increased primarily as a result of growth in the number of research and
development employees and, to a lesser extent, as a result of increases in
capital assets and facility expenses incurred to develop the software used to
deliver ads. We expect our research and development expenses to increase in
absolute dollars over the next several quarters.
MARKETING AND SELLING EXPENSES
Our marketing and selling expenses during 1998 consisted primarily of
personnel and related costs, as well as costs for promotional activities
associated with raising brand awareness. In 1998, marketing and selling expenses
increased across all quarters presented, reflecting our decision, late in the
fourth quarter of 1997, to establish a direct sales force and to increase brand
awareness through marketing efforts. As a result, we significantly increased the
number of our sales and marketing employees and our promotional events, and
greatly expanded our capital asset base and facilities dedicated to marketing
and selling activities. We incurred no direct selling expenses in the Inception
Period or in 1997, and our marketing expenses in those periods consisted
primarily of personnel and related costs for the indirect marketing of our
services. In 1996, $954,000 of marketing expenses represented payments for key
word rights on certain Web sites under a marketing plan that was abandoned late
in 1996.
Our marketing and selling expenses were $1.5 million in the Inception
Period, $1.1 million in 1997 and $4.9 million in 1998. The decline in marketing
and selling expenses from the Inception Period to 1997 was primarily the result
of the absence in 1997 of expenses related to key word rights that was recorded
in the Inception Period. The increase in marketing and selling expenses from
1997 to 1998 resulted primarily from our decision late in the fourth quarter of
1997 to establish a direct sales force and to increase market awareness through
substantial marketing efforts. We expect our marketing and selling expenses to
increase in absolute dollars over the next several quarters.
GENERAL AND ADMINISTRATIVE EXPENSES
Our general and administrative expenses consist primarily of personnel
and related costs associated with providing executive, financial and legal
support to AdForce, in addition to other costs typically associated with
providing corporate infrastructure. General and administrative expenses
increased in each of the first three quarters of 1998, reflecting increases in
personnel and related costs. In the third quarter of 1998, a $59,000 charge was
made to general and administrative expenses in connection with the settlement of
a claim made by a former officer of AdForce. Since no similar charge occurred in
the fourth
26
<PAGE>
quarter, general and administrative expenses were lower in the fourth quarter of
1998 than in the third quarter of 1998. Our general and administrative expenses
were $337,000 in the Inception Period, $1.1 million in 1997 and $1.8 million in
1998. These increases were primarily the result of increased personnel and
infrastructure to address the requirements of increased business volume. We
expect our general and administrative expenses to increase in absolute dollars
over the next several quarters.
AMORTIZATION OF INTANGIBLE ASSETS AND DEFERRED STOCK COMPENSATION
In each of the four quarters of 1998, we recognized expense for the
amortization of deferred stock compensation to personnel who had been granted
options with an exercise price deemed to be below the fair market value of the
underlying common stock on the date of grant for financial reporting purposes.
In connection with our acquisition of StarPoint in February 1998, intangible
assets are being amortized to operations over the respective lives of those
assets. In addition, approximately $100,000 of the initial consideration was
allocated to the value of purchased in-process technology. This purchased
in-process technology had not achieved technological feasibility at the time of
the acquisition and, therefore, did not qualify for capitalization under
generally accepted accounting principles. Accordingly, the portion of the
purchase price allocated to purchased in-process technology was charged to
operations in the first quarter of 1998.
INTEREST EXPENSE, NET
Interest expense, net was $69,000 in the Inception Period, $108,000 in
1997 and $151,000 in 1998. In each period, interest expense resulted primarily
from interest on bridge financings and capital equipment leases, offset in part
in 1997 and 1998 by interest income earned on cash balances resulting from
equity and capital lease financings.
FLUCTUATIONS IN RESULTS OF OPERATIONS
Our quarterly results of operations have varied in the past, and you
should not rely on quarter-to-quarter comparisons of our results of operations
as an indication of our future performance. It is likely that in future periods
our results of operations will be below the expectations of public market
analysts and investors. In this event, the price of our common stock would
likely decline. Our revenue and results of operations depend on a variety of
factors, many of which are beyond our control. Please see "Risk Factors--Our
Quarterly Operating Results May Fluctuate and Our Future Operating Results are
Uncertain" for a list of such factors.
We anticipate making significant capital expenditures as we increase the
capacity and reliability of our existing technology infrastructure and data
center. We also intend to open additional ad management and delivery centers in
the future. In addition, we intend to increase our sales and marketing
operations and to continue to allocate a large portion of our budget for
research and development. We would likely be unable to adjust spending quickly
enough to offset any unexpected revenue shortfall. If we have a shortfall in
revenue in relation to our expenses, then our business, results of operations
and financial condition would be materially and adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily from sales of
preferred stock and capital lease financings and, to a significantly lesser
extent, net proceeds from the issuance of notes payable and proceeds from sales
of common stock.
Net cash used in operating activities was $2.3 million in the Inception
Period, $5.6 million in 1997 and $9.6 million in 1998. In each period, net cash
used in operating activities resulted primarily from our net loss offset
partially by non-cash charges for depreciation and amortization and, in 1998,
also offset partially by amortization of intangible assets and deferred stock
compensation. Net cash used in investing
27
<PAGE>
activities was $1.4 million in the Inception Period, $163,000 in 1997 and $1.2
million in 1998. In each period, net cash used in investing activities was
primarily the result of capital expenditures for equipment used in operating our
data center from which ads are managed and delivered.
Net cash provided by financing activities was $4.3 million in the
Inception Period, $6.7 million in 1997 and $19.1 million in 1998. In the
Inception Period, net cash provided by financing activities resulted primarily
from net proceeds from the issuance of preferred stock and notes payable. In
1997, net cash provided by financing activities resulted primarily from net
proceeds from the issuance of preferred stock and proceeds from a sale-leaseback
transaction. In 1998, net cash provided by financing activities resulted
primarily from net proceeds from the issuance of preferred stock and notes
payable, offset slightly, by principal payments on capital lease obligations.
At December 31, 1998, our principal sources of liquidity were $10.0
million of cash and cash equivalents and $2.1 million of availability under an
equipment lease line. At that date, we had commitments of $1.1 million for
capital expenditures. These commitments are primarily related to equipping a
second data center and to existing facilities expansion. In February 1999, we
executed a lease line agreement for an additional $4.0 million. We expect
capital expenditures to be at least $9.0 million through the remainder of 1999
and at least $14.0 million in 2000. These expenditures will be primarily for
computer hardware and software, office furniture and equipment, and leasehold
improvements. A significant portion of the equipment may be acquired under
capital leases. At December 31, 1998, we had minimum lease payment obligations,
including interest, of $5.6 million under capital leases and $3.6 million under
operating leases. Please see Note 6 of Notes to Financial Statements. We will
also have to pay America Online quarterly fees totaling at least $10.0 million
for the first three years after they give us access to certain demographic data.
We are uncertain as to when, if ever, such demographic data may be made
available to us.
We believe that our existing cash and cash equivalents, and the net
proceeds from this offering will be sufficient to fund our operating activities,
capital expenditures and other obligations for at least the next 12 months.
However, if thereafter we are not successful in raising capital as required and
on terms acceptable to us, it could have a material adverse effect on our
business, results of operations and financial condition. If additional funds are
raised from the issuance of equity securities, the percentage ownership of our
stockholders would be reduced.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
(the "AICPA") issued SOP No. 98-1, "ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE." SOP No. 98-1 requires entities
to capitalize certain costs related to internal-use software once certain
criteria have been met. We will be required to implement SOP No. 98-1 for the
year ending December 31, 1999. We do not expect that the adoption of SOP No.
98-1 will have a material impact on our financial position or results of
operations.
In April 1998, the AICPA issued SOP No. 98-5, "REPORTING ON THE COSTS OF
START-UP ACTIVITIES." SOP No. 98-5 requires that all start-up costs related to
new operations must be expensed as incurred. In addition, all start-up costs
that were capitalized in the past must be written off when SOP No. 98-5 is
adopted. We will be required to implement SOP No. 98-5 for the year ending
December 31, 1999. Because we have not capitalized any start-up costs to date,
we do not expect that the adoption of SOP No. 98-5 will have a material impact
on our financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES." SFAS No. 133 establishes methods for
derivative financial instruments and hedging activities related to those
instruments, as well as other hedging activities. We will be required to
implement SFAS No. 133 for the year ending December 31, 2000. Because we do not
currently hold any derivative instruments and do
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not engage in hedging activities, we do not expect that the adoption of SFAS No.
133 will have a material impact on our financial position or results of
operations.
YEAR 2000 COMPLIANCE
Many computer systems and software products are coded to accept only two
digit entries in the date code field. These date code fields will need to accept
four-digit entries in order to distinguish between 21(st) century and 20(th)
century dates. As a result, many companies' software and computer systems may
need to be upgraded or replaced in order to comply with these Year 2000
requirements.
In the ordinary course of our business, we have evaluated the internally
developed software included in our ad management and delivery system, and
believe that this software is generally Year 2000 compliant, meaning that the
use or occurrence of dates on or after January 1, 2000 will not materially
affect the performance of this software or the ability of this software to
correctly create, store, process and output data involving dates. However, this
year we intend to implement internal Year 2000 testing procedures for our
software, and we may learn that certain of our software does not contain all of
the necessary software routines and codes necessary for the accurate
calculation, display, storage and manipulation of data involving dates. In
certain cases, we have warranted to customers that Year 2000 compliance issues
will not adversely affect the performance of our ad management and ad delivery
services. If our customers experience Year 2000 problems with our services, they
could assert claims against us for damages. Our standard service agreements
provide warranties of performance in accordance with our specifications, and we
may need to incur costs to address Year 2000 problems that our customers
encounter through the use of our services. To date we have not received any Year
2000 related claims regarding our services.
We are also working with our external suppliers and service providers
with respect to both third-party applications in our ad management and delivery
system and third-party applications in our information technology infrastructure
to ensure that these third-party systems and applications will be able to
interoperate with our hardware and software infrastructure where necessary and
support our needs into the year 2000. Where possible, we have sought assurances
from our suppliers that we believe are critical to our business that their
products are Year 2000 compliant. While we have received assurances as to the
Year 2000 compliance of some of these third-party products, we generally do not
have any contractual rights with these providers if their software or hardware
fails to function due to Year 2000 issues. If these failures do occur, we may
incur unexpected expenses to remedy any problems, including purchasing
replacement hardware and software.
Though we will continue these efforts, we do not believe we have
significant Year 2000 issues within our systems or services. Because we believe
we are Year 2000 compliant, we have not engaged any third parties to
independently verify our Year 2000 readiness, nor have we assessed potential
costs associated with Year 2000 risks, procured any Year 2000 specific insurance
coverages or made any contingency plans to address such risks. Further, we have
not deferred any of our ongoing development efforts to address Year 2000 issues.
However, there can be no assurance that unanticipated costs associated with any
Year 2000 compliance will not exceed our present expectations and have a
material adverse effect on our business, results of operations and financial
condition.
We depend on the uninterrupted availability of the Internet
infrastructure to conduct our business as a centralized ad delivery and
management service. We also rely on the continued operations of our customers,
in particular Web sites hosting advertisements, for our revenue. We are heavily
dependent upon the success of Year 2000 compliance efforts of the many service
providers that support the Internet, and the Year 2000 compliance efforts of our
customers. Interruptions in the Internet infrastructure affecting us or our
customers, or failure of the Year 2000 compliance efforts of one or more of our
customers, could have a material adverse effect on our business, results of
operations and financial condition. The purchasing patterns of advertisers and
agencies could be affected by Year 2000 issues as companies expend significant
resources to correct their current systems for the year 2000; these expenditures
may result in reduced funds available for Internet advertising, which could in
turn materially and adversely affect our business. Please see "Risk Factors--
Potential Year 2000 Risks May Adversely Affect Our Business."
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BUSINESS
THE FOLLOWING BUSINESS SECTION CONTAINS FORWARD-LOOKING STATEMENTS
RELATING TO FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF ADFORCE, WHICH
INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS.
OVERVIEW
AdForce is a leading provider of centralized, outsourced ad management
and delivery services on the Internet. Our highly reliable, scalable technology
infrastructure and data center currently deliver up to 160 million ads per day.
Our services, AdForce for Advertisers and AdForce for Publishers, offer
sophisticated campaign design, inventory management, targeting, ad delivery,
tracking, measuring and reporting capabilities. Our services and technology
infrastructure leverage the advantages of Internet advertising and direct
marketing and allow our customers to:
- Reach large or targeted audiences across multiple Web sites on our
common platform;
- Maximize return on advertising investments for advertisers and ad
agencies;
- Maximize the value of page view inventories for Web sites and ad rep
firms;
- Monitor and measure the effectiveness of ad campaigns in near real
time;
- Modify ad campaigns based on near real-time campaign performance data;
- Aggregate large numbers of sites into a single network and segment the
network into groups of special interest content such as "sports" or
"finance;" and
- Take advantage of direct marketing opportunities using sophisticated
targeting technologies supported by our large and growing database of
user information.
By outsourcing the technically complex and operationally demanding ad
management and delivery functions to AdForce, our customers can utilize our high
performance systems, technology and personnel while focusing on their own core
competencies.
During 1998, we delivered 13.6 billion ads with increasing quarterly ad
volumes of 0.9 billion, 1.6 billion, 3.2 billion and 7.9 billion. Our net
revenue increased sequentially from $414,000 in the first quarter of 1998 to
$2.0 million in the fourth quarter of 1998. Through relationships with key
customers, including GeoCities, Netscape, 24/7 Media, 2CAN Media and
ModemMedia.PoppeTyson, we have achieved a broad reach over the Internet.
According to Media Metrix, an Internet research firm, in December 1998 AdForce
served ads to approximately 58% of U.S. Internet users.
INDUSTRY BACKGROUND
THE EMERGENCE OF THE INTERNET AS AN ADVERTISING MEDIUM
The Internet has emerged as an important mass medium for advertising and
direct marketing, communication and electronic commerce. International Data
Corporation ("IDC"), a firm specializing in online research and analysis,
estimates that Internet users numbered approximately 100 million in 1998 and
will grow to more than 320 million in 2002. The rapid expansion of the Internet
has led to significant growth in electronic commerce. IDC estimates that
purchases of goods and services over the Internet will increase from $32 billion
in 1998 to $426 billion in 2002. The growth of the Internet generally and of
electronic commerce in particular has spurred traditional businesses to devote
larger portions of their marketing budgets to Internet advertising, and has
prompted Internet and electronic commerce companies to increase their spending
on Internet advertising. The Direct Marketing Association ("DMA") estimates that
advertisers and direct marketers spent approximately $284 billion in 1998 on all
forms of media in the United States, up from $264 billion in 1997. Growth in
Internet advertising and direct marketing during this period, though
significantly smaller in absolute dollars, outpaced the growth of traditional
advertising
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and direct marketing. Jupiter Communications, another online research firm,
estimates that spending on Internet advertising will grow from $1.9 billion in
1998 to $7.7 billion in 2002, while the DMA estimates that spending on Internet
direct marketing will grow from an estimated $603 million in 1998 to an
estimated $5.3 billion in 2003.
ADVANTAGES OF INTERNET ADVERTISING AND DIRECT MARKETING
The Internet offers significant advantages over traditional media as a
medium for advertising and direct marketing. We believe that the advantages
described below will lead advertisers to continue to increase spending on
Internet advertising and direct marketing.
ABILITY TO REACH LARGE OR TARGETED AUDIENCES. As a global medium with
no geographic boundaries, the Internet enables advertisers to reach local,
national and international audiences. The Internet also affords advertisers the
opportunity to target ads to specific geographic regions, to specific interest
groups by targeting multiple Web sites with a particular "content," and to
consumers with specific demographic profiles.
INTERACTIVITY. Unlike the broadcast model of traditional media, the
Internet is a truly interactive mass medium. Advertisers receive immediate
feedback on the effectiveness of their ad campaigns and can actually close sales
online. Advertisers can control the number of times a user sees an ad, rotate
ads in sequence for that user and build highly accurate user profiles through
transaction information, registration procedures and anonymous matching
techniques.
ABILITY TO TRACK, MONITOR AND MEASURE ADVERTISING EFFECTIVENESS. The
Internet allows advertisers to track, monitor and measure the effectiveness of
their ad campaigns, and provides the flexibility to control those campaigns
dynamically in near real time. Advertisers can measure the number of times users
view a particular ad, how often users respond or "click through" to that ad and
ultimately make a purchase or other transaction, and certain other
characteristics of the user. Based on this data, advertisers can modify ad
messages and placement quickly and efficiently to maximize ad campaign
effectiveness, resulting in higher response rates. For this reason, Internet
advertising provides advertisers the potential to achieve higher returns on
their investments than currently achievable through traditional media.
GREATER FLEXIBILITY AND REDUCED COSTS. In contrast to traditional media
advertising, Internet advertising and direct marketing typically involve shorter
lead times on scheduling, faster placement and less time-consuming, less
expensive production of the ads so that Internet advertisers can
cost-effectively launch ad campaigns on short notice in response to specific
needs or events. In addition, once an ad campaign is launched, advertisers can
easily and inexpensively change its content, scope and frequency of delivery in
response to feedback in order to ensure that an effective message is delivered
to consumers.
CHALLENGES OF MANAGING AND DELIVERING EFFECTIVE INTERNET ADVERTISING
The dynamic nature and rapid growth of the Internet are steadily
increasing the challenges and infrastructure requirements of delivering
effective advertising.
DISAGGREGATED NATURE OF THE INTERNET. The large number of Web sites and
the dispersed nature of the Internet audience make it difficult for advertisers
and ad agencies to identify and target specific customer segments with specific
ad campaigns. Advertisers and ad agencies often need to book ad campaigns across
hundreds of sites to obtain the necessary reach, number of desired ad
impressions and target audience. This complex and labor-intensive process
includes identifying sites with specific characteristics, understanding their
technical capabilities and contractual terms, identifying their available
inventory of desired page views, preparing their Web pages to accept the proper
ads, reserving and delivering ads and tracking results. In addition, Web sites
operating an ad server independently from a network of other Web sites typically
find that they do not generate enough data from their own users to build an
effective database of Web users and their response patterns that would enable
sophisticated ad targeting.
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COMPLEX, RAPIDLY CHANGING TECHNOLOGY. Delivering and tracking hundreds
of ad campaigns, with response times measured in milliseconds, to millions of
Internet users who click through to thousands of Web sites requires complex
networking, computing, applications and database technologies. In addition, as
browser vendors upgrade their software, advertisers pursue richer forms of
Internet advertising incorporating sound, motion and other advanced features. As
other interdependent technologies evolve, a delivery system must be updated
continually to accommodate the rapid pace of technological change. Advertisers,
ad agencies, Web sites and ad rep firms typically do not have the requisite
technological capabilities.
SIGNIFICANT OPERATING COSTS AND REQUIREMENTS. Developing, building,
operating and maintaining an ad management and delivery system is costly and
time-consuming. It requires one or more large and complex data centers with
multiple, complex network connections and back-up capabilities. Further, to
maintain reliable performance 24 hours a day, seven days a week, these systems
must be maintained around the clock by highly specialized operations personnel.
For most advertisers, ad agencies, Web sites and ad rep firms, these operating
burdens can create a substantial diversion of investment from their core
competencies.
RAPID GROWTH OF WEB SITES. Successful Web sites are experiencing rapid
growth in the number of pages and ads they deliver per day, with larger portal
sites delivering hundreds of millions of ads per day. Scaling ad management and
delivery capabilities at these sites requires significant investment in
technology operations infrastructure. The failure to develop a scalable solution
can materially and adversely impact revenue growth for these sites.
TRUSTED REPORTING AND RESULTS. Unlike traditional broadcast media,
Internet ads are delivered to individuals one ad at a time. For this reason,
Internet advertising campaigns are typically measured and billed by the exact
number of ad impressions delivered and, in many cases, the exact number of
click-throughs and transactions. Advertisers, ad agencies and other parties
prefer third-party verification of ad delivery results to use as a basis of
determining campaign costs and effectiveness.
PRIVACY. The use of more precise targeting capabilities by Internet
advertisers will increase the challenges of preserving user privacy. Technology
advancements, strategic partnerships and evolving business practices will be
required to balance privacy concerns with the demand for more precise targeting
capabilities.
NEED FOR A CENTRALIZED, OUTSOURCED INTERNET ADVERTISING AND DIRECT MARKETING
SOLUTION
The rapid growth of the Internet as an advertising medium has made the
management and delivery of effective advertising and direct marketing mission
critical for advertisers, ad agencies, Web sites and ad rep firms. Because of
the significant technical, operational and resource challenges of ad management
and delivery, and the need to aggregate both users and data, we believe there is
a need for an outsourced, centralized Internet advertising and direct marketing
technology infrastructure provider that delivers the unique advantages of
Internet advertising while allowing advertisers, ad agencies, Web sites and ad
firms to focus on their core competencies. This infrastructure must provide high
performance and advanced functionality and be highly reliable and readily
scalable.
THE ADFORCE SOLUTION
AdForce provides the technology and infrastructure that advertisers, ad
agencies, Web sites and ad rep firms need to exploit the unique potential of
Internet advertising and direct marketing. Our turnkey solutions for
advertisers, ad agencies, Web sites and ad rep firms offer sophisticated ad
delivery, inventory management, targeting, tracking, measuring and reporting
capabilities built on our technology platform. Our outsourced services and
infrastructure allow our customers to focus on their core competencies, while
leveraging our systems for quick time-to-market, low entry and maintenance
costs, reliability and scalability. During 1998, we delivered 13.6 billion ads
with increasing quarterly volumes of 0.9 billion, 1.6 billion, 3.2 billion and
7.9 billion. To date, we have increased our 30-day ad impression rate to well
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over 4 billion, with per day volumes of up to 160 million. Our key Web site
customers include GeoCities and Netscape; our key ad rep customers include 24/7
Media and 2CAN Media; and our key ad agency customers include
ModemMedia.PoppeTyson and USWeb. According to Media Metrix, an Internet research
firm, in December 1998 AdForce served ads to approximately 58% of U.S. Internet
users.
BENEFITS FOR ADVERTISERS AND AD AGENCIES
- AdForce for Advertisers enables advertisers and ad agencies to
schedule, target, manage and deliver ad campaigns efficiently across
the entire Internet. Advertisers and ad agencies are able to track and
monitor ad campaign results using our data reporting and analysis
capabilities. Our measuring of ads delivered, which result in
advertising billings, are audited by a third party to ensure that
advertisers and agencies can have confidence in our results.
- The intuitive client interface of AdForce for Advertisers, which is
installed on our customers' personal computers and permits
communications with our systems over the Internet, aids advertisers
and ad agencies in the media planning process. Through this interface,
advertisers and ad agencies can build a schedule for their campaigns
by checking and reserving Web site inventories, and then specifying
the content, targeting criteria, type of media and the dates, times
and frequency that their ads should appear. Through this interface,
advertisers and ad agencies can also monitor ongoing campaigns, and
adjust priorities or change ads to maximize the value of each ad
delivered.
- We store detailed information regarding every ad delivery in a manner
that allows broad and flexible reporting. In addition to
click-throughs, we track the activity of prospects who act on an ad,
either through making a purchase or through completing a survey or
registration form. This information enables advertisers to track and
measure the effectiveness of a campaign and maximize its value. We
offer numerous reports covering various facets of an ad campaign with
the ability to consolidate data across multiple Web sites.
- Our services enable advertisers and ad agencies to utilize our large
and growing database to target ad campaigns using a wide variety of
criteria, thereby increasing the value of their ad dollars. In
addition, our strategic relationship with Experian will permit
targeting through the use of detailed consumer demographic data. We
believe our targeting capabilities allow advertisers and agencies to
deliver ads that are less repetitious, more relevant and more likely
to match a particular user's interests. These capabilities allow ad
agencies to differentiate themselves from their competitors, provide
additional value-added services to their clients and create additional
revenue opportunities.
- By relying on our outsourced solution and our technology
infrastructure, advertisers and ad agencies can focus on their core
competencies such as media planning, contract creation and direct
marketing.
BENEFITS TO WEB SITES AND AD REP FIRMS
- AdForce for Publishers provides the infrastructure that Web sites need
to maximize sales of advertising space, increase the value of their
page views, and differentiate themselves from their competition.
AdForce for Publishers also allows entities that operate multiple Web
sites and ad rep firms to aggregate multiple sites and pages within
sites into a single network. The network can then be subdivided based
on content to create special interest groups such as "sports" or
"finance" to maximize the value of a Web site's inventory.
- Our outsourced solution provides Web sites and ad rep firms the
advanced technology required for the complex processes of managing and
delivering Internet advertising. In addition, our outsourced solution
allows Web sites and ad rep firms to avoid the significant hardware,
software and personnel costs associated with site-specific software
services and to benefit from the scalability of our technology
infrastructure.
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- Our Inventory Management System provides detailed reporting on current
and estimated future ad inventory. The system ensures that ad
campaigns are delivered evenly, smoothing the potential effects of
unexpected traffic increases. In addition, the system monitors each
active ad campaign, adjusting for differences in Web site traffic, to
ensure that ads are delivered as scheduled to achieve maximum yield
from a Web site's ad inventory. Because we enable Web sites and ad rep
firms to track, monitor and measure ad inventory consistently, our
customers can sell more premium ad space.
- Our advanced targeting and reporting capabilities enable Web sites and
ad rep firms to maximize their advertising revenues by delivering to
their advertisers more valuable ad impressions that are more likely to
result in a click-through or other action.
- AdForce for Publishers allows ad rep firms to aggregate a number of
Web sites in order to measure and manage available inventory. In
addition, our services allow ad rep firms to schedule multiple
campaigns across multiple sites as simply as scheduling a single site.
STRATEGY
AdForce's objective is to be the primary technology and service
infrastructure for advertising and direct marketing on the Internet. Our
strategy to achieve our objective consists of the following key elements:
ENHANCE AND EXPAND OUR CORE TECHNOLOGY. Our technology infrastructure
has enabled us to become a leading provider of centralized, outsourced
advertising and direct marketing services on the Internet. The ability of our
technology and infrastructure to scale as Internet advertising has grown has
been a competitive advantage. In addition, by steadily increasing our ad volumes
in 1998, we have been able to reduce the cost of ad management and delivery. We
intend to continue to invest heavily in research and development activities to
enhance the performance and functionality of our core technology. In addition,
we intend to continue to invest in enhancing the reliability, scalability,
performance and cost efficiency of our data center infrastructure. We plan to
open an additional data center in the second quarter of 1999 that will
significantly increase our ad delivery capacity. The AdForce core technology has
been designed to facilitate developing new features and functionality. During
1999, we also plan to continue to develop new services and capabilities for our
customers.
LEVERAGE AND EXPAND CUSTOMER BASE. We seek to maintain, develop and
enhance existing and new revenue streams from our current customer base of ad
agencies, Web sites and ad rep firms, as well as from new customers. Our current
customer base, including GeoCities, Netscape, 24/7 Media and 2CAN Media,
substantially increased their Internet traffic during 1998, and we plan to
increase our revenue from these customers to the extent their Web traffic
continues to grow by continuing to provide them high value ad management and
delivery services. In addition to our recurring ad management and delivery
services, we anticipate developing additional sources of revenue by offering
advanced reporting, targeting and data analysis and by delivering ads in rich
media formats such as audio, video and animation. We intend to attract and
retain new customers by promoting the AdForce brand as the leading provider of
outsourced advertising and direct marketing services on the Internet, increasing
our sales and marketing activities and developing new services and leading
technologies. To facilitate this, we intend to continue promoting our solutions
through online and offline advertising, an extensive public relations campaign,
strategic alliances and other promotional activities. As our network of
customers grows, we believe that our position as a primary provider of
technology infrastructure for ad management and delivery will be reinforced.
MAINTAIN NEUTRALITY. Our customers rely on us to provide accurate,
unbiased services and information. In order to fill this role as a trusted
intermediary, we believe it is essential that we not compete with our customers
and avoid any media bias. We provide the technology infrastructure to maximize
the ad sales of Web sites and ad rep firms. For this reason, we have avoided
selling advertising and putting ourselves in competition with our customers. In
addition, we provide the tools and
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infrastructure advertisers use to efficiently schedule and effectively deliver
complex campaigns on the Internet and to learn more about their prospects and
customers. We also avoid media buying or campaign or creative development that
would place us in competition with our existing and potential customers.
Instead, we are committed to continuing to develop the AdForce brand to be
synonymous with reliability, technical competence, comprehensiveness and
neutrality.
LEVERAGE DATABASE MARKETING CAPABILITIES. Our proprietary technology
infrastructure, substantial ad impression volumes and customer relationships
allow us to aggregate significant data regarding specific prospect and customer
behavior. This data is critical to developing a targetable database of user
profiles for advertisers. We intend to use this data to provide additional
database marketing services to our customers so that advertisers are able to
reach targeted audiences more effectively and Web sites are able to provide a
more valuable inventory. Leveraging our strategic relationship with Experian, we
intend to provide advanced targeting and database marketing services to our
customers based on demographic and lifestyle profiles. This demographic
targeting will allow advertisers and direct marketers to engage in relationship
marketing by permitting them to identify their audiences very specifically. In
order to maintain a clear focus on user privacy, we have developed AdSecure, a
product that substitutes an encrypted code for all personally identifiable
information.
TARGET ADDITIONAL ADVERTISING MEDIA. As other forms of media (E.G.,
interactive television and addressable cable boxes) converge with the Internet,
we may be able to leverage our extensive knowledge and leading technology in
interactive advertising solutions to penetrate these media. In addition, we
believe much of our industry expertise and developed technology may be
transferable to more traditional advertising media, such as newspaper,
television, radio and cable, that may benefit from centralized, outsourced ad
management solutions.
SERVICES
We provide centralized, outsourced ad management and delivery services
that address the requirements of buyers and sellers of Internet advertising and
direct marketing. The buyers, primarily advertisers and ad agencies, are served
by AdForce for Advertisers. The sellers, primarily Web sites and ad rep firms,
are served by AdForce for Publishers. We provide the following functions for our
customers:
[INSERT FLOW DIAGRAM HERE]
[icon] MEDIA PLANNING. Reflecting the media planner's workflow,
AdForce for Advertisers organizes the steps in planning and
executing Internet advertising. Media planners can utilize
in-house databases or commercial third-party research to
select sites and build a media plan.
[icon] CAMPAIGN SCHEDULING. Advertisers, ad agencies, Web sites and
ad rep firms can use a Java client application to create and
schedule ad campaigns over the Internet. An ad campaign wizard
guides users as they build a campaign, allowing them to
specify the schedule, content units, frequency and targeting
criteria, and then submit the ad for delivery. AdForce for
Advertisers organizes campaigns to reflect the typical
workflow of an ad agency and transmits traffic instructions to
many Web sites. AdForce for Publishers allows Web sites and ad
rep firms to view and manage all of the campaigns running
throughout their Web sites.
[icon] INVENTORY MANAGEMENT. AdForce for Publishers' automated
Inventory Management System ("IMS") gives Web sites and ad rep
firms detailed information about current and future inventory,
allowing them to sell available media space more precisely.
When an ad campaign is booked, IMS uses historical data to
forecast available inventory for specified targets throughout
the schedule and establishes the delivery frequency for each
group of ads. Automatically checking each ad campaign in
progress, IMS regularly adjusts for variations in site traffic
and updates available
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inventory while factoring in other ad campaigns. IMS ensures
that all ad campaigns are delivered on schedule, so Web sites
get maximum value for their inventory.
[icon] TARGETING. Serving ads from a central data center, we can
employ more comprehensive targeting databases than local ad
servers, offering more targeting options and far greater
targeting accuracy. Our customers can target campaigns using a
range of criteria, including domain/SIC code, content area,
keyword, geography, schedule and site-provided data. Our
advanced targeting capabilities enable Web sites to deliver
high value ad impressions for advertisers, reaching the people
who are most likely to respond to the ad. Web site visitors
are shown ads that are more relevant, less repetitious and
more likely to match their interests.
[icon] AD DELIVERY. Our ad delivery system delivers ads quickly,
consistently, on schedule and on target. Because we provide
the technology infrastructure, our customers have no hardware,
software, networks or backup systems to purchase or maintain.
Our scalable architecture handles millions of decisions per
second in order to serve targeted ads in near real time. We
have begun to deliver a variety of rich media formats, such as
audio, video and animation, to create a more compelling user
experience. Our infrastructure offers our customers built-in
redundancy, the security of operating 24 hours a day, 7 days a
week, and capacity to handle both traffic growth and
fluctuations.
[icon] TRANSACTIONS. Our transactions feature records user activity
in addition to click-throughs for such actions as requesting
information, registering for a service or purchasing a
product. The resulting data are made available through reports
that help Web sites demonstrate the effectiveness of campaigns
on their Web site and record their share of transactions
generated by traffic on their Web site. The resulting data
also help advertisers and ad agencies interpret results and
manage the effectiveness of their campaigns.
[icon] REPORTING. We use detailed information accumulated from every
ad delivered and consolidated across multiple Web sites to
provide our customers with dozens of accurate, timely reports.
We ensure that ad impressions are counted accurately, whether
they are delivered from our data center, the user's browser
cache or a proxy server. Our reporting features provide Web
sites and advertisers with reports containing information they
need in HTML or Microsoft Excel format. Advertisers and ad
agencies can optimize ad campaigns for best results, and media
planners can adjust priorities, targeting criteria and ad
rotation, or swap in new ads, to maximize the value of
campaigns in progress.
[icon] AUDITING AND ACCOUNTING. We provide audited statements that
detail the number of ads delivered, click-throughs and
transactions for auditing and accounting purposes. ABC
Interactive, a leading Internet auditing service, provides a
monthly audit of ads delivered and click-throughs that enables
us to provide a statement to each customer, ensuring greater
accuracy and saving the customer time. Our reports help
automate and streamline billing operations by reducing the
need for manual data processing. All information required to
generate invoices is available in a readily usable format,
exportable to Microsoft Excel and accounting software using a
simple data transfer.
[icon] ANALYSIS. Advertisers, ad agencies, Web sites and ad rep firms
can use the information stored in our data center to conduct
post-campaign analysis of results, explore trends and examine
"what-if" scenarios. By integrating user profile information
such as Voyager Profiles from Millward Brown Interactive, a
leading market research firm, we allow advertisers and ad
agencies to characterize users who viewed and responded to
their campaigns and to improve future media plans and their
return on advertising
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spending. Web sites and ad rep firms can conduct analyses that
help them to increase their revenues from their Web traffic.
PLANNED SERVICE ENHANCEMENTS
ADFORCE TRACKING. We intend to continue to enhance user tracking
capabilities. While maintaining the anonymity and privacy of users, advertisers
will be able to track and record user activity related to ad campaigns to
compare customer acquisition costs using different ads on different sites and to
track information such as the value and frequency of purchases.
DEMOGRAPHIC TARGETING. We have been developing demographic targeting
capabilities and expect to make these capabilities available to advertisers, ad
agencies, Web sites and ad rep firms. Our targeting services will build upon our
strategic relationship with Experian and will serve dynamically targeted ads to
users based on their demographic and lifestyle profiles. User demographics will
be identified by linking user "cookies" to known demographic information with
the user's permission. As part of our demographic targeting strategy, we have
developed a technology called AdSecure that maintains user privacy by
substituting all personally identifiable information with an encrypted ID
allowing us to anonymously match an Internet user to existing direct market
demographic data. Demographic targeting will increase the value of Internet
marketing and allow marketers to reach their desired prospects more readily,
generating increased revenue for publishers and for us.
BANNER CO-OP SERVICE. Small Web sites and individual home page
publishers often trade ad impressions on their pages in return for promotional
advertising on other sites within an ad network or across the Internet. Home
page publishers typically have fewer of their ads served on the network than the
number of ads they serve on their home page, allowing the network owner to sell
the remaining inventory to earn revenue. We are developing a banner co-op
service that will enable ad networks and larger sites to provide home page
publishers the ability to serve banner ads on their home page in exchange for
advertising space in the network or larger site. The banner co-op will leverage
our existing technology and infrastructure to provide a system capable of
handling over a million individual home page publishers and their ad campaigns.
TECHNOLOGY AND DATA CENTER OPERATIONS
Our ad management and ad delivery infrastructure employs advanced
technology and a robust data center to deliver ads 24 hours a day, 7 days a
week, for leading ad agencies, Web sites and ad rep firms.
THE ADFORCE AD MANAGEMENT AND DELIVERY SYSTEM
Our proprietary ad management and delivery system is divided into five
subsystems: Ad Management, Campaign Deployment, Ad Delivery, Data Analysis and
Reporting. In building these subsystems, we have developed a significant amount
of proprietary software while also leveraging industry-standard hardware and
software and leading third-party technology wherever possible.
AD MANAGEMENT SUBSYSTEM. Our Ad Management Subsystem consists of our
client application software (the "Client"), our Inventory Management System
("IMS") and an Administrative Database. The Client is loaded onto the customer's
personal computer and is used to communicate with our system over the Internet
to design, input, change and monitor ad campaigns and to request and receive
reports. Customers also use the Client to validate their desired ad campaigns
against our IMS system, a software engine that uses proprietary algorithms to
forecast available ad inventory on a given Web site or in an AdForce-supported
network, and to create daily campaign schedules. Customer instructions delivered
via the Client are then recorded in our Administrative Database for deployment
by the Campaign Deployment Subsystem.
CAMPAIGN DEPLOYMENT SUBSYSTEM. Our Campaign Deployment Subsystem
consists of a set of processes to transmit campaign schedules and ads from the
Administrative Database to the Targeting
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Database in the Ad Delivery Subsystem. These processes are run nightly and
periodically during each day to update schedule information and place new
campaigns into production. Because we are able to run this process many times
each day, customers can insert new campaigns and change existing campaigns
within an hour of notifying them.
AD DELIVERY SUBSYSTEM. The Ad Delivery Subsystem consists of Ad
Delivery servers, Ad Selector servers and the Targeting Database. The Ad
Delivery servers handle ad requests coming in from the Internet, log those
requests into the Data Analysis Subsystem for reporting purposes, and ask the Ad
Selector servers which ad should be served to the requesting user. The Ad
Selector servers choose the ads to be delivered to the particular user using a
patent-pending object-framework technology and by accessing information in the
Targeting Database. The Ad Selector servers provide that information to the Ad
Delivery servers, and the right ad is then served to the user.
DATA ANALYSIS SUBSYSTEM. The Data Analysis Subsystem consists of
database and other applications for processing and storing transaction data
logged from the Ad Delivery servers. This information is then used by the
Reporting Subsystem and by IMS. These data repositories are also used for data
mining and transaction correlation. Although our database does not allow
specific individuals to be individually identified, we have built and will
continue building consumer profiles using information compiled in these data
repositories to use in targeting ad campaigns.
REPORTING SUBSYSTEM. The Reporting Subsystem also has database and
processing applications that allow us to provide industry standard and custom
reports to our customers using data from the Data Analysis Subsystem. Customers
access this subsystem by logging requests with the Administrative Database
Reports are then made available to the customer through the Client and or by
e-mail.
DATA CENTER OPERATIONS
We deliver our services from a central data center located at our
development, operations and client services facility in Costa Mesa, California.
This data center houses an extensive array of servers, multiple databases,
multiple terabytes of hard disk storage and routing equipment connecting AdForce
to the Internet using several fiber optic providers, giving us sufficient
capacity for growth and failover capability. We recently signed a sublease for
an additional facility in Cupertino, California, which will approximately triple
our current data center space. We plan to move our existing Cupertino
headquarters into the office portion of this space and to begin data center
operations by the end of the second quarter of 1999.
We manage our systems closely to ensure that we maintain excellent
up-time performance and consistent ad delivery. Our systems are self-monitored
by automated tools that measure system performance, including central processing
unit usage levels, disk usage, network and bandwidth usage, report processing
times and the response time of the system to ad requests. We also have
operations staff monitoring the systems 24 hours per day, 7 days per week.
In building and maintaining our system, we have focused on reliability,
scalability, performance and operating cost. For reliability, we maintain "hot
failovers" or running standby servers for components within each subsystem so
that a given server can fail and the system itself will continue to function
without interruption. We use caching in the Ad Delivery subsystem to ensure ads
will continue to be served to our customers based on last available information
even if the back-end subsystems fail entirely. We have the backup power and
additional air conditioning needed for reliable data center operations, and use
multiple bandwidth network providers so that we have redundant capacity for use
in case of failover. We also protect our data by using an off-site data backup
service.
We have aggressively scaled our system throughout 1998 by adding
additional servers or other equipment within subsystems as needed, and by
improving the performance of the subsystems themselves. We are also continuing
our development efforts to improve the performance of components within each
subsystem with a view to increasing capacity and improving response times while
reducing overall ad delivery costs.
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KEY CUSTOMERS
We believe our continued success depends on establishing a broad
customer base within each of the primary categories of advertisers, ad agencies,
Web sites and ad rep firms. We plan to begin marketing our services directly to
advertisers in 1999. Some of our key customers in the other three categories
include the following:
<TABLE>
<S> <C> <C>
AD AGENCIES WEB SITES AD REP FIRMS
- -------------------------- -------------------------- --------------------------
ModemMedia.PoppeTyson GeoCities 24/7 Media
VR Services Netscape 2CAN Media
USWeb FortuneCity Euroserve-InterAd
Magnet Interactive Encompass Adauction.com
Latitude90 Netcom TVMV, Inc.
OgilvyOne GoTo.com .tmc Ad Network
PGATOUR.com
Match.Com
Virtual Vegas
Hoovers Online
</TABLE>
We typically are the primary or sole ad management and delivery service
provider for our Web site customers. For example, we serve all paid
advertisements for GeoCities through our systems and the majority of paid
advertisements for Netscape.
In addition to our direct Web site customers, we also serve ads on
hundreds of Web sites that ad rep firms represent, including such sites as
MapQuest, AT&T, Reuters-Yahoo, Blizzard Entertainment and Earthlink, which are
customers of 24/7 Media, and 123 Greetings, Family Tree Maker and SecureTax,
which are customers of 2CAN Media. Further, we reach a wide variety of
additional Web sites on ad campaigns we manage and serve for our ad agency
customers.
SALES AND MARKETING
Our primary sales strategy is to sell directly to major Web sites, large
ad agencies and ad rep firms. We sell our services in the United States through
a 21-person sales and marketing organization. These employees are located in
Silicon Valley, Southern California, New York and Northern Virginia. In
addition, we leverage the sales organizations of our ad rep customers to provide
our services to the sites they represent.
We have focused and will continue to focus our sales and marketing
efforts on establishing service relationships with large, high volume users of
Internet advertising such as GeoCities, Netscape, 24/7 Media and 2CAN Media. In
addition, we are increasingly targeting sales to advertisers and ad agencies. We
rely on our sales and marketing team, our senior management and our customer
service personnel to promote and sustain these relationships.
We use a variety of marketing programs to generate demand for our
products, build market awareness, develop customer leads and establish business
relationships. Our marketing activities include preparing market research and
collateral materials, determining market requirements, managing press coverage
and other public relations activities, identifying potential customers,
participating in trade events, seminars and conferences, and establishing and
maintaining close relationships with recognized industry analysts.
CUSTOMER SERVICE AND SUPPORT
We believe that a high level of customer service and support is critical
to the successful marketing and sale of our services. We have established a
comprehensive professional organization that provides account management,
technical support, training and ongoing client services for our customers. Our
customer service personnel are available 24 hours a day, 7 days a week, to
assist customers as needed,
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and are currently located in California and New York. We plan to establish
additional service and support sites as required by customers.
COMPETITION
The market for Internet advertising and related products and services is
still evolving and is subject to intense competition as companies attempt to
establish a market presence. We expect that competition will increase as
industry consolidation causes certain early entrants in the marketplace to merge
or be acquired. We currently compete with providers of outsourced ad servers and
related services, including DoubleClick and MatchLogic, as well as providers of
ad server software and equipment services, such as NetGravity. Many of our
current competitors have substantially greater resources and more developed
sales and marketing strategies than we do. We cannot assure you that we will be
able to compete effectively against such competitors now or in the future.
Another principal source of competition is Web sites that use
internally-developed Internet advertising and direct marketing services. These
Web sites include America Online, one of our principal stockholders, and Yahoo!.
America Online and Yahoo! have announced their intentions to acquire two of our
major customers, Netscape and GeoCities, respectively. Following these
acquisitions, either Netscape or GeoCities, or both, might transition their
systems to the proprietary systems of their acquirors, which would materially
and adversely affect our business, results of operations and financial
condition. In addition, 24/7 Media, another of our principal customers, acquired
its own ad management and delivery technology in 1998, and currently uses this
technology to serve a portion of its advertising needs. If 24/7 Media were to
cease doing business with us or enter into competition with us, it would
materially and adversely affect our business, results of operations and
financial condition. Finally, a fourth major customer, 2CAN Media, was recently
acquired by AdSmart, a subsidiary of CMG Investments. CMG Investments also owns
Engage, which recently merged with Accipiter, a supplier of ad server software
and equipment services. If 2CAN Media were to transition its business from us to
Accipiter, it would materially and adversely affect our business, results of
operations and financial condition.
We may also encounter a number of potential new competitors that have
longer operating histories, greater name recognition, larger customer bases and
significantly greater financial, technical and marketing resources than we do.
These qualities may allow them to respond more quickly than we can to new or
emerging technologies and changes in customer requirements. It may also allow
them to devote greater resources than we can to the development, promotion and
sale of their products and services. These competitors might also engage in more
extensive research and development, undertake more far-reaching marketing
campaigns, adopt more aggressive pricing policies and make more attractive
offers to existing and potential employees, strategic partners, advertisers and
Web sites. If such companies decided to enter the market, we cannot assure you
that we would be able to compete against them effectively.
INTELLECTUAL PROPERTY
Our success and ability to compete are substantially dependent on our
internally developed technologies and trademarks, which we protect through a
combination of patent, copyright, trade secret and trademark laws. We have filed
two patent applications in the United States. In addition, we have applied to
register certain trademarks in the United States. We cannot assure you that our
patent applications or trademark registrations will be approved. Even if they
are approved, our patents or trademarks may be successfully challenged by others
or invalidated. If our trademark registrations are not approved because third
parties own such trademarks, our use of these trademarks would be restricted
unless we enter into arrangements with the third-party owners, which may not be
possible on commercially reasonable terms.
Our technology collects and utilizes data derived from user activity on
the Internet. Although we believe that we have the right to use this information
and to compile it in our database, we cannot assure you that any trade secret,
copyright or other protection will be available for such information. We also
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cannot assure you that any of our proprietary rights will be viable or of value
in the future since the validity, enforceability and scope of protection of
certain proprietary rights in Internet-related industries are uncertain and
still evolving. We believe that factors such as the technological and creative
skills of our personnel, new service offerings, brand recognition and reliable
customer service are more essential to establishing and maintaining our
technology leadership position than the legal protection of our technology.
There can be no assurance that others will not develop technologies that are
similar or superior to our technology.
We generally enter into confidentiality or license agreements with our
employees, consultants and corporate partners, and generally control access to
and distribution of our technologies, documentation and other proprietary
information. Despite our efforts to protect our proprietary rights from
unauthorized use or disclosure, parties may attempt to disclose, obtain or use
our solutions or technologies. We cannot assure you that the steps we have taken
will prevent misappropriation of our solutions or technologies, particularly in
foreign countries where laws or law enforcement practices may not protect our
proprietary rights as fully as in the United States.
We have licensed, and we may license in the future, certain proprietary
rights to third parties. In particular, we have licensed our proprietary
software to America Online and Euroserve Media. In addition, prior to our
acquisition of Starpoint, Starpoint licensed its software to GeoCities and two
other parties. While we attempt to ensure that the quality of our brand is
maintained by these business partners, they may take actions that could
materially and adversely affect the value of our proprietary rights or our
reputation. We cannot assure you that these business partners will take the same
steps we have taken to prevent misappropriation of our solutions or
technologies. Please see "Certain Transactions" for detailed information on our
license to America Online.
Third parties may assert infringement claims against us or our
customers. We do not believe that our technological processes infringe upon the
proprietary rights of others, but we cannot assure you that third parties will
not assert claims that we violate their rights. In addition, we believe that we
have the right to use the user data we collect for our database, but we cannot
assure you that third parties will not assert claims that we violate their trade
secrets or copyrights. Although there has not been any claim of this type in the
past, any claims and resultant litigation, should they occur, could subject us
to significant liability for damages or could result in invalidation of our
rights. In addition, even if we prevail, litigation could be time-consuming and
expensive to defend, and could result in diversion of our time and attention,
which could materially and adversely affect our business, results of operations
and financial condition. Any claims or litigation from third parties might also
result in limitations on our ability to use the trademarks and other
intellectual property subject to these claims or litigations unless we enter
into arrangements with the third parties responsible for the claims or
litigation, which might be unavailable on commercially reasonable terms, if at
all.
PRIVACY POLICY
We believe that issues relating to the privacy of Internet users and the
use of personal information about these users are critically important as the
Internet and its commercial use grow. We have adopted a detailed policy
outlining the permissible uses of information about users and the extent to
which such information may be shared with others. Our customers must acknowledge
and agree to this policy when registering to use our service. We do not sell or
license to third parties any personally identifiable information about users. We
use information about users to improve marketing and promotional efforts and to
analyze usage patterns. We comply with all relevant privacy initiatives in the
industry, and we are a member of the TRUSTe program, an independent non-profit
organization that audits the privacy statements of Web sites and adherence
thereto. Moreover, we have an independent accounting firm regularly audit these
privacy and business practices to ensure compliance with all legal and industry
accepted privacy standards.
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EMPLOYEES
As of December 31, 1998, we had 97 employees, including 42 in
engineering and data center operations, 21 in sales and marketing, 19 in client
services and 15 in general administration. Other than as described in
"Management--Employment Agreements and Severance Agreements," none of these
individuals is bound by an employment agreement. We believe that we have good
relationships with our employees. We have never had a significant work stoppage,
and none of our employees is represented under a collective bargaining
agreement. We believe that our future success will depend in part on our ability
to attract, integrate, retain and motivate highly qualified technical and
managerial personnel and upon the continued service of our senior management and
key technical personnel. Competition for qualified personnel in our industry and
geographical locations is intense, and there can be no assurance that we will be
successful in attracting, integrating, retaining and motivating a sufficient
number of qualified personnel to conduct our business in the future. See "Risk
Factors--We Depend on Our Key Personnel."
FACILITIES
Our headquarters, including our principal administrative and marketing
facilities, are located in approximately 10,578 square feet of office space in
Cupertino, California. The lease on 6,553 square feet of this facility expires
in March 1999; the lease on the remaining portion expires in June 2003. Our
principal data center, product development, operations and client services
facilities are located in approximately 18,362 square feet of office space in
Costa Mesa, California; the lease on this facility extends through April 2004.
We have sales personnel in both California offices, and in a New York City
office of approximately 1,000 square feet. The lease for the New York office
expires in December 1999.
We recently executed a sublease for a facility in Cupertino with
approximately 41,151 square feet, which includes a data center with fully
installed infrastructure. This sublease extends through April 2003. We plan to
relocate our headquarters to this new space, and to begin data center operations
in this new data center, by the second quarter of 1999. We will attempt to
sublet the remaining 4,025 square feet of our existing Cupertino space, and to
sublet on a short-term basis approximately 40% of the office space in our new
Cupertino headquarters. We believe our Cupertino and Costa Mesa facilities will
be adequate to meet our needs for the foreseeable future.
LEGAL PROCEEDINGS
We are not currently subject to any material legal proceedings. We may
from time to time become a party to various legal proceedings arising in the
ordinary course of our business.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of AdForce as of the date of this prospectus.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- --- -------------------------------------------------------
<S> <C> <C>
Charles W. Berger............ 45 Chief Executive Officer, President and Chairman of the
Board
Harish S. Rao................ 57 Executive Vice President, Development and Operations
John A. Tanner............... 40 Executive Vice President and Chief Financial Officer
A. Dee Cravens............... 58 Vice President, Marketing
Anthony P. Glaves............ 41 Vice President, Sales and Business Development
Rex S. Jackson............... 38 Vice President, General Counsel and Secretary
Eric Di Benedetto(1)(2)...... 33 Director
Mark P. Gorenberg(1)......... 44 Director
J. Neil Weintraut(2)......... 40 Director
Dirk A. Wray................. 40 Director
</TABLE>
- ------------------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
CHARLES W. BERGER joined AdForce in July 1997 as Chairman and Chief
Executive Officer and became President in February 1999. From March 1993 to June
1997, Mr. Berger was Chairman and Chief Executive Officer of Radius, Inc. (now
Digital Origin, Inc.), a developer and manufacturer of computer displays and
graphic and video technologies. Prior to joining Radius, Inc., Mr. Berger was
Senior Vice President of Worldwide Sales, Operations and Support of Claris
Corporation (now FileMaker, Inc.), a maker of database software for groups and
individuals, from 1992 to 1993. From 1989 to 1992, he held several positions at
Sun Microsystems, Inc., a provider of hardware, software and services for the
Internet, where he served as President of Sun Microsystems Federal, Inc. from
1991 to 1992, Vice President of Business Development from 1990 to 1991 and Vice
President, Product Marketing from 1989 to 1990. From 1982 to 1989, Mr. Berger
was employed by Apple Computer, Inc., a maker of personal computing products,
serving as Vice President and General Manager of Apple Integrated Systems from
1988 to 1989, Vice President of Marketing from 1986 to 1988, Vice President,
Business Development from 1985 to 1986 and Treasurer from 1982 to 1985. Mr.
Berger received his Bachelor of Science in business administration from Bucknell
University and a Masters of Business Administration from the University of Santa
Clara. He serves on the boards of directors of Digital Origin, Inc. and Splash
Technology, Inc. as well as the boards of the University of Santa Clara and the
Kyle Foundation.
HARISH S. RAO joined AdForce in January 1999 as Executive Vice
President, Development and Operations. From February 1997 to December 1998, Mr.
Rao served as Vice President Engineering in the Network & Service Management
Business Unit at Cisco Systems, Inc., a supplier of networking products for the
Internet, where he was responsible for Cisco's Service Management System and
focused on end-to-end service architecture and technology development for
management of frame relay, ATM and IP networks. From July 1992 to January 1997,
Mr. Rao was Senior Vice President of TCSI Corporation, a provider of software
products and services for carrier networks management, where he managed
operations and development both domestically and internationally. Mr. Rao
received his B.E. and M.E. degrees from the University of Bombay, and his Ph.D.
in control systems engineering from the University of Houston.
JOHN A. TANNER joined AdForce in November 1997 as Vice President,
Finance and Administration and Chief Financial Officer and became Executive Vice
President in September 1998. From October 1995 to November 1997, Mr. Tanner held
several positions with Network Computing Devices, Inc., a manufacturer of
network computers, server software, and other related software products and
services,
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where he served as Vice President and Controller in 1997, Corporate Controller
from 1995 to 1997 and Director of Corporate Accounting in 1995. From 1990 to
October 1995, Mr. Tanner was employed by Aspect Telecommunications Corporation,
a manufacturer of computerized telephonic switching devices, complementary
software, and related services, where he served in several positions, most
recently as Corporate Planning and Reporting Manager. Mr. Tanner received his
Bachelor of Arts in English from San Jose State University.
A. DEE CRAVENS joined AdForce in January 1999 as Vice President,
Marketing. From March 1998 to January 1999, Mr. Cravens was President of
Ensemble Solutions, Inc., an electronic distribution company, and, from March
1996 to March 1998, he served as Vice President, Corporate Marketing at Adaptec,
Inc., a manufacturer of SCSI, fiber channel and RAID products. From August 1992
to March 1996, Mr. Cravens served as Vice President, Marketing at Radius, Inc.
(now Digital Origin, Inc.), a developer and manufacturer of computer displays
and graphic and video technologies. From 1989 to 1992, Mr. Cravens was President
of The Cravens Group, Inc., a marketing consulting firm. Mr. Cravens received
his Bachelor of Arts and Masters in communications from San Jose State
University. Mr. Cravens serves on the board of directors of Ensemble, a private
company.
ANTHONY P. GLAVES joined AdForce in January 1999 as Vice President,
Sales and Business Development. From March 1998 to January 1999, Mr. Glaves
served as Senior Vice President, Strategic Relations and Business Development
for ImproveNet, Inc., a web-based service providing product and contractor
information to consumers for home improvement projects. From 1983 to November
1997, Mr. Glaves held several positions with Time Incorporated Magazine Company,
a magazine publisher, including Vice President, Publisher and Vice President and
Associate Publisher of Sunset Magazine from May 1994 to November 1997 and Vice
President, Publisher of Southern Accents Magazine from April 1989 to May 1994.
Mr. Glaves received his Bachelor of Science in business administration from San
Diego State University.
REX S. JACKSON joined AdForce in August 1998 as Vice President, General
Counsel and Secretary, and served on an interim basis as AdForce's Executive
Vice President, Development and Operations from August 1998 to January 1999.
Prior to joining AdForce, Mr. Jackson was with Read-Rite Corporation, a
manufacturer of thin film recording heads for the disk and tape drive
industries, where he served as Vice President, Business Development and General
Counsel from April 1997 to August 1998, and Vice President, General Counsel and
Secretary from September 1992 to April 1997. Mr. Jackson received his A.B.
degree in political science from Duke University, and his J.D. degree from
Stanford University.
ERIC DI BENEDETTO has served as a member of AdForce's Board of Directors
since December 1997, and has been a co-founder and general partner of
Convergence Partners, L.P., an information technology venture capital firm,
since April 1997. From April 1991 to June 1997, Mr. Di Benedetto was the
managing director of U.S. venture capital funds managed by BANEXI, the merchant
banking arm of Banque Nationale de Paris. From 1989 to 1991, Mr. Di Benedetto
was a workout and restructuring specialist with the PARGESA/Lambert Brussels
Group, an international investment holding company, and, from 1988 to 1989, he
was a mergers and acquisitions associate covering defense electronics for
Bankers Trust Co., a financial services company. Mr. Di Benedetto received his
Bachelor of Arts in mathematics and physics from Lycee Perier, Marseilles,
France and his Masters of Business Administration from E.S.S.E.C., Paris,
France. He serves on the boards of directors of the following private companies:
AdAuction.com, Inc., Decisive Technology Corporation, Magnifi, Inc. and
PaymentNet, Inc.
MARK P. GORENBERG has served as a member of AdForce's Board of Directors
since December 1996. Mr. Gorenberg joined Hummer Winblad Venture Partners, a
venture capital fund focused exclusively on software investments, since July
1990, and has served as a partner in the firm since 1993. From 1989 to 1990, Mr.
Gorenberg was a Senior Software Manager in Advanced Product Development at Sun
Microsystems, Inc., a provider of hardware, software and services for the
Internet. Mr. Gorenberg received his Bachelor of Science in electrical
engineering from the Massachusetts Institute of Technology, his
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Masters in electrical engineering from the University of Minnesota, and his
Masters in engineering management from Stanford University. He serves on the
boards of directors of the following private companies: Envive Corporation and
Escalade Corporation.
J. NEIL WEINTRAUT has served as a member of AdForce's Board of Directors
since December 1996, and is a founder and has been a partner of 21st Century
Internet Venture Partners, a venture capital firm, since its inception in
October 1996. From June 1987 to May 1996, Mr. Weintraut was a partner at
Hambrecht & Quist, an investment banking firm, where he led the Enterprise
Software practice, and later the Internet practice. From 1984 to 1985, Mr.
Weintraut worked as an engineer at Daisy Systems, Inc., a developer of computer
aid automation, and, from 1983 to 1984, he was an engineer working in
supercomputer design at International Business Machines Corporation, an
information technology company. Mr. Weintraut received his Bachelor of Science
in electrical engineering from Drexel University and his Masters of Business
Administration from The Wharton School of Business. He serves on the boards of
directors of the following private companies: CareerBuilder, Inc. and GreenTree
Nutrition, Inc.
DIRK A. WRAY is a co-founder of AdForce, its original chief executive
officer and has served as a member of AdForce's Board of Directors from its
inception to December 1996 and again since November 1998. Since May 1998, Mr.
Wray has served as President and Vice Chairman of Omnigon, Inc., a full service
electronic-commerce company. From January 1994 to January 1998, Mr. Wray served
as President and Chief Financial Officer of Covenant Care, Inc., an
international long-term health care provider. Mr. Wray received his Bachelor of
Science in marketing from Michigan State University, his Masters of Business
Administration from Southern Methodist University, and his Masters of
International Management from The American Graduate School of International
Management. He serves on the boards of directors of the following private
companies: Covenant Care, Inc., Casa Reha GmbH and Omnigon, Inc.
Our Board of Directors is currently comprised of five directors and has
two vacancies. Directors are elected by the stockholders at each annual meeting
of stockholders and serve for one year or until their successors are duly
elected and qualified. However, our Bylaws provide, following the offering, for
the division of our Board of Directors into three classes as nearly equal in
size as possible with staggered three-year terms. The term of office of our
Class I directors will expire at the annual meeting of stockholders to be held
in 1999; the term of office of our Class II directors will expire at the annual
meeting of stockholders to be held in 2000; and the term of office of our Class
III directors will expire at the annual meeting of the stockholders to be held
in 2001. At each annual meeting of the stockholders, beginning with the 1999
annual meeting, the successors to the directors whose terms will then expire
will be elected to serve from the time of their election and qualification until
the third annual meeting following their election or until their successors have
been duly elected and qualified, or until their earlier resignation or removal,
if any. Messrs. Weintraut and Wray have been designated as Class I directors;
Messrs. Di Benedetto and Gorenberg have been designated as Class II directors;
and Mr. Berger has been designated as a Class III director. The classification
of our Board of Directors could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from acquiring,
control of AdForce.
Under the Amended and Restated Certificate of Incorporation, America
Online has the right to elect one director to the Board of Directors so long as
America Online holds at least 728,332 shares of common stock (appropriately
adjusted for any stock split, dividend, combination or other recapitalization).
This right expires in July 2008.
BOARD COMMITTEES
We have established an Audit Committee and a Compensation Committee. The
Audit Committee reviews AdForce's internal accounting procedures and consults
with and reviews the results and scope of the audit and other services provided
by AdForce's independent accountants. The Audit Committee of our Board of
Directors consists of Messrs. Di Benedetto and Weintraut. The Compensation
Committee reviews
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and approves the compensation and benefits for our key executive officers and
establishes and reviews general policies relating to compensation and benefits
of AdForce's employees. The Compensation Committee of our Board of Directors
consists of Messrs. Di Benedetto and Gorenberg.
DIRECTOR COMPENSATION
Directors of AdForce do not receive cash compensation for their services
as directors, but are reimbursed for all reasonable expenses incurred in
connection with their attendance at meetings of the Board of Directors and
committee meetings of the Board of Directors.
In February 1999, our Board of Directors adopted the 1999 Directors
Stock Option Plan and reserved a total of 200,000 shares of common stock for
issuance under the 1999 Directors Stock Option Plan. We expect our stockholders
to approve the 1999 Director Stock Option Plan in March 1999. Members of our
Board of Directors who are not employees of AdForce, or any parent, subsidiary
or affiliate of AdForce, are eligible to participate in the 1999 Directors Stock
Option Plan. Option grants under the 1999 Directors Stock Option Plan are
automatic and nondiscretionary, and the exercise price of the options will be
the fair market value of the common stock on the date of grant.
We will initially grant to each eligible director who first becomes a
member of our Board of Directors on or after the effective date of this offering
an option to purchase 10,000 shares of common stock on the date he or she
becomes a member of our Board of Directors. We will initially grant to each
eligible director who first becomes a member of our Board of Directors before
the effective date of this offering an option to purchase 10,000 shares of
common stock immediately following the first annual meeting of stockholders of
AdForce after the effective date of this offering. Immediately following each
annual meeting of stockholders of AdForce after an eligible director's initial
grant, that director will automatically be granted an additional option to
purchase 5,000 shares of common stock if he or she has served continuously as a
member of our Board of Directors for a period of at least one year since the
date of his or her initial grant under this Plan. The options have ten year
terms. They will terminate seven months following the date the director ceases
to be a director or a consultant to AdForce, twelve months if the termination is
due to death or disability. All options granted under the 1999 Directors Stock
Option Plan will vest as to 25% of the shares on the anniversary of the date of
grant and as to 2.08% of the shares each month thereafter, provided the optionee
continues as a member of our Board of Directors or as a consultant to AdForce.
In the event of a merger or other transaction in which AdForce is not the
surviving corporation, all options issued under the 1999 Directors Stock Option
Plan will accelerate and become exercisable in full before the consummation of
the transaction. Any options not exercised within seven months of the corporate
transaction will expire.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to February 1999, our Board of Directors did not have a
compensation committee and all compensation decisions were made by the full
Board of Directors. On and after February 26, 1999, our Compensation Committee
will make all compensation decisions. No interlocking relationship exists
between our Board of Directors or Compensation Committee and the board of
directors or compensation committee of any other company, nor has an
interlocking relationship existed in the past.
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EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid for services rendered to AdForce in all capacities during 1998 by our chief
executive officer and our other executive officers or former executive officers
who earned at least $100,000 in 1998 ("Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
AWARDS
ANNUAL COMPENSATION -------------
SECURITIES
---------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITIONS SALARY(1) BONUS OPTIONS COMPENSATION
- ------------------------------------------- ----------- --------- ------------- -------------
<S> <C> <C> <C> <C>
Charles W. Berger ......................... $ 250,000 -- -- $ 42,188(2)
President and Chief Executive Officer
Chad E. Steelberg(3) ...................... 162,692 $ 75,000 101,000(4) 3,000(5)
Former President
John A. Tanner ............................ 148,398 -- 45,000 --
Executive Vice President and Chief
Financial Officer
</TABLE>
- ------------------------------
(1) Messrs. Rao, Cravens and Glaves were hired as executive officers in January
1999 and are compensated at annual rates of $215,000, $185,000 and $150,000,
respectively. Mr. Jackson was hired as an executive officer in August 1998
and is compensated at an annual rate of $150,000. See "--Employment
Agreements and Severance Agreements."
(2) Represents forgiveness of indebtedness evidenced by a promissory note issued
by Mr. Berger to AdForce in connection with the exercise of his option to
purchase 900,000 shares of common stock. See "Certain Transactions."
(3) Mr. Steelberg resigned from his position as AdForce's President in November
1998.
(4) These options terminated in November 1998 upon termination of Mr.
Steelberg's employment. See "--Employment Agreements and Severance
Agreements."
(5) Represents amount paid to Mr. Steelberg as expense allowances.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each stock option grant during 1998 to
our Named Executive Officers. No stock appreciation rights were granted to these
individuals during 1998.
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF PERCENTAGE OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(4)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION --------------------
NAME GRANTED(1) 1998(2) SHARE(3) DATE 5% 10%
- ---------------------------------- ----------- ----------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Charles W. Berger................. -- -- -- -- -- --
Chad E. Steelberg................. 1,000(5) 0.1% $ 1.50 07/25/08 $ 0(5) $ 0(5)
100,000(5) 6.5 1.50 08/14/08 0(5) 0(5)
John A. Tanner.................... 45,000 2.9 0.70 06/10/08 $ 19,810 $ 85,218
</TABLE>
- --------------------------
(1) All of these options were immediately exercisable and were incentive stock
options that were granted at fair market value and vest over four years at
the rate of 25% of the shares subject to the option on the first anniversary
of the vesting start date specified in the Stock Option Agreement and 2.08%
per month thereafter. Unvested shares are subject to AdForce's right of
repurchase upon termination of employment. Upon certain changes in control
of AdForce, vesting will accelerate as to all shares that are then unvested.
Options expire ten years from the date of grant. See "--Employee Benefit
Plans" and "--Employment Agreements and Severance Agreements" for a
description of the material terms of these options.
(2) Based on options to purchase 1,533,411 shares of common stock of AdForce
granted during 1998 or issued in connection with the assumption of options
granted by StarPoint Software, Inc.
(3) Options were granted at an exercise price equal to the fair market value of
our common stock on the date of grant, as determined by our Board of
Directors. The exercise price may be paid in cash, in shares of our common
stock valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the purchased shares.
AdForce may also finance the option exercise by lending the optionee
sufficient funds to pay the exercise price for the purchased shares.
(4) Potential realizable values are net of the exercise price but before any
payment of taxes, and are based on the assumption that our common stock
appreciates at the annual compounded rate shown from the date of grant until
the expiration of the ten-year term. The 5% and 10% assumed annual rates of
stock price appreciation are mandated by the rules of the Securities and
Exchange Commission and do not represent our estimate or projection of
future common stock prices.
(5) These options terminated in November 1998 upon termination of Mr.
Steelberg's employment. See "--Employment Agreements and Severance
Agreements."
Mr. Rao was hired in January 1999 and was granted a ten-year option to
purchase 360,000 shares of our common stock at an exercise price of $1.50 per
share. The option vests over three years at the rate of 33% of the shares
subject to the option on the first anniversary of the vesting start date
specified in the Stock Option Agreement and 2.79% per month thereafter. Mr.
Cravens was hired in January 1999 and was granted a ten-year option to purchase
175,000 shares of our common stock at an exercise price of $1.50 per share. The
option vests over four years at the rate of 25% of the shares subject to the
option on the first anniversary of the vesting start date specified in the Stock
Option Agreement and 2.08% per month thereafter. Mr. Glaves was hired in January
1999 and was granted a ten-year option to purchase 175,000 shares of our common
stock at an exercise price of $1.50 per share. The option vests over four years
at the rate of 12 1/2% of the shares subject to the option on the six month
anniversary of the vesting start date specified in the Stock Option Agreement
and 2.08% per month thereafter. Mr. Jackson was hired in July 1998 and was
granted a ten-year option to purchase 180,000 shares of our common stock at an
exercise price of $1.50 per share. The option vests at the same rate as those of
Mr. Cravens.
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<PAGE>
None of our Named Executive Officers exercised any option in 1998. The
table below sets forth the number of shares of common stock covered by both
exercisable and unexercisable stock options held as of December 31, 1998 by each
of our Named Executive Officers. Also reported are values of "in-the-money"
options, which represent the positive spread between the respective exercise
prices of outstanding stock options and an assumed initial public offering price
of $ per share.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS AT
1998 DECEMBER 31, 1998
--------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------ ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Charles W. Berger................... -- -- -- --
Chad E. Steelberg(1)................ -- -- -- --
John A. Tanner...................... 225,000(2) -- $ $
</TABLE>
- ------------------------
(1) All of Mr. Steelberg's outstanding options terminated on November 20, 1998,
according to the terms of the Settlement Agreement and Release dated the
same date. See "--Employment Agreements and Severance Agreements."
(2) The options are subject to AdForce's right of repurchase, which lapsed with
respect to 25% of the shares upon Mr. Tanner's completion of 12 months of
service from the vesting start date and an additional 2.08% per month
thereafter. As of December 31, 1998, AdForce's right of repurchase had
lapsed with respect to 60,930 shares.
EMPLOYEE BENEFIT PLANS
1997 STOCK PLAN. In April 1997, our Board of Directors adopted the 1997
Stock Plan and in June 1997 our stockholders approved it. The Board of Directors
reserved 1,200,000 shares of our common stock for issuance under the 1997 Stock
Plan, which number was increased by our Board of Directors to 2,400,000 in July
1997 and 4,000,000 in December 1997. As of December 31, 1998, options to
purchase 1,443,742 shares of our common stock had been exercised (of which
52,216 shares were repurchased by AdForce), options to purchase 1,905,706 shares
of our common stock were outstanding under the 1997 Stock Plan with a weighted
average exercise price of $0.76 and 702,768 shares of our common stock were
available for future grants. Following the closing of this offering, no
additional options will be granted under the 1997 Stock Plan. Options granted
under the 1997 Stock Plan are subject to terms substantially similar to those
described below with respect to options to be granted under the 1999 Equity
Incentive Plan. However, options granted under the 1997 Stock Plan become fully
vested if not assumed or substituted by the successor corporation in connection
with a merger or asset sale. The 1997 Stock Plan also provides for the issuance
of restricted stock.
STARPOINT SOFTWARE, INC. 1996 STOCK PLAN. In connection with AdForce's
acquisition of StarPoint Software, Inc., AdForce assumed all options outstanding
under the StarPoint Stock Plan at the closing of the acquisition. These assumed
options will remain effective until exercised for AdForce's common stock or
until they terminate or expire in accordance with their terms. Options granted
under the StarPoint Plan are subject to terms substantially similar to those
described below with respect to options to be granted under the 1999 Equity
Incentive Plan. However, options granted under the StarPoint Plan become fully
vested if not assumed or substituted by the successor corporation in connection
with a merger or asset sale. No options will be granted in the future under the
StarPoint Plan. As of December 31, 1998, options to purchase 13,783 shares of
common stock had been exercised, and options to purchase 17,154 shares of common
stock were outstanding under the StarPoint Plan.
1999 EQUITY INCENTIVE PLAN. In February 1999, our Board of Directors
adopted, and in March 1999 we expect our stockholders to approve, our 1999
Equity Incentive Plan. We reserved
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<PAGE>
2,000,000 shares for issuance under the 1999 Equity Incentive Plan. Our 1999
Equity Incentive Plan will become effective on the effective date of this
offering and will serve as the successor to our 1997 Stock Plan. Options granted
under the 1997 Stock Plan and the StarPoint Plan before their termination will
remain outstanding according to their terms, but no further options will be
granted under the 1997 Stock Plan or the StarPoint Plan after the effective date
of this offering. Shares that: (a) are subject to issuance upon exercise of an
option granted under our 1999 Equity Incentive Plan that cease to be subject to
such option for any reason other than exercise of such option; (b) have been
issued pursuant to the exercise of an option granted under our 1999 Equity
Incentive Plan that are subsequently forfeited or repurchased by AdForce at the
original purchase price; (c) are subject to an award granted pursuant to a
restricted stock purchase agreement under our 1999 Equity Incentive Plan that
are subsequently forfeited or repurchased by AdForce at the original issue
price; or (d) are subject to stock bonuses granted under our 1999 Equity
Incentive Plan that otherwise terminate without shares being issued, will again
be available for grant and issuance under our 1999 Equity Incentive Plan. In
addition, any authorized shares not issued or subject to outstanding grants
under the 1997 Stock Plan on the effective date of this offering and any shares
issued under the 1997 Stock Plan that are forfeited or repurchased by AdForce or
that are issuable upon exercise of options granted pursuant to the 1997 Stock
Plan or that expire or become unexercisable for any reason without having been
exercised in full, will no longer be available for grant and issuance under the
1997 Stock Plan but will be available for grant and issuance under our 1999
Equity Incentive Plan. Our 1999 Equity Incentive Plan will terminate in February
2009, unless sooner terminated in accordance with its terms. Our 1999 Equity
Incentive Plan authorizes the award of options, restricted stock awards and
stock bonuses, each an "Award." No person will be eligible to receive more than
1,500,000 shares in any calendar year pursuant to Awards under our 1999 Equity
Incentive Plan, except that a new employee of AdForce will be eligible to
receive up to 1,800,000 shares in the calendar year in which he or she commences
employment. Our Compensation Committee administers our 1999 Equity Incentive
Plan and has the authority to construe and interpret our 1999 Equity Incentive
Plan and any agreement made under it, grant Awards and make all other
determinations necessary or advisable for the administration of our 1999 Equity
Incentive Plan.
Our 1999 Equity Incentive Plan provides for the grant of both incentive
stock options that qualify under Section 422 of the Internal Revenue Code of
1986, as amended, and nonqualified stock options. We can grant incentive stock
options only to employees of AdForce or of a parent or subsidiary of AdForce. We
can grant nonqualified stock options and all other Awards other than incentive
stock options to employees, officers, directors, consultants, independent
contractors and advisors of AdForce or any parent or subsidiary of AdForce.
However, such consultants, independent contractors and advisors must render bona
fide services not in connection with the offer and sale of securities in a
capital-raising transaction. The exercise price of incentive stock options must
be at least equal to the fair market value of AdForce's common stock on the date
of grant. The exercise price of incentive stock options granted to stockholders
who hold our securities with more than 10% of our voting power must be at least
equal to 110% of that value. The exercise price of nonqualified stock options
must be at least equal to 85% of the fair market value of AdForce's common stock
on the date of grant. The maximum term of options granted under our 1999 Equity
Incentive Plan is ten years. Awards granted under our 1999 Equity Incentive Plan
may not be transferred in any manner other than by will or by the laws of
descent and distribution and may be exercised during the lifetime of the
optionee only by the optionee. Options granted under our 1999 Equity Incentive
Plan generally expire three months after the termination of the optionee's
service to AdForce or a parent or subsidiary of AdForce. However, in the case of
death or disability, the options generally may be exercised up to 12 months
following the date of death or termination of service. Options will generally
terminate immediately upon termination for cause. If AdForce dissolves or
liquidates or a "change in control" transaction occurs, outstanding Awards may
be assumed or substituted by the successor corporation, if any. Our Compensation
Committee has the discretion to accelerate the vesting of any Award upon the
occurrence of any of these events.
See "Director Compensation" for a description of our 1999 Directors
Stock Option Plan.
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<PAGE>
1999 EMPLOYEE STOCK PURCHASE PLAN. In February 1999, our Board of
Directors adopted, and in March 1999 we expect our stockholders to approve, the
1999 Employee Stock Purchase Plan. We reserved a total of 300,000 shares of
common stock for issuance under the 1999 Employee Stock Purchase Plan. On each
January 1, the aggregate number of shares reserved for issuance under our 1999
Employee Stock Purchase Plan will be increased automatically by the number of
shares purchased under our 1999 Employee Stock Purchase Plan in the preceding
calendar year. The aggregate number of shares issued over the term of our 1999
Employee Stock Purchase Plan may not exceed 3,000,000 shares. Our Compensation
Committee administers our 1999 Employee Stock Purchase Plan and has the
authority to construe and interpret it. The Compensation Committee's decision in
such capacity will be final and binding. Our 1999 Employee Stock Purchase Plan
will become effective on the effective date of this offering. Employees
generally will be eligible to participate in our 1999 Employee Stock Purchase
Plan if they are customarily employed by AdForce or its parent or any
subsidiaries that AdForce designates for more than 20 hours per week and more
than five months in a calendar year. Employees who are or would become as a
result of being granted an option under our 1999 Employee Stock Purchase Plan 5%
stockholders of AdForce or its designated parent or subsidiaries are not
eligible to participate in our 1999 Employee Stock Purchase Plan. Under our 1999
Employee Stock Purchase Plan, we permit eligible employees to acquire shares of
AdForce's common stock through payroll deductions. Eligible employees may select
a rate of payroll deduction between 2% and 10% of their W-2 cash compensation
and are subject to certain maximum purchase limitations described in our 1999
Employee Stock Purchase Plan. A participant may change the rate of payroll
deductions or withdraw from an offering period by notifying AdForce in writing.
Participation in our 1999 Employee Stock Purchase Plan will end automatically
upon termination of employment for any reason. Each offering period under our
1999 Employee Stock Purchase Plan will be for two years and consist of four
six-month purchase periods. The first offering period is expected to begin on
the first business day on which price quotations for AdForce's common stock are
available on the Nasdaq National Market. Depending on the effective date of this
offering, the first purchase period may be more or less than six months long.
Offering periods and purchase periods thereafter will begin on February 1 and
August 1. The purchase price for AdForce's common stock purchased under our 1999
Employee Stock Purchase Plan will be 85% of the lesser of the fair market value
of AdForce's common stock on the first day of the applicable offering period or
the last day of each purchase period. The Compensation Committee will have the
power to change the duration of offering periods without stockholder approval,
if it announces such change at least 15 days before the beginning of the
offering period to be affected. Our 1999 Employee Stock Purchase Plan is
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Internal Revenue Code. A participant cannot transfer the rights granted
under our 1999 Employee Stock Purchase Plan other than by will or the laws of
descent and distribution. Our 1999 Employee Stock Purchase Plan provides that,
if a proposed dissolution or liquidation of AdForce occurs, each offering period
that started before the closing of the proposed transaction will continue for
the duration of such offering period, provided that the Compensation Committee
may fix a different date for termination of our 1999 Employee Stock Purchase
Plan. Our 1999 Employee Stock Purchase Plan will terminate in February 2009,
unless earlier terminated pursuant to its terms. Our Board of Directors will
have the authority to amend, terminate or extend the term of our 1999 Employee
Stock Purchase Plan. However, no such action may adversely affect any
outstanding options previously granted under our 1999 Employee Stock Purchase
Plan and stockholder approval is required to increase the number of shares that
may be issued or to change the terms of eligibility under our 1999 Employee
Stock Purchase Plan. Nonetheless, our Board of Directors may make such
amendments to our 1999 Employee Stock Purchase Plan as our Board of Directors
determines to be advisable if the financial accounting treatment for our 1999
Employee Stock Purchase Plan is different than the financial accounting
treatment in effect on the date that our Board of Directors adopted our 1999
Employee Stock Purchase Plan.
401(k) PLAN. We sponsor the Imgis Retirement Savings Plan, a defined
contribution plan intended to qualify under Section 401 of the Internal Revenue
Code of 1986, as amended. All employees
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<PAGE>
who are 21 years old are eligible to participate and may enter the 401(k) Plan
as of the first day of any month. Participants may make pre-tax contributions to
the 401(k) Plan of up to 20% of their eligible earnings, subject to a
statutorily prescribed annual limit. We may make matching contributions on a
discretionary basis to the 401(k) Plan, but have not done so to date. Each
participant is fully vested in his or her contributions, any of our matching
contributions, and the investment earnings on either. Contributions by the
participants or AdForce to the 401(k) Plan, and the income earned on these
contributions, are generally not taxable to the participants until withdrawn.
Contributions by AdForce, if any, will generally be deductible by AdForce when
made. Participant and AdForce contributions are held in trust as required by
law. Individual participants may direct the 401(k) Plan's trustee to invest
their accounts in authorized investment alternatives.
EMPLOYMENT AGREEMENTS AND SEVERANCE AGREEMENTS
AdForce and Mr. Berger are parties to a letter agreement dated June 27,
1997 governing his employment with AdForce. Under the agreement, AdForce agreed
to pay Mr. Berger an annual salary of $250,000 and to grant him an immediately
exercisable option under the 1997 Stock Plan to purchase 900,000 shares of
AdForce's common stock at an exercise price of $0.125 per share. Mr. Berger
exercised this option in full on June 30, 1997 and paid the purchase price of
the option, $112,500, by issuing a promissory note to AdForce that is secured by
a pledge of the common stock purchased and forgivable in four annual
installments, provided Mr. Berger remains an employee. On June 30, 1998,
AdForce's repurchase right with respect to the 900,000 shares began to lapse.
Mr. Berger vested as to 25% of the option shares on that date and began to vest
monthly thereafter as to 2.08% of the shares for so long as he remains an
employee of AdForce. The agreement provided for full vesting if (1) AdForce
merges or consolidates with or into another entity where more than 50% of the
combined voting power of the surviving corporation's securities outstanding
immediately after the transaction is owned by persons who were not stockholders
of AdForce immediately prior to such transaction or (2) the sale, transfer or
other disposition of all or substantially all of AdForce's assets, each a
"Change of Control," and in either case the option is not assumed by the
successor corporation. Finally, the agreement provided that, in the event (1) of
a Change of Control, (2) Mr. Berger's option is assumed and (3) his employment
is involuntarily terminated or Mr. Berger resigns for good reason (as defined in
his stock option agreement) within 24 months of the Change of Control, Mr.
Berger's option will become vested and AdForce's repurchase right will lapse
with respect to an additional number of shares equal to the number of shares
that would have vested if Mr. Berger served for an additional 12 months.
In November 1998, AdForce and Mr. Berger entered into a letter agreement
regarding salary continuation and option vesting. Under the letter agreement, if
Mr. Berger's employment with AdForce is involuntarily terminated by AdForce
other than for "cause" or if Mr. Berger resigns for "good reason," Mr. Berger
will receive salary continuation at his current rate of salary and continuation
of vesting of his options or restricted stock vesting for a period of twelve
months following such termination. "Cause" is defined to include failure to
follow the written directions of the Board of Directors, dishonesty, gross
misconduct, fraud, or conviction for a felony. "Good reason" is defined to
include demotion, salary reduction or relocation.
AdForce and Mr. Rao are parties to a letter agreement dated December 11,
1998 governing his employment with AdForce. Under the agreement, AdForce agreed
to pay Mr. Rao an annual salary of $215,000 and a performance bonus of $50,000,
and to grant Mr. Rao an option to purchase 360,000 shares of common stock at a
fair market value exercise price. AdForce's repurchase right will begin to lapse
and Mr. Rao will vest as to 33% of the shares subject to the option after one
year of service; the balance of the shares will vest monthly over the next 24
months of service.
AdForce and Mr. Tanner are parties to an employment agreement dated
December 9, 1998 governing his employment with AdForce. Under the agreement,
which has a term of two years, AdForce agreed to pay Mr. Tanner a base salary of
$175,000 and an incentive bonus pursuant to AdForce's incentive
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<PAGE>
bonus plan. The agreement provides for an additional one year of vesting of Mr.
Tanner's existing options (1) if AdForce merges with or is acquired by another
company and is not the surviving entity, (2) if AdForce sells all or
substantially all of its assets or stock or (3) if any other reorganization or
business combination involving AdForce results in 50% or more of AdForce's
outstanding voting stock being transferred to different holders. Finally, if
AdForce terminates Mr. Tanner's employment prior to the end of the term of the
agreement other than for cause, death or disability, or if Mr. Tanner terminates
his employment for good reason (as defined in the agreement), Mr. Tanner will
receive a severance amount equal to his then-current base salary for 12 months
following the date of termination, plus benefits and any earned bonuses.
AdForce and Mr. Cravens are parties to a letter agreement dated January
21, 1999 governing his employment with AdForce. Under the agreement, AdForce
agreed to pay Mr. Cravens an annual salary of $185,000 and a $25,000 signing
bonus, and granted Mr. Cravens an immediately exercisable option to purchase
175,000 shares of AdForce's common stock at a fair market value exercise price.
AdForce's repurchase right will lapse and Mr. Cravens will vest as to 25% of the
shares subject to the option after one year of service; the balance of the
shares will vest monthly over the next 36 months of service.
AdForce and Mr. Glaves are parties to a letter agreement dated December
28, 1998, as revised on December 31, 1998, governing his employment with
AdForce. Under the agreement, AdForce agreed to pay Mr. Glaves an annual salary
of $150,000 and a maximum quarterly performance bonus of $25,000 (with the first
quarter's payment guaranteed) and granted him an immediately exercisable option
to purchase 175,000 shares of AdForce's common stock at a fair market value
exercise price. AdForce's repurchase right will lapse and Mr. Glaves will vest
as to 12.5% of the shares subject to the option after six months of service; the
balance of the shares will vest monthly over the next 42 months of service.
AdForce and Mr. Jackson are parties to a letter agreement dated July 22,
1998 governing his employment with AdForce. Under the agreement, AdForce agreed
to pay Mr. Jackson an annual salary of $150,000 and granted him an immediately
exercisable option to purchase 180,000 shares of AdForce's common stock at a
fair market value exercise price. AdForce's repurchase right will lapse and Mr.
Jackson will vest as to 25% of the shares subject to the option after one year
of service; the balance of the shares will vest monthly over the next 36 months.
Upon certain Changes in Control of AdForce, vesting of Mr. Jackson's options
will accelerate in the same manner as Mr. Berger's.
AdForce and Mr. Steelberg are parties to a Settlement Agreement and
Release dated November 20, 1998 relating to the termination of Mr. Steelberg's
employment with AdForce. The agreement provided that, in lieu of amounts
otherwise payable to Mr. Steelberg, AdForce would pay him $225,000, that all
outstanding shares of common stock held by Mr. Steelberg on the date of the
agreement would be deemed fully vested, and that all unexercised options to
purchase common stock would terminate. However, certain agreements between the
parties remain enforceable. The agreement also provided for a mutual release of
claims.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Our Amended and Restated Certificate of Incorporation limits the
liability of our directors to the maximum extent permitted by Delaware law.
Delaware law provides that a director of a corporation will not be personally
liable for monetary damages for breach of fiduciary duty as a director, except
for liability:
- for any breach of the director's duty of loyalty to the corporation or
its stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under section 174 of the Delaware General Corporation Law (the "DCGL")
regarding unlawful dividends and stock purchases; or
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- for any transaction from which the director derived an improper
personal benefit.
As permitted by the DGCL, our Bylaws provide that:
- we must indemnify our directors and officers to the fullest extent
permitted by the DGCL, provided that each indemnified officer and
director acted in good faith and in a manner that the officer or
director reasonably believed to be in or not opposed to AdForce's best
interests;
- we may indemnify our other employees and agents to the same extent
that we indemnify our officers and directors, unless otherwise
required by law, our Amended and Restated Certificate of
Incorporation, our Bylaws or any agreements;
- we must advance expenses, as incurred, to our directors and officers
in connection with a legal proceeding to the fullest extent permitted
by the DGCL, subject to certain very limited exceptions; and
- the rights conferred in our Bylaws are not exclusive.
In addition to the indemnification required in our Amended and Restated
Certificate of Incorporation and our Bylaws, we intend to enter into indemnity
agreements, prior to the completion of this offering, with each of our current
directors and officers. We expect these agreements to provide, among other
things, for the indemnification of our officers and directors for all expenses
and liabilities incurred in connection with any action or proceeding brought
against them by reason of the fact that they are or were agents of AdForce. In
addition, we intend to obtain directors' and officers' insurance to cover our
directors, officers and certain employees for certain liabilities. We believe
that these indemnification provisions and agreements and this insurance are
necessary to attract and retain qualified directors and officers.
The limitation of liability and indemnification provisions in our
Amended and Restated Certificate of Incorporation and Bylaws may discourage
stockholders from bringing a lawsuit against directors for breach of their
fiduciary duty. They may also reduce the likelihood of derivative litigation
against directors and officers, even though an action, if successful, might
otherwise benefit us and other stockholders. Furthermore, a stockholder's
investment may be adversely affected to the extent we pay the costs of
settlement and damage awards against directors and officers as required by these
indemnification provisions.
At present, there is no pending litigation or proceeding involving any
of our directors, officers or employees regarding which indemnification by
AdForce is sought, nor are we aware of any threatened litigation that may result
in claims for indemnification.
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CERTAIN TRANSACTIONS
Since January 16, 1996 when we were incorporated, we have not been a
party to, and we have no plans to be a party to, any transaction or series of
similar transactions in which the amount involved exceeds $60,000 and in which
any director, executive officer or holder of more than 5% of our common stock
(or any member of the immediate family of any of the persons described above)
had or will have a direct or indirect interest other than as described, where
required, under "Management" and the transactions described below. The numbers
of shares of preferred stock and the per share prices of shares of preferred
stock described below are reported on an as-if-converted to common stock basis.
LOANS AND SECURITIES ISSUANCES
In April 1996, three of our founders, Chad Steelberg, Gary Steelberg and
Ryan Steelberg, assigned ownership rights in certain computer software valued at
$8,600 to AdForce in exchange for the issuance of 430,000 shares of common
stock, 860,000 shares of common stock and 430,000 shares of common stock,
repectively. Our fourth founder, Washington Holdings, L.P., a Nevada limited
partnership, acquired 2,000,000 shares of common stock for a purchase price of
$10,000. Dirk Wray, one of our directors, is a general partner of Washington
Holdings.
In April 1996, AdForce acquired for a purchase price of $110,000 all of
the assets, properties and rights, including technology and other intellectual
property of Iron Mountain Global Information Systems, Inc., a California
corporation. Chad Steelberg, our former President, was also the President of
Iron Mountain Global Information Systems.
In April 1996, Washington Holdings, L.P., loaned AdForce $670,000 at an
annual interest rate of 10%. The loan was secured by certain assets of AdForce.
In June 1996, the Kuwait Investment Projects Company K.S.C., a Kuwait
company and a parent of IBL Corporation, loaned AdForce $1.0 million.
In July 1996, IBL Corporation, a principal stockholder of AdForce,
loaned AdForce $997,500 at an annual interest rate of 11.03%. In connection with
the loan, AdForce granted IBL a warrant to purchase 123,400 shares of common
stock.
In December 1996, we sold 1,200,914 shares of Series A Preferred Stock
to two investors. IBL Corporation purchased 797,950 shares of Series A Preferred
Stock in exchange for the cancellation of $997,500 owed by us and the
termination of a warrant to purchase 123,400 shares of common stock. In
addition, Washington Holdings, a Nevada limited partnership, purchased 402,964
shares of Series A Preferred Stock in exchange for the cancellation of $506,000
of indebtedness and the repayment of $119,000 owed by us. We also used $305,000
to repay indebtedness to Aurelius, Ltd., a British Virgin Island corporation.
Dirk Wray, one of our directors, is a representative of Aurelius, Ltd.
Also in December 1996, we sold 2,054,636 shares of Series B Preferred
Stock to six investors. Hummer Winblad Venture Partners II L.P., Hummer Winblad
Technology Fund, II, L.P. and Hummer Winblad Technology Fund II-A, L.P.
purchased 957,542, 33,912 and 5,984 shares of Series B Preferred Stock,
respectively, for an aggregate purchase price of $1,251,785, or $1.255 per
share. The Hummer Winblad group of funds is a principal stockholder of the
Company, and Mark P. Gorenberg, one of our directors, is a partner at Hummer
Winblad Venture Partners, which is the general partner of these funds. In
addition, 21st Century Internet Fund, L.P. purchased 997,438 shares of Series B
Preferred Stock for a purchase price of $1,251,785, or $1.255 per share. 21st
Century Internet Fund, L.P. is one of our principal stockholders, and J. Neil
Weintraut, one of our directors, is a founder and managing member of 21st
Century Internet Managing Partners, LLC, which is the general partner of this
fund.
Also in December 1996, as a condition of the purchase of Series B
Preferred Stock and as a condition to the repayment of certain indebtedness of
AdForce with the proceeds of such sale, AdForce
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entered into certain agreements with certain of its founders. Pursuant to such
agreements, AdForce repurchased 7,886 shares of common stock and 1,605,014
shares of common stock from Chad Steelberg, our former President, and Washington
Holdings, L.P., a principal stockholder, respectively. Also, Chad Steelberg and
Ryan Steelberg granted AdForce repurchase rights with respect to shares owned by
them. Finally, Washington Holders, L.P. acknowledged transfer restrictions and
granted Messrs. Gorenberg and Weintraut an irrevocable proxy to elect to convert
402,964 shares of Series A Preferred Stock to common stock in the event of a
liquidation event resulting in proceeds to holders of Series A Preferred Stock
in excess of $1.255 per share.
In June 1997, as part of his employment with AdForce, AdForce loaned
Charles W. Berger, our Chief Executive Officer, $112,500 to be used by Mr.
Berger to exercise his option to purchase 900,000 shares of common stock. The
loan, which was evidenced by a promissory note, is due in June 30, 2001 and
accrues interest at the annual rate of 6.8% per annum, compounded annually. The
promissory note is secured by the shares of common stock acquired by Mr. Berger
upon exercise of his option grant. However, Mr. Berger remains personally liable
for the payment of the promissory note, and Mr. Berger's assets, in addition to
the shares of common stock, may be applied to satisfy Mr. Berger's obligations
under the promissory note. The note and related interest are being forgiven
ratably over a period of four years of service/employment. At December 31, 1998,
AdForce forgave $42,188, and there remained $70,312 outstanding under the loan.
See "Management--Employment Agreements and Severance Agreements."
In July 1997, we sold 1,733,616 shares of Series C Preferred Stock to
six investors. Hummer Winblad Venture Partners II, L.P., Hummer Winblad
Technology Fund II, L.P. and Hummer Winblad Technology Fund II-A, L.P.,
purchased 142,072, 5,032 and 888 shares of Series C Preferred Stock,
respectively, for an aggregate purchase price of $350,001, or $2.365 per share.
360 Capital Partners, L.P. also purchased 1,268,500 shares of Series C Preferred
Stock for a purchase price of $3,000,002. 360 Capital Partners, L.P. is one of
our principal stockholders. In addition, IBL Corporation purchased 169,134
shares of Series C Preferred Stock for a purchase price of $400,002. Finally,
21st Century Internet Fund, L.P. purchased 147,990 shares of Series C Preferred
Stock for a purchase price of $349,996.
In November 1997, we sold 816,384 shares of Series C Preferred Stock to
two investors. Convergence Ventures I, L.P. purchased 784,672 shares of Series C
Preferred Stock for a purchase price of $1,855,749. In February 1998, we sold
60,994 shares of Series C Preferred Stock to Convergence Ventures I, L.P. for a
purchase price of $144,251 and 42,284 shares of Series C Preferred Stock to
Convergence Entrepreneurs Fund I, L.P. for a purchase price of $100,002. The
Convergence group of funds is a principal stockholder of the Company, and Eric
Di Benedetto, one of our directors, is a general partner of Convergence
Partners, L.P., which is the general partner of these funds.
In March 1998, Hummer Winblad Venture Fund II, L.P., Hummer Winblad
Technology Fund II, L.P. and Hummer Winblad Technology Fund II-A, L.P. loaned
AdForce $480,000, $17,000 and $3,000 respectively. Each loan accrued interest at
8% per annum, compounded annually.
In April 1998, we sold 1,457,532 shares of Series D Preferred Stock to
19 investors. Convergence Ventures I, L.P. and Convergence Entrepreneurs Fund I,
L.P. purchased 145,666 and 6,554 shares of Series D Preferred Stock,
respectively, for an aggregate purchase price of $1,045,000, or $6.865 per
share. Hummer Winblad Technology Fund II-A, L.P., Hummer Winblad Technology Fund
II, L.P. and Hummer Winblad Venture Fund II, L.P. also acquired 442, 2,506 and
70,774 shares of Series D Preferred Stock, respectively, by converting notes of
$3,000, $17,000 and $480,000, respectively, and accrued interest. In addition,
IBL Corporation purchased 72,832 shares of Series D Preferred Stock for a
purchase price of $499,992.
In July 1998, in consideration of the holders of our Series D Preferred
Stock agreeing to certain amendments to our then effective Amended and Restated
Articles of Incorporation that, if not amended, would have triggered certain
anti-dilution protections benefiting the holders of Series D Preferred Stock, we
issued to the holders of our Series D Preferred Stock warrants to purchase up to
72,860 shares of
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Series D Preferred Stock at an exercise price of $6.865 per share. The warrants
are exercisable on or before July 14, 2003. The Convergence group of funds, the
Hummer Winblad group of funds and IBL Corporation each received warrants to
purchase a number of shares equal to five percent of the number of shares of
Series D Preferred Stock that they held. See "Principal Stockholders."
Also in July 1998, we sold 1,456,664 shares of Series E Preferred Stock
to America Online, Inc. for a purchase price of $9,999,998, or $6.865 per share.
America Online is one of our principal stockholders and has a right to appoint
one person to our Board of Directors that will continue following this offering.
In connection with the sale of Series E Preferred Stock to America Online, we
also issued to America Online a warrant to purchase up to 1,019,662 shares of
Series E Preferred Stock at an exercise price of $6.865 per share. The warrant
is exercisable on or before July 14, 2003.
COMMERCIAL AGREEMENTS
In August 1998, AdForce entered into a services agreement with 2CAN
Media. Two of AdForce's founders, Chad Steelberg and Ryan Steelberg, work for
2CAN Media. Chad Steelberg and Ryan Steelberg originally developed some of our
core technologies. In the services agreement, 2CAN Media agreed to use our
Internet advertising administration system as its exclusive advertising serving
technology. As of December 31, 1998, the agreement has generated $260,000 in net
revenue for AdForce.
In connection with the July 1998 sale of Series E Preferred Stock to
America Online, AdForce also entered into a License Agreement and a Demographic
Data Agreement with America Online.
LICENSE AGREEMENT. Under the License Agreement, we licensed our
technology to America Online and its affiliates to be used internally by America
Online and on sites associated with America Online. The licensed technology
includes future enhancements to our technology and is warranted to perform
according to its specifications. The license is fully paid, nonexclusive,
perpetual, worldwide and nontransferable except for certain assignments and
includes source code. We can terminate the license only in the event of a
material, uncorrected breach of the License Agreement by America Online. For the
duration of the license, if requested, we will provide technical support,
development consultation and ad serving services on a cost or cost plus basis if
America Online is not in default. We will provide these services at cost if we
have access to the demographic data to be provided by America Online under the
Demographic Data Agreement and America Online is not in breach of the
Demographic Data Agreement. Otherwise, we can mark up the cost of our services
by certain percentages. To our knowledge, we would not agree to provide these
services on these terms to any other party. Under the License Agreement, America
Online will use commercially reasonable efforts to encourage others associated
with America Online to use our technology, and we will use reasonable efforts to
encourage our customers to use America Online in the sale of interactive
advertising. In either case, commission or revenue sharing obligations can
arise.
DEMOGRAPHIC DATA AGREEMENT. Under the Demographic Data Agreement,
America Online may authorize us to use demographic information about America
Online users in connection with the targeting and delivery of ads to these
users. The demographic information we receive from America Online will not
identify the user by name or address, and will only be able to be used for
serving targeted ads to America Online customers. We cannot use the demographic
data to serve ads from advertisers that America Online finds objectionable, or
from advertisers on a list provided by America Online. America Online may add
names to this list of advertisers at will, until the advertisers on the list
represent 25% of all ads served on the Internet. AdForce and America Online will
establish a timetable and procedure for the implementation of access to the data
subject to America Online's determination that targeted advertising has become a
generally accepted practice on the Internet. America Online reserves the right
to limit or discontinue access to demographic data in the event of adverse
publicity, legal claims or changes to America Online advertising and privacy
policies. After we have access to the demographic data, we will pay America
Online quarterly fees based on the greater of a certain percentage of the
consideration charged by us for
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targeted advertising or a certain percentage of the incremental revenue charged
by us for the targeting feature. The fees we pay will total at least $10.0
million for the first three years after we are granted access to the demographic
data. The Demographic Data Agreement will expire on the earlier of July 14, 2002
or three years after we have access to the demographic data. America Online can
elect to renew the Demographic Data Agreement on the same terms and conditions
on a year-to-year basis with 90 days' notice, subject to establishing mutually
agreeable minimum annual fees. America Online can elect to terminate the
Demographic Data Agreement upon payment of a fee to us in the event a third
party offers more favorable terms for access to the demographic data and we do
not match those terms. The Demographic Data Agreement cannot be assigned or
transferred in connection with a change in control without the consent of
AdForce and America Online. To date, America Online has not determined that the
targeting of advertising has become a generally accepted practice, so we have
not had access to the demographic data. There is currently no final
implementation schedule or procedure for such access.
We believe that the transactions described above were made on terms no
less favorable to us than could have otherwise been obtained from unaffiliated
third parties.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of our common stock as of December 31, 1998 by (1) each
stockholder known by us to be the beneficial owner of more than 5% of our common
stock; (2) each of our directors; (3) each of our Named Executive Officers; and
(4) all executive officers and directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(1)
NUMBER OF SHARES ----------------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OFFERING OFFERING(2)
- ---------------------------------------------------- ---------------- ----------- ---------------
<S> <C> <C> <C>
America Online, Inc.(3)............................. 2,476,326 14.0%
360 Capital Partners, L.P.(4)....................... 1,268,500 7.2
Mark P. Gorenberg(5)
Funds affiliated with Hummer Winblad.............. 1,222,836 6.9
Chad Steelberg(6)................................... 1,163,620 6.6
J. Neil Weintraut(7)
21(st) Century Internet Fund, L.P................. 1,145,428 6.5
Eric Di Benedetto(8)
Funds affiliated with Convergence Ventures........ 1,047,778 5.9
IBL Corporation(9).................................. 1,043,556 5.9
Charles W. Berger(10)............................... 900,000 5.1
Dirk A. Wray(11).................................... 667,950 3.7
John A. Tanner(12).................................. 225,000 1.3
All executive officers and directors as a group (10
persons)(13)....................................... 5,388,992 30.4%
</TABLE>
- ------------------------------
* Represents beneficial ownership of less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and represents sole or shared voting or
sole or shared investment power with respect to securities. Unless
otherwise indicated below, the persons and entities named in the table have
sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
Shares of common stock subject to options or warrants that are currently
exercisable or exercisable within 60 days of December 31, 1998 are deemed
to be outstanding and to be beneficially owned by the person holding the
options or warrants for the purpose of computing the percentage ownership
of that person, but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person.
(2) Assumes that the underwriters' over-allotment option to purchase up to
shares from AdForce is not exercised.
(3) Represents (i) 1,456,664 shares held of record by America Online, Inc. and
(ii) 1,019,662 shares subject to a warrant held by America Online, Inc.
that is currently exercisable. The address of America Online, Inc. is 22000
AOL Way, Dulles, Virginia 20166.
(4) The address of 360 Capital Partners, L.P. is 360 East 22(nd) Street,
Lombard, Illinois 60148.
(5) Represents (i) 1,099,614 shares held of record by Hummer Winblad Venture
Partners II, L.P., (ii) 70,774 shares held of record by Hummer Winblad
Venture Fund II, L.P., (iii) 41,450 shares held of record by Hummer Winblad
Technology Fund II, L.P., (iv) 7,314 shares held of record by Hummer
Winblad Technology Fund II-A, L.P, (v) 3,538 shares subject to a warrant
held by Hummer Winblad Venture Fund II, L.P. that is currently exercisable,
(vi) 124 shares subject to a warrant held by Hummer Winblad Technology Fund
II, L.P. that is currently exercisable, and (vii) 22 shares subject to a
warrant held by Hummer Winblad Technology Fund II-A, L.P. that is currently
exercisable. Mr. Gorenberg, one of our directors, is a partner of Hummer
Winblad Venture Partners, which is the general partner of the above funds.
The address of Mr. Gorenberg and each entity is 2 South Park, 2(nd) Floor,
San Francisco, California 94107. Mr. Gorenberg disclaims beneficial
ownership of the shares held by the above funds except to the extent of his
pecuniary interest in the above funds.
(6) Includes (i) 1,019,620 shares held of record by Mr. Steelberg and (ii)
144,000 shares for which Mr. Steelberg has sole voting power. The address
of Mr. Steelberg is c/o The Busch Firm, 2532 Dupont, Irvine, California
92618.
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(7) Represents shares held by 21(st) Century Internet Fund, L.P. Mr. Weintraut,
one of our directors, is a founder and managing member of 21st Century
Internet Managing Partners, LLC, which is the general partner of this fund.
The address of Mr. Weintraut and 21(st) Century Internet Fund, L.P. is 2
South Park, 2(nd) Floor, San Francisco, California 94107. Mr. Weintraut
disclaims beneficial ownership of the shares held by the above fund except
to the extent of his pecuniary interest arising from his interest in the
above fund.
(8) Represents (i) 991,332 shares held of record by Convergence Ventures I,
L.P., (ii) 48,838 shares held of record by Convergence Entrepreneurs Fund
I, L.P., (iii) 7,282 shares subject to a warrant held by Convergence
Ventures I, L.P. that is currently exercisable, and (iv) 326 shares subject
to a warrant held by Convergence Entrepreneurs Fund I, L.P. that is
currently exercisable. Mr. Di Benedetto, one of our directors, is a general
partner of Convergence Partners, L.P., which is the general partner of the
above funds. The address of each entity is 3000 Sand Hill Road, Building 2,
Suite 235, Menlo Park, California 94025. Mr. Di Benedetto disclaims
beneficial ownership of the shares held by the above fund except to the
extent of his pecuniary interest arising from his interest in the above
funds.
(9) Represents (i) 1,039,916 shares held of record by IBL Corporation, and (ii)
3,640 shares subject to a warrant held by IBL Corporation that is currently
exercisable. The address of IBL Corporation is 136 Heber Avenue, Suite 304,
Park City, Utah 84060.
(10) Includes 562,500 shares that are subject to a repurchase right which
lapses at the rate of 2.08% per month until June 30, 2001. Mr. Berger is
our Chief Executive Officer, President and Chairman of our Board of
Directors.
(11) Includes 548,950 shares held of record by Washington Holdings, a Nevada
limited partnership, and 119,000 shares for which Mr. Wray has sole voting
power. Mr. Wray, one of our directors, is a general partner of Washington
Holdings. Mr. Wray disclaims beneficial ownership of the shares held by
Washington Holdings except to the extent of his pecuniary interest arising
from his interest in Washington Holdings.
(12) Includes 225,000 shares subject to options exercisable within 60 days of
December 31, 1998 of which 154,710 remain subject to a repurchase right
which lapses at the rate of 2.08% per month until June 30, 2001. Mr.
Tanner is the Executive Vice President and Chief Financial Officer of
AdForce.
(13) Represents 5,761,414 shares held of record by current executive officers
and directors as a group and 1,101,266 shares subject to options or
warrants exercisable within 60 days of December 31, 1998 held by current
executive officers and directors as a group.
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DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, the authorized
capital stock of AdForce will consist of 100,000,000 shares of common stock,
$0.001 par value per share, and 5,000,000 shares of preferred stock, $0.001 par
value per share. As of December 31, 1998, assuming the conversion of all
outstanding preferred stock into common stock, there were outstanding 14,483,721
shares of common stock held of record by 147 stockholders, options to purchase
1,922,860 shares of common stock and warrants to purchase 1,294,686 shares of
common stock.
COMMON STOCK
Subject to preferences that may apply to shares of preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available therefor at such
times and in such amounts as our Board of Directors may from time to time
determine. Holders of common stock are entitled to one vote for each share held
on all matters submitted to a vote of stockholders. Cumulative voting for the
election of directors is not authorized by AdForce's Certificate of
Incorporation, which means that the holders of a majority of the shares voted
can elect all of the directors then standing for election. The common stock is
not entitled to preemptive rights and is not subject to conversion or
redemption. Upon a liquidation, dissolution or winding-up of AdForce, the assets
legally available for distribution to stockholders would be distributed ratably
among the holders of the common stock and any participating preferred stock
outstanding at that time after payment of liquidation preferences, if any, on
any outstanding preferred stock and payment of other claims of creditors. Each
outstanding share of common stock is, and all shares of common stock to be
outstanding upon completion of this offering will be upon payment therefor, duly
and validly issued, fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, each outstanding share of preferred
stock will be converted into two shares of common stock. See Note 8 of Notes to
Financial Statements for a description of the preferred stock currently
outstanding. Following the offering, our Board of Directors will be authorized,
without any further vote or action by the stockholders and subject to
limitations prescribed by Delaware law, to issue up to 5,000,000 shares of
preferred stock in one or more series, to establish from time to time the number
of shares to be included in each such series, to fix the rights, preferences and
privileges of the shares of each series and any qualifications, limitations or
restrictions thereon, and to increase or decrease the number of shares of any
such series. Our Board of Directors may authorize the issuance of preferred
stock with voting or conversion rights that could adversely affect the voting
power or other rights of the holders of the common stock. The issuance of
preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could, among other things, have the
effect of delaying, deferring or preventing a change in control of AdForce and
might adversely affect the market price of the common stock and the voting and
other rights of the holders of common stock. We have no current plan to issue
any shares of preferred stock.
REGISTRATION RIGHTS
After this offering, the holders of approximately 10,532,696 shares of
common stock and warrants to acquire common stock will be entitled to certain
rights with respect to the registration of those shares. As a result of an
Amended and Restated Investors' Rights Agreement dated as of July 15, 1998
between AdForce and certain stockholders of AdForce, the stockholders, holding
an aggregate of 9,244,152 shares of common stock of AdForce issuable upon
conversion of our Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock, have
certain registration rights for their shares that they may exercise at any time
after 180 days following the closing of this offering. Under the Amended and
Restated Investors' Rights Agreement, holders of: (a) at least 30% of the voting
power of the outstanding Series B Preferred Stock, (b) 30% of the voting power
of the
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outstanding Series C Preferred Stock, (c) a majority of the voting power of the
outstanding Series D Preferred Stock or (d) a majority of the voting power of
the outstanding Series E Preferred Stock may demand, by written request, that
AdForce file a registration statement under the Securities Act covering all or a
portion of their preferred stock, provided that, in the case of a registration
statement on a form other than a Form S-3, the registration statement has an
aggregate proposed offering price to the public, net of underwriters' discounts
and commissions, of at least $7,500,000 or, in the case of a registration on a
Form S-3, there is a reasonably anticipated aggregate offering price to the
public of at least $1,000,000 ($3,000,000 in the case of Series E Preferred
Stock). These stockholders may not demand more than three Form S-3 registrations
in total or more than two in any one year. These registration rights are subject
to AdForce's right to delay the filing of a registration statement not more than
once in a 12-month period, for not more than 90 days, after receiving the
registration demand in the case of a registration on a form other than a Form
S-3, and 60 days in the case of a registration on a Form S-3.
In addition, the stockholders who are parties to the Amended and
Restated Investors' Rights Agreement, and holders of rights to acquire 100,176
shares of common stock, have certain "piggyback" registration rights. If AdForce
proposes to register any of its common stock under the Securities Act (other
than pursuant to the investors' demand registration rights noted above), these
stockholders may require AdForce to include all or a portion of their stock in
the registration; provided, however, that the managing underwriter, if any, of
the offering has certain rights to limit the amount of stock held by those
investors included in a registration to 30% of the aggregate shares included in
the offering.
All registration expenses incurred in connection with the above
registrations will be borne by AdForce. Each selling stockholder will pay all
underwriting discounts and selling commissions applicable to the sale of his or
its stock.
Demand and piggyback registration rights under the Amended and Restated
Investors' Rights Agreement will terminate with respect to a stockholder when
(1) that stockholder owns less than 1% of the outstanding securities of AdForce,
(2) that stockholder is able to sell all its shares in a three-month period
under Rule 144 of the Securities Act and (3) AdForce is subject to the reporting
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934.
ANTI-TAKEOVER PROVISIONS
DELAWARE LAW
Upon the closing of this offering, we will be subject to the provisions
of Section 203 of the Delaware General Corporation Law regulating corporate
takeovers. DGCL Section 203 prevents certain Delaware corporations, including
those whose securities are listed on the Nasdaq National Market, from engaging,
under certain circumstances, in a "business combination" with any "interested
stockholder" for three years following the date that that stockholder became an
"interested stockholder" of AdForce. For purposes of DGCL Section 203, a
"business combination" includes, among other things, a merger or consolidation
involving AdForce and the interested stockholders and the sale of more than 10%
of our assets. In general, DGCL Section 203 defines an "interested stockholder"
as any entity or person owning 15% or more of the outstanding voting stock of
AdForce and any entity or person affiliated with or controlled by or controlling
such entity or person.
A Delaware corporation may "opt out" of the Anti-Takeover Law with an
express provision in its original certificate of incorporation or an express
provision in its certificate or incorporation or bylaws resulting from a
stockholders' amendment approved by at least a majority of the outstanding
voting shares. We have not "opted out" of the provisions of DGCL Section 203.
DGCL Section 203 could prohibit or delay mergers or other takeover or
change-in-control attempts with respect to AdForce and, accordingly, may
discourage attempts to acquire AdForce.
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CHARTER AND BYLAW PROVISIONS
Our Amended and Restated Certificate of Incorporation and Bylaws provide
for the division of our Board of Directors into three classes as nearly equal in
size as possible with staggered three-year terms. Our stockholders are unable to
call special meetings of stockholders, to remove any director or the entire
Board of Directors without cause, or to fill any vacancy on our Board of
Directors. Any action required or permitted to be taken by our stockholders at
an annual meeting or a special meeting of the stockholders may only be taken if
it is properly brought before such meeting and may not be taken by written
consent in lieu of a meeting. The Bylaws provide that special meetings of the
stockholders may be called at any time by the Board of Directors, and must be
called upon the request of the Chairman of the Board of Directors, the Chief
Executive Officer, the President or by a majority of the members of the Board of
Directors. These provisions of our Amended and Restated Certificate of
Incorporation and Bylaws are intended to enhance the likelihood of continuity
and stability in the composition of the Board of Directors and to discourage
certain types of transactions that may involve an actual or threatened change of
control of AdForce. These provisions are designed to reduce the vulnerability of
AdForce to an unsolicited acquisition proposal and, accordingly, could
discourage potential acquisition proposals and could delay or prevent a change
in control of AdForce. These provisions are also intended to discourage certain
tactics that may be used in proxy fights but could, however, have the effect of
discouraging others from making tender offers for our shares and, consequently,
may also inhibit fluctuations in the market price of our shares that could
result from actual or rumored takeover attempts. These charges may also have the
effect of preventing changes in the management of AdForce. See "Risk
Factors--Certain Provisions in Our Charter Documents May Deter Acquisition Bids
for AdForce."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for AdForce's common stock is
ChaseMellon Shareholder Services, LLC.
63
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock,
and there can be no assurance that a significant public market for our common
stock will develop or be sustained after this offering. Future sales of
substantial amounts of common stock (including shares issued upon exercise of
outstanding options or warrants) in the public market after this offering could
adversely affect the prevailing market price of our common stock and could
impair our ability to raise equity capital in the future. Furthermore, since few
shares will be available for sale immediately after this offering due to certain
contractual and legal restrictions on resale described below, sales of
substantial amounts of our common stock in the public market after the
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding shares
of common stock based on shares outstanding at December 31, 1998, assuming no
exercise of the Underwriters' over-allotment option and no exercise of
outstanding options or warrants. Of this amount, the shares sold in this
offering will be freely tradable in the public market without restriction or
further registration under the Securities Act, unless such shares are purchased
by any of our "affiliates" as that term is defined in Rule 144 under the
Securities Act. The remaining 14,483,721 shares held by existing stockholders
are "restricted securities" as that term is defined in Rule 144 under the
Securities Act. Most of the restricted shares are subject to lock-up agreements
with the underwriters, pursuant to which all of our directors and officers and
most of our stockholders have agreed not to transfer or dispose of, directly or
indirectly, any shares of common stock or any securities convertible into or
exercisable or exchangeable for shares of common stock, for a period of 180 days
after the date of this prospectus. Hambrecht & Quist LLC may release the shares
subject to the lock-up agreements in whole or in part at any time with or
without notice. Hambrecht & Quist LLC has no current plans to do so. Beginning
180 days after the date of the final prospectus, 12,574,440 of the restricted
shares will be eligible for sale in the public market under Rule 144 or Rule
701, although all but 7,704,484 shares will be subject to certain volume
limitations. The remaining restricted securities will become eligible for sale,
subject to certain volume limitations, on October 28, 1999.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days
after the date of this prospectus, an affiliate of AdForce, or a person (or
persons whose shares are aggregated) who has beneficially owned restricted
shares for at least one year but less than two years, would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of:
- 1% of the number of shares of common stock then outstanding
(approximately shares immediately after this offering); or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of
a notice of sale with the Securities and Exchange Commission (the
"Commission").
Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about us.
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years
(including the holding period of any prior owner except one of our affiliates)
is entitled to sell such shares without complying with the manner of sale,
public information, volume limitation or notice provisions of Rule 144.
64
<PAGE>
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect,
any of our employees, officers, directors, consultants or advisors who purchased
shares from us in connection with a compensatory stock or option plan or other
written agreement is eligible to resell such shares 90 days after the effective
date of this offering in reliance on Rule 144, but without compliance with
certain restrictions, including the holding period contained in Rule 144.
However, all shares issued pursuant to Rule 701 are subject to lock-up
agreements and will only become eligible for sale at the earlier of the
expiration of the 180-day lock-up agreements or obtaining the prior written
consent of Hambrecht & Quist LLC or the other representatives of the
underwriters more than 90 days after this offering.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of 10,532,696 shares of
our common stock and rights to acquire common stock, or their transferees, will
be entitled to certain rights with respect to the registration of their shares
under the Securities Act. See "Description of Capital Stock--Registration
Rights." After registration, these shares would be saleable without restriction
under the Securities Act.
STOCK OPTIONS
Within 90 days following this offering, we intend to file a registration
statement under the Securities Act covering all shares of common stock subject
to outstanding options granted under the 1997 Stock Plan or the StarPoint Plan
or reserved for issuance under our 1999 Equity Incentive Plan, our 1999
Directors Stock Option Plan or our 1999 Employee Stock Purchase Plan. Based on
the number of shares subject to options outstanding at December 31, 1998 and
currently reserved for issuance under all such plans, this registration
statement would cover approximately 5,125,628 shares. The registration statement
will automatically become effective upon filing. Accordingly, shares registered
under the registration statement will, subject to Rule 144 volume limitations
applicable to our affiliates, be available for sale in the open market
immediately after the 180-day lock-up agreements expire.
65
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting
Agreement dated , 1999, the underwriters named below, for whom Hambrecht &
Quist LLC, Lehman Brothers Inc., Volpe Brown Whelan & Company, LLC and Charles
Schwab & Co., Inc. are acting as representatives, have severally agreed to
purchase from AdForce the following respective numbers of shares of common
stock.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---------------------------------------------------------------- -----------
<S> <C>
Hambrecht & Quist LLC...........................................
Lehman Brothers Inc.............................................
Volpe Brown Whelan & Company, LLC...............................
Charles Schwab & Co., Inc.......................................
-----------
Total...........................................................
-----------
-----------
</TABLE>
The Underwriting Agreement provides that the obligations of the
underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in AdForce's business and the receipt of certain
certificates, opinions and letters from AdForce, its counsel and its independent
auditors. The nature of the underwriters' obligation is such that they are
committed to purchase all shares of common stock offered hereby if any of such
shares are purchased.
The underwriters propose to offer the shares of common stock directly to
the public initially at the initial public offering price set forth on the cover
page of this prospectus and to certain dealers at such price less a concession
not in excess of $ per share. The underwriters may allow and such dealers
may reallow a concession not in excess of $ per share to certain other
dealers. After the initial public offering of the shares, the offering price and
other selling terms may be changed by the underwriters.
We have granted to the underwriters an option, exercisable no later than
30 days after the date of this prospectus, to purchase up to additional
shares of common stock at the initial public offering price, less the
underwriting discounts, set forth on the cover page of this prospectus. To the
extent that the underwriters exercise this option, each of the underwriters will
have a firm commitment to purchase approximately the same percentage thereof
which the number of shares of common stock to be purchased by it shown in the
above table bears to the total number of shares of common stock offered hereby.
We will be obligated pursuant to this option to sell shares to the underwriters
to the extent the option is exercised. The underwriters may exercise such option
only to cover over-allotments made in connection with the sale of shares of
common stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted
by the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the underwriters may be required to make in respect thereof.
AdForce and its officers, directors and certain other stockholders, who
will own in the aggregate shares of common stock after the offering, have
agreed that they will not, without the prior written
66
<PAGE>
consent of Hambrecht & Quist LLC, offer, sell, or otherwise dispose of any
shares of common stock, options or warrants to acquire shares of common stock or
securities exchangeable for or convertible into shares of common stock owned by
them for a period of 180 days following the date of this prospectus. AdForce has
agreed that it will not, without the prior written consent of Hambrecht & Quist
LLC, offer, sell, grant any option to purchase or otherwise dispose of any
shares of common stock or any securities exchangeable for or convertible into
shares of common stock for a period of 180 days following the date of this
prospectus, except that AdForce may issue, and grant options to purchase, shares
of common stock under its stock and employee stock purchase plans and under
currently outstanding options. Sales of such shares in the future could
adversely affect the market price of the common stock.
Of the shares of common stock to be sold in this offering, the
underwriters have reserved for sale, at the price to public set forth on the
cover page of this prospectus, up to shares as follows: (1) at our request,
up to shares for our directors, officers, employees and business associates
and (2) up to an additional shares for the certain preferred stockholders in
connection with a preexisting contractual right between AdForce and those
preferred stockholders. See "Certain Transactions" and "Principal Stockholders."
As a result, the number of shares of common stock available for sale to the
general public will be reduced to the extent these persons purchase the reserved
shares. The underwriters will offer to the general public (on the same basis as
the other shares to be sold in this offering) any reserved shares that are not
so purchased.
Prior to this offering, there has been no public market for the common
stock of AdForce. The initial public offering price for the common stock will be
determined by negotiation among AdForce and the underwriters. Among the factors
to be considered in determining the initial public offering price were
prevailing market and economic conditions, revenues and earnings of AdForce,
market valuations of other companies engaged in activities similar to AdForce,
estimates of the business potential and prospects of AdForce, the present state
of AdForce's business operations, AdForce's management and other factors deemed
relevant. The estimated initial public offering price range set forth on the
cover of this preliminary prospectus is subject to change as a result of market
conditions or other factors.
Certain persons participating in this offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the common stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase for the purpose of pegging, fixing or
maintaining the price of the common stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. Penalty bids permit the underwriters to reclaim a selling
concession from a syndicate member in connection with the offering when shares
of common stock sold by the syndicate member are purchased in a syndicate
covering transaction. Such transactions may be effected on the Nasdaq National
Market, in the over-the-counter market, or otherwise. Such stabilizing, if
commenced, may be discontinued at any time.
H&Q Imgis Investors, L.P. and Hambrecht & Quist California purchased
101,968 and 43,700 shares of Series D Preferred Stock, respectively, for an
aggregate purchase price of $1,000,011, or $6.865 per share, as part of an
equity financing on the same terms as all other participants in the financing
purchased their shares. In addition, in July 1998, we issued to H&Q Imgis
Investors, L.P., a warrant to purchase up to 5,048 shares of Series D Preferred
Stock at an exercise price of $6.865 per share, in consideration of agreeing to
certain amendments to our then effective Amended and Restated Articles of
Incorporation. Certain of the interests of H&Q Imgis Investors, L.P. and
Hambrecht & Quist California are beneficially owned by persons affiliated with
Hambrecht & Quist LLC.
67
<PAGE>
LEGAL MATTERS
Fenwick & West LLP, Palo Alto, California, will pass upon the validity
of the shares of common stock offered hereby. Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP, Menlo Park, California, will pass upon
certain legal matters in connection with this offering for the underwriters. A
partnership comprised of certain partners of Fenwick & West LLP owns 3,640
shares of our common stock. A partnership comprised of certain partners of
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP owns 31,712 shares
of our common stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements and schedule at December 31, 1997 and 1998, and for the period from
January 16, 1996 (inception) through December 31, 1996 and for each of the two
years in the period ended December 31, 1998, as set forth in their report. We
have included our financial statements and schedule in the prospectus and
elsewhere in the registration statement in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited StarPoint
Software, Inc.'s financial statements at May 31, 1997, and for the period from
August 8, 1996 (inception) through May 31, 1997, as set forth in their report.
We have included StarPoint Software's financial statements in the prospectus and
elsewhere in the registration statement in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 with
respect to the common stock offered hereby. This prospectus, which constitutes a
part of the registration statement, does not contain all of the information set
forth in the registration statement or the exhibits and schedules which are part
of the registration statement. For further information with respect to AdForce
and the common stock, reference is made to the registration statement and the
exhibits and schedules thereto. You may read and copy any document we file at
the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
about the public reference rooms. Our SEC filings are also available to the
public from the SEC's Web site at http:// www.sec.gov.
Upon completion of this offering, we will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
and, in accordance therewith, will file periodic reports, proxy statements and
other information with the SEC. Such periodic reports, proxy statements and
other information will be available for inspection and copying at the SEC's
public reference rooms and the Web site of the SEC referred to above.
68
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
ADFORCE, INC.:
Report of Ernst & Young LLP, Independent Auditors.................................. F-2
Balance Sheets as of December 31, 1997 and 1998.................................... F-3
Statements of Operations for the Period from January 16, 1996 (Inception) to
December 31, 1996 and the Years Ended December 31, 1997 and 1998................. F-4
Statements of Stockholders' Equity for the Period from January 16, 1996 (Inception)
to December 31, 1996 and the Years Ended December 31, 1997 and 1998.............. F-5
Statements of Cash Flows for the Period from January 16, 1996 (Inception) to
December 31, 1996 and the Years Ended December 31, 1997 and 1998................. F-6
Notes to Financial Statements...................................................... F-7
STARPOINT SOFTWARE, INC.:
Report of Ernst & Young LLP, Independent Auditors.................................. F-24
Balance Sheet as of May 31, 1997 and November 30, 1997 (Unaudited)................. F-25
Statements of Operations for the Period from August 8, 1996 (Inception) through May
31, 1997, the Period From August 8, 1996 (Inception) through November 30, 1996
(Unaudited) and the Six Months Ended November 30, 1997 (Unaudited)............... F-26
Statements of Shareholders' Equity (Net Capital Deficiency) for the Period from
August 8, 1996 (Inception) through November 30, 1997 and the Six Months Ended
November 30, 1997 (Unaudited).................................................... F-27
Statements of Cash Flows for the Period from August 8, 1996 (Inception) through May
31, 1997, the Period From August 8, 1996 (Inception) through November 30, 1996
(Unaudited) and the Six Months Ended November 30, 1997 (Unaudited)............... F-28
Notes to Financial Statements...................................................... F-29
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
AdForce, Inc.
We have audited the accompanying balance sheets of AdForce, Inc. as of
December 31, 1997 and 1998, and the related statements of operations, and
stockholders' equity, and cash flows for the period from January 16, 1996
(inception) to December 31, 1996 and for the years ended December 31, 1997 and
1998. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of AdForce, Inc. at
December 31, 1997 and 1998, and the results of its operations and its cash flows
for the period from January 16, 1996 (inception) to December 31, 1996 and for
the years ended December 31, 1997 and 1998, in conformity with generally
accepted accounting principles.
San Jose, California
February 5, 1999,
except for Note 11,
as to which the date is March , 1999
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the
completion of the reincorporation of AdForce in Delaware as described in Note 11
of Notes to Financial Statements.
/s/ Ernst & Young LLP
San Jose, California
March 2, 1999
F-2
<PAGE>
ADFORCE, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, STOCKHOLDERS'
-------------------- EQUITY DECEMBER
1997 1998 31, 1998
--------- --------- -----------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................. $ 1,680 $ 10,045
Accounts receivable, net of allowances of $131 and $1,035 at December 31,
1997 and 1998, respectively............................................. 239 1,160
Prepaid expenses and other current assets................................. 404 575
--------- ---------
Total current assets........................................................ 2,323 11,780
Property and equipment, net................................................. 1,946 4,208
Intangible assets, net...................................................... -- 3,602
Other non-current assets.................................................... -- 285
--------- ---------
Total assets................................................................ $ 4,269 $ 19,875
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................................... $ 374 $ 1,078
Accrued compensation and related benefits................................. 85 458
Other accrued liabilities................................................. 192 809
Current portion of capital lease obligations.............................. 499 1,460
--------- ---------
Total current liabilities................................................... 1,150 3,805
Long-term portion of capital lease obligations.............................. 1,744 3,089
Commitments
Stockholders' equity:
Convertible preferred stock, $0.001 par value: 6,238,163 shares
authorized:
Series A, 602,000 shares designated, 600,457 shares issued and
outstanding as of December 31, 1997 and 1998, and none pro forma,
aggregate liquidation preference at December 31, 1998 of $1,507....... 1 1 $ --
Series B, 1,100,000 shares designated, 1,027,318 shares issued and
outstanding as of December 31, 1997 and 1998, and none pro forma,
aggregate liquidation preference at December 31, 1998 of $2,579....... 1 1 --
Series C, 1,725,000 shares designated, 1,275,000 and 1,646,948 shares
issued and outstanding as of December 31, 1997 and 1998, respectively,
and none pro forma, aggregate liquidation preference at December 31,
1998 of $7,790........................................................ 1 1 --
Series D, 786,500 shares designated, 730,504 shares issued and
outstanding as of December 31, 1998, and none pro forma, aggregate
liquidation preference at December 31, 1998 of $10,030................ -- 1 --
Series E, 1,238,163 shares designated, 728,332 shares issued and
outstanding as of December 31, 1998, and none pro forma, aggregate
liquidation preference at December 31, 1998 of $10,000................ -- 1 --
Common stock, $0.001 par value: 40,000,000 shares authorized: 3,270,330
and 5,016,603 shares issued and outstanding as of December 31, 1997 and
1998, respectively, and 14,483,721 shares issued and outstanding pro
forma 3 5 14
Additional paid-in capital................................................ 10,623 39,879 39,875
Deferred stock compensation............................................... -- (2,662) (2,662)
Note receivable from stockholder.......................................... (98) (70) (70)
Accumulated deficit....................................................... (9,156) (24,176) (24,176)
--------- --------- -------
Total stockholders' equity.................................................. 1,375 12,981 $ 12,981
--------- --------- -------
--------- --------- -------
Total liabilities and stockholders' equity.................................. $ 4,269 $ 19,875
--------- ---------
--------- ---------
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
ADFORCE, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD FROM YEARS ENDED DECEMBER
JANUARY 16, 1996 31,
(INCEPTION) TO --------------------
DECEMBER 31, 1996 1997 1998
----------------- --------- ---------
<S> <C> <C> <C>
Net revenue.............................................. $ -- $ 320 $ 4,286
Cost of revenue:
Data center operations................................. -- 1,508 4,439
Amortization of intangible assets and deferred stock
compensation......................................... -- -- 620
------- --------- ---------
Total cost of revenue.................................. -- 1,508 5,059
------- --------- ---------
Gross loss............................................... -- (1,188) (773)
Operating expenses:
Research and development............................... 1,561 2,236 4,665
Marketing and selling.................................. 1,485 1,054 4,863
General and administrative............................. 337 1,118 1,839
Amortization of intangible assets and deferred stock
compensation......................................... -- -- 2,729
------- --------- ---------
Total operating expenses................................. 3,383 4,408 14,096
------- --------- ---------
Loss from operations..................................... (3,383) (5,596) (14,869)
Interest income.......................................... -- 21 365
Interest expense......................................... (69) (129) (516)
------- --------- ---------
Net loss................................................. $ (3,452) $ (5,704) $ (15,020)
------- --------- ---------
------- --------- ---------
Basic and diluted net loss per share..................... $ (1.40) $ (3.48) $ (5.28)
------- --------- ---------
------- --------- ---------
Weighted average shares of common stock outstanding used
in computing basic and diluted net loss per share...... 2,465 1,639 2,844
------- --------- ---------
------- --------- ---------
Pro forma basic and diluted net loss per share........... $ (1.38)
---------
---------
Weighted average shares used in computing pro forma basic
and diluted net loss per share......................... 10,877
---------
---------
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
ADFORCE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED
STOCK COMMON STOCK
---------------------- ---------------------- ADDITIONAL
SHARES AMOUNT SHARES AMOUNT PAID-IN CAPITAL
--------- ----------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock to founders in partial
consideration for intellectual property rights assigned
to the Company........................................... -- $ -- 1,720,000 $ 2 $ 6
Issuance of common stock................................... -- -- 2,003,000 2 8
Repurchase of common stock................................. -- -- (1,612,900) (2) (6)
Issuance of Series A convertible preferred stock upon
conversion of note payable, net of issuance costs of
$97...................................................... 600,457 1 -- -- 1,408
Issuance of Series B convertible preferred stock........... 110,000 -- -- -- 550
Conversion of Series B convertible preferred stock to
common stock............................................. (110,000) -- 220,000 -- --
Issuance of Series B convertible preferred stock, net of
issuance costs of $17.................................... 1,027,318 1 -- -- 2,560
Net loss................................................... -- -- -- -- --
--------- ----- --------- ----- -------
Balances at December 31, 1996................................ 1,627,775 2 2,330,100 2 4,526
Issuance of common stock................................... -- -- 940,230 1 116
Forgiveness of stockholder note receivable................. -- -- -- -- --
Issuance of Series C convertible preferred stock, net of
issuance costs of $72.................................... 1,275,000 1 -- -- 5,958
Issuance of warrants....................................... -- -- -- -- 23
Net loss................................................... -- -- -- -- --
--------- ----- --------- ----- -------
Balances at December 31, 1997................................ 2,902,775 3 3,270,330 3 10,623
Issuance of common stock................................... -- -- 868,439 1 90
Deferred stock compensation related to certain options
granted to employees..................................... -- -- -- -- 3,714
Amortization of deferred stock compensation................ -- -- -- -- --
Compensation related to acceleration of vesting of
founders' stock.......................................... -- -- -- -- 1,407
Issuance of Series C convertible preferred stock and common
stock in acquisition..................................... 309,738 -- 877,834 1 1,684
Issuance of Series C convertible preferred stock, net of
issuance costs of $26.................................... 62,210 -- -- -- 269
Issuance of Series D convertible preferred stock, net of
issuance costs of $74.................................... 730,504 1 -- -- 9,954
Issuance of Series E convertible preferred stock, net of
issuance costs of $112................................... 728,332 1 -- -- 9,887
Forgiveness of stockholder note receivable................. -- -- -- -- --
Issuance of warrants....................................... -- -- -- -- 2,251
Net loss................................................... -- -- -- -- --
--------- ----- --------- ----- -------
Balances at December 31, 1998................................ 4,733,559 $ 5 5,016,603 $ 5 $ 39,879
--------- ----- --------- ----- -------
--------- ----- --------- ----- -------
<CAPTION>
NOTE RECEIVABLE TOTAL
DEFERRED STOCK FROM ACCUMULATED STOCKHOLDERS'
COMPENSATION STOCKHOLDER DEFICIT EQUITY
--------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Issuance of common stock to founders in partial
consideration for intellectual property rights assigned
to the Company........................................... $ -- $ -- $ -- $ 8
Issuance of common stock................................... -- -- -- 10
Repurchase of common stock................................. -- -- -- (8)
Issuance of Series A convertible preferred stock upon
conversion of note payable, net of issuance costs of
$97...................................................... -- -- -- 1,409
Issuance of Series B convertible preferred stock........... -- -- -- 550
Conversion of Series B convertible preferred stock to
common stock............................................. -- -- -- --
Issuance of Series B convertible preferred stock, net of
issuance costs of $17.................................... -- -- -- 2,561
Net loss................................................... -- -- (3,452) (3,452)
------- ----- ------------- -------------
Balances at December 31, 1996................................ -- -- (3,452) 1,078
Issuance of common stock................................... -- (112) -- 5
Forgiveness of stockholder note receivable................. -- 14 -- 14
Issuance of Series C convertible preferred stock, net of
issuance costs of $72.................................... -- -- -- 5,959
Issuance of warrants....................................... -- -- -- 23
Net loss................................................... -- -- (5,704) (5,704)
------- ----- ------------- -------------
Balances at December 31, 1997................................ -- (98) (9,156) 1,375
Issuance of common stock................................... -- -- -- 91
Deferred stock compensation related to certain options
granted to employees..................................... (3,714) -- -- --
Amortization of deferred stock compensation................ 1,052 -- -- 1,052
Compensation related to acceleration of vesting of
founders' stock.......................................... -- -- -- 1,407
Issuance of Series C convertible preferred stock and common
stock in acquisition..................................... -- -- -- 1,685
Issuance of Series C convertible preferred stock, net of
issuance costs of $26.................................... -- -- -- 269
Issuance of Series D convertible preferred stock, net of
issuance costs of $74.................................... -- -- -- 9,955
Issuance of Series E convertible preferred stock, net of
issuance costs of $112................................... -- -- -- 9,888
Forgiveness of stockholder note receivable................. -- 28 -- 28
Issuance of warrants....................................... -- 2,251
Net loss................................................... -- -- (15,020) (15,020)
------- ----- ------------- -------------
Balances at December 31, 1998................................ $ (2,662) $ (70) $ (24,176) $ 12,981
------- ----- ------------- -------------
------- ----- ------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
ADFORCE, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM YEARS ENDED DECEMBER
JANUARY 16, 1996 31,
(INCEPTION) TO --------------------
DECEMBER 31, 1996 1997 1998
----------------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................................... $ (3,452) $ (5,704) $ (15,020)
Reconciliation of net loss to net cash used in operating
activities:
Depreciation and amortization................................... 158 797 3,006
Amortization of deferred stock compensation and other
compensation charges.......................................... -- -- 2,459
Loss on sale of assets.......................................... -- -- 281
Acquired in-process technology.................................. 319 -- 100
Other non-cash charges.......................................... -- 14 51
Changes in operating assets and liabilities:
Accounts receivable........................................... -- (239) (908)
Prepaid expenses and other current assets and other
non-current assets.......................................... (75) (329) (449)
Accounts payable.............................................. 566 (192) 239
Accrued compensation and related benefits..................... 61 24 61
Other accrued liabilities..................................... 150 42 587
------- --------- ---------
Net cash used in operating activities....................... (2,273) (5,587) (9,593)
------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of technology and operating rights.................. (106) -- --
Proceeds from sale of assets.................................... -- -- 105
Capital expenditures............................................ (1,248) (163) (1,291)
------- --------- ---------
Net cash used in investing activities....................... (1,354) (163) (1,186)
------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale-leaseback transaction........................ -- 1,033 --
Principal payments on capital lease obligations................. -- (248) (923)
Proceeds from issuance of common stock, net..................... 2 5 86
Proceeds from issuance of preferred stock, net.................. 3,014 5,959 19,594
Proceeds from issuance of notes payable......................... 1,757 -- 500
Repayment of notes payable...................................... (465) -- (113)
------- --------- ---------
Net cash provided by financing activities................... 4,308 6,749 19,144
------- --------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS......................... 681 999 8,365
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................. -- 681 1,680
------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 681 $ 1,680 $ 10,045
------- --------- ---------
------- --------- ---------
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the year for interest............................ $ 69 $ 126 $ 457
------- --------- ---------
------- --------- ---------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING/FINANCING ACTIVITIES
Property and equipment acquired under capital leases.............. $ -- $ 1,458 $ 3,389
------- --------- ---------
------- --------- ---------
Conversion of Series B convertible preferred stock into common
stock........................................................... $ 550 $ -- $ --
------- --------- ---------
------- --------- ---------
Conversion of notes payable into Series A convertible preferred
stock........................................................... $ 1,409 $ -- $ --
------- --------- ---------
------- --------- ---------
Conversion of notes payable and accrued interest into Series D
convertible preferred stock..................................... $ -- $ -- $ 506
------- --------- ---------
------- --------- ---------
Issuance of Series C convertible preferred stock, common stock,
and stock options for purchase of business...................... $ -- $ -- $ 1,685
------- --------- ---------
------- --------- ---------
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Imgis, Inc. was incorporated in the state of California on January 16,
1996. AdForce is a provider of centralized, outsourced ad management and
delivery services on the Internet. AdForce's services offer sophisticated
campaign design, inventory management, targeting, ad delivery, tracking,
measuring and reporting capabilities.
AdForce has incurred operating losses to date and had an accumulated
deficit of $24,176,000 at December 31, 1998. AdForce's activities have been
primarily financed through private placements of equity securities and capital
lease financings. AdForce may need to raise additional capital through the
issuance of debt or equity securities and capital lease financings. Such
financing may not be available on terms satisfactory to AdForce, if at all. If
adequate funds are not available, AdForce may be required to reduce its level of
spending.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
AdForce sells and grants credit for its services to its customers
without requiring collateral or third-party guarantees. To date, all of
AdForce's customers are participants in the Internet industry, including ad
agencies, Web sites, and ad rep firms. Few companies in the Internet industry
have a demonstrated history of profitability, and, accordingly, granting
unsecured credit to such customers carries with it a significant risk of loss.
AdForce monitors its exposure for credit losses and maintains appropriate
allowances. During 1996, AdForce was still in the development stage and had no
revenues. During 1997, two customers accounted for approximately 79% and 13% of
net revenue. One customer accounted for approximately 85% of AdForce's net
accounts receivable at December 31, 1997. During 1998, three customers accounted
for 40%, 16% and 11% of net revenue. Two customers each accounted for
approximately 31% of AdForce's net accounts receivable at December 31, 1998.
CASH AND CASH EQUIVALENTS
AdForce considers all highly liquid investments with an original
maturity from the date of purchase of three months or less to be cash
equivalents. As of December 31, 1997 and 1998, cash equivalents consisted
primarily of investments in money market accounts and commercial paper, and
their cost approximated fair value. AdForce places its cash and cash equivalents
in high-quality U.S. financial institutions and, to date, has not experienced
any losses on any of its investments.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards ("FAS") No. 107,
"DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS," requires that fair
values be disclosed for most of AdForce's financial instruments. The carrying
amounts of cash and cash equivalents, accounts receivable, note receivable from
stockholder, current liabilities, and capital lease obligations are considered
to be representative of their respective fair values.
F-7
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS, NET
Intangible assets consist primarily of purchased technology and other
intangibles related to an acquisition accounted for using the purchase method
and the value of the warrant issued to data vendors. Amortization of the
purchased technology and other intangibles related to the acquisition is
provided on a straight-line basis over the respective useful lives of the
assets, which range from two to three years. Purchased in-process research and
development without an alternative future use was expensed when acquired.
Amortization of the warrant value will be provided on a straight-line basis over
a three year period, beginning upon the earlier of July 14, 1999 or the
commencement of activity under the related agreement.
As of December 31, 1998, the Company has accumulated amortization
related to intangible assets of $849,000.
AdForce identifies and records impairment losses on intangible assets
when events and circumstances indicate that such assets might be impaired. To
date, no such impairment has been recorded.
DEPRECIATION AND AMORTIZATION
AdForce records property and equipment at cost and calculates
depreciation using the straight-line method over the estimated useful lives of
the assets, generally three to five years. Equipment acquired under capital
leases is amortized on a straight-line basis over the shorter of its lease term
or estimated useful life, generally three to five years.
ADVERTISING COSTS
Advertising costs are charged to expense when incurred. No advertising
was incurred for the period from January 16, 1996 (inception) to December 31,
1996. Advertising expense was $93,000 and $125,000 for the years ended December
31, 1997 and 1998, respectively.
REVENUE RECOGNITION
To date, all of AdForce's revenues have been generated from the
provision of Internet advertising management and delivery services for its
customers. AdForce generally recognizes revenues based on the number of ads
delivered. Revenue is recognized at the time the service is delivered, provided
AdForce does not have any significant remaining obligations and collection of
the resulting receivable is probable.
STOCK-BASED COMPENSATION
AdForce has elected to follow Accounting Principles Board Opinion No.
25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES" (APB Opinion No. 25), and related
interpretations in accounting for its employee stock options because, as
discussed in Note 7, the alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123, "ACCOUNTING FOR STOCK-BASED
COMPENSATION" (FAS 123), requires the use of option valuation models that were
not developed for use in valuing employee stock options. Under APB Opinion No.
25, when the exercise price of AdForce's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized. See pro forma disclosures of applying FAS 123 included in
Note 7.
F-8
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT COSTS
Costs incurred in the development of new software (and substantial
enhancements to existing software) to be used in connection with AdForce's
services are expensed to operations as incurred until technological feasibility
of such software has been established, at which time any additional costs would
be capitalized in accordance with FAS No. 86. Because AdForce believes that its
present process for developing software is completed essentially concurrently
with the establishment of technological feasibility, no research and development
costs have been capitalized to date.
NET LOSS PER SHARE
Basic and diluted net loss per share are presented in conformity with
FAS No. 128, "EARNINGS PER SHARE" ("FAS 128"), for all periods presented.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 98,
common stock and convertible preferred stock issued or granted for nominal
consideration prior to the anticipated effective date of AdForce's initial
public offering must be included in the calculation of basic and diluted net
loss per share as if they had been outstanding for all periods presented. To
date, AdForce has not had any issuances or grants for nominal consideration. In
accordance with FAS 128, basic and diluted net loss per share has been computed
using the weighted average number of shares of common stock outstanding during
the period, less shares subject to repurchase.
PRO FORMA NET LOSS PER SHARE AND PRO FORMA STOCKHOLDERS' EQUITY
Pro forma net loss per share has been computed as described above and
also gives effect, under Securities and Exchange Commission guidance, to the
conversion of convertible preferred stock not included above that will
automatically convert upon completion of AdForce's initial public offering
(using the as converted method). If the offering contemplated by this prospectus
is consummated, all of the convertible preferred stock outstanding as of
December 31, 1998 will automatically be converted into an aggregate of 9,467,118
shares of common stock. Pro forma stockholders' equity at December 31, 1998, as
adjusted for the conversion of convertible preferred stock, is disclosed on the
balance sheet.
F-9
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Historical and pro forma basic and diluted net loss per share are as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
PERIOD FROM YEARS ENDED DECEMBER
JANUARY 16, 1996 31,
(INCEPTION) TO --------------------
DECEMBER 31, 1996 1997 1998
------------------- --------- ---------
<S> <C> <C> <C>
Historical:
Net loss............................................... $ (3,452) $ (5,704) $ (15,020)
------- --------- ---------
------- --------- ---------
Basic and diluted shares:
Weighted average shares of common stock outstanding.... 3,665 2,836 4,443
Less weighted average shares subject to repurchase..... (1,200) (1,197) (1,599)
------- --------- ---------
Weighted average shares of common stock outstanding
used in computing basic and diluted net per loss
share................................................ 2,465 1,639 2,844
------- --------- ---------
------- --------- ---------
Basic and diluted net loss per share................... $ (1.40) $ (3.48) $ (5.28)
------- --------- ---------
------- --------- ---------
Pro forma:
Net loss............................................... $ (15,020)
Weighted average shares of common stock outstanding
used in computing basic and diluted net loss per
share................................................ 2,844
Adjusted to reflect the assumed conversion of
convertible preferred stock from the date of
issuance............................................. 8,033
---------
Weighted average shares used in computing pro forma
basic and diluted net loss per share................. 10,877
---------
---------
Pro forma basic and diluted net loss per share......... $ (1.38)
---------
---------
</TABLE>
If AdForce had reported net income, diluted net income per share would
have included the shares used in the computation of pro forma net loss per share
as well as approximately 1,953,414 and 3,217,546 common equivalent shares
related to outstanding options and warrants to purchase common stock not
included above for the years ended December 31, 1997 and 1998, respectively. The
common equivalent shares from options and warrants would be determined on a
weighted average basis using the treasury stock method.
COMPREHENSIVE LOSS
In June 1997, the Financial Accounting Standards Board issued FAS No.
130, "REPORTING COMPREHENSIVE INCOME" ("FAS 130"). FAS 130 establishes standards
for the reporting and display of comprehensive income and its components in a
full set of general purpose financial statements and is effective for fiscal
years beginning after December 15, 1997. AdForce adopted FAS 130 in the year
ended December 31, 1998. There was no impact on AdForce's financial statements
as a result of the adoption of FAS 130, as there is no difference between
AdForce's net loss reported and the comprehensive net loss under FAS 130 for the
periods presented.
F-10
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEGMENT INFORMATION
In June 1997, the Financial Accounting Standards Board issued FAS No.
131, "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION" ("FAS
131"). FAS 131 changes the way companies report selected segment information in
annual financial statements and requires companies to report selected segment
information in interim financial reports to stockholders. FAS 131 also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. AdForce adopted FAS 131 in the year ended
December 31, 1998. AdForce operates solely in one segment, the provision of
Internet advertising management and delivery services, and therefore there is no
impact on AdForce's financial statements of adopting FAS 131. For the year ended
December 31, 1998, sales to customers outside the United States were $375,000.
The majority of these sales were to customers in Europe.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued SOP No. 98-1, "ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE." SOP No. 98-1 requires entities to
capitalize certain costs related to internal-use software once certain criteria
have been met. AdForce will be required to implement SOP No. 98-1 for the year
ending December 31, 1999. AdForce does not expect that the adoption of SOP No.
98-1 will have a material impact on its financial position or results of
operations.
In April 1998, the AICPA issued SOP No. 98-5, "REPORTING ON THE COSTS OF
START-UP ACTIVITIES." SOP No. 98-5 requires that all start-up costs related to
new operations must be expensed as incurred. In addition, all start-up costs
that were capitalized in the past must be written off when SOP No. 98-5 is
adopted. AdForce will be required to implement SOP No. 98-5 for the year ending
December 31, 1999. Because AdForce has not capitalized any start-up costs
through December 31, 1998, AdForce does not expect that the adoption of SOP No.
98-5 will have a material impact on its financial position or results of
operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES." SFAS No.
133 establishes methods for derivative financial instruments and hedging
activities related to those instruments, as well as other hedging activities.
AdForce will be required to implement SFAS No. 133 for the year ending December
31, 2000. Because AdForce do not currently hold any derivative instruments and
do not engage in hedging activities, AdForce does not expect that the adoption
of SFAS No. 133 will have a material impact on its financial position or results
of operations.
F-11
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. BUSINESS COMBINATION
In February 1998, AdForce acquired StarPoint Software, Inc.
("StarPoint"), a company that developed software to serve Internet advertising,
for (i) 309,738 shares of Series C preferred stock with a fair value of
$1,465,000, (ii) 877,834 shares of common stock and options to purchase 48,056
shares of common stock with an aggregate fair value of $220,000, (iii) $113,000
of debt and (iv) $162,000 in acquisition costs in a transaction that was
accounted for as a purchase.
The purchase consideration was allocated to the acquired assets and
assumed liabilities based on fair values as follows (in thousands):
<TABLE>
<S> <C>
Current assets.............................................. $ 19
Property and equipment...................................... 77
Liabilities assumed......................................... (645)
Purchased in-process technology............................. 100
Purchased technology........................................ 1,669
Non-competition agreement................................... 540
Assembled workforce......................................... 200
--------
$ 1,960
--------
--------
</TABLE>
AdForce determined that $100,000 of the purchase price represented
purchased in-process technology that had not yet reached technological
feasibility and had no alternative future use. Accordingly, this amount was
expensed at the time of the acquisition. The value assigned to purchased
in-process technology was determined by identifying research projects in areas
for which technological feasibility had not been achieved and assessing the
completion date of the research and development effort. The state of completion
was determined by estimating the costs and time incurred to date relative to the
costs and time to be incurred to develop the purchased in-process technology
into commercially viable products, estimating the resulting net cash flows only
from the percentage of research and development efforts completed at the date of
acquisition, and discounting the net cash flows back to their present value. The
discount rate of 40% included a factor that took into account the uncertainty
surrounding the successful development of the purchased in-process technology
projects.
The value of the purchased technology ($1,669,000) was determined by
discounting expected future cash flows of the existing developed technologies
taking into account the characteristics and applications of the technology, the
size of existing markets and growth rates of existing and future markets, as
well as an evaluation of past and anticipated service-life cycles. The discount
rate of 35% included a factor that took into account the uncertainty surrounding
the successful delivery of the purchased technology.
F-12
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. BUSINESS COMBINATION (CONTINUED)
The following (unaudited) pro forma summary represents the consolidated
results of operations as if the acquisition of StarPoint had occurred at the
beginning of the period presented and is not intended to be indicative of future
results (in thousands except per share amounts).
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-------------------
<S> <C>
Pro forma net revenue................................... $ 437
Pro forma net loss...................................... $ (8,219)
Pro forma basic and diluted net loss per share.......... $ (3.27)
Number of shares used in pro forma basic and diluted per
share calculation..................................... 2,517
</TABLE>
The pro forma disclosures for the year ended December 31, 1998 have been
omitted because they are not materially different from the reported amounts as
the results of operations of StarPoint have been included since February 13,
1998. In-process research and development charges of $100,000 were excluded from
the pro forma net loss and pro forma net loss per share figures for the year
ended December 31, 1997. The number of shares used in the above pro forma per
share calculation assumes that the common stock issued to StarPoint on February
13, 1998 was issued and outstanding for the entire year of 1997. The pro forma
results are not necessarily indicative of what actually would have occurred if
the acquisition had been effected at the beginning of the period presented and
are not intended to be a projection of future results.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Computer hardware and software.............................. $ 2,648 $ 6,475
Office furniture and equipment.............................. 155 345
Leasehold improvements...................................... 76 152
--------- ---------
2,879 6,972
Less accumulated depreciation and amortization.............. 933 2,764
--------- ---------
$ 1,946 $ 4,208
--------- ---------
--------- ---------
</TABLE>
As of December 31, 1997 and 1998, property and equipment included
amounts acquired under capital leases of $2,491,000 and $5,140,000,
respectively, with related accumulated amortization of $740,000 and $1,714,000,
respectively. This includes property and equipment with a net book value of
$589,000 at December 31, 1998 that was acquired in 1996 and financed in 1997
through a sale-leaseback transaction.
F-13
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. RELATED PARTIES
Two of AdForce's founders and current stockholders hold executive
management positions with one of AdForce's customers. Net revenue recognized
from sales to this customer was $260,000 during the year ended December 31,
1998.
5. LICENSE AGREEMENT AND DEMOGRAPHIC DATA AGREEMENT
In July 1998, AdForce entered into a License Agreement and a Demographic
Data Agreement with America Online, Inc. In addition, AdForce sold 728,332
shares of Series E convertible preferred stock to America Online for a purchase
price of $10,000,000. In connection with the sale of Series E convertible
preferred stock to America Online, AdForce also issued to America Online a
warrant to purchase up to 509,831 shares of Series E convertible preferred stock
at an exercise price of $13.73 per share. The warrant is exercisable on or
before July 14, 2003 (See Note 8).
Under the License Agreement, AdForce licensed its technology to America
Online and its affiliates to be used internally by America Online and on sites
associated with America Online.
Under the Demographic Data Agreement, America Online may authorize
AdForce to use demographic information about America Online users in connection
with the targeting and delivery of ads to these users. After AdForce has access
to the demographic data, AdForce will pay America Online quarterly fees based on
the greater of a certain percentage of the consideration charged for targeted
advertising or a certain percentage of the incremental revenue charged for the
targeting feature. Such fees will total at least $10,000,000 for the first three
years after America Online provides access to the demographic data. The term of
the Demographic Data Agreement will expire on the earlier of July 14, 2002 or
three years after AdForce has access to the demographic data. America Online can
elect to renew the Demographic Data Agreement on a year-to-year basis with 90
days' notice on the same terms and conditions, subject to establishing mutually
agreeable minimum annual fees. America Online can elect to terminate the
Demographic Data Agreement upon payment of a fee to AdForce in the event a third
party offers more favorable terms for access to the demographic data and AdForce
does not match such terms. To data, AdForce has not had access to the
demographic data and there is no final implementation schedule or procedure for
such access.
6. COMMITMENTS
AdForce leases its operating and administrative facilities under
non-cancelable operating lease agreements that expire in April 2004. Rent
expense was approximately $81,000, $210,000, and $536,000 for the period from
January 16, 1996 (inception) to December 31, 1996 and for the years ended
December 31, 1997 and 1998, respectively.
During the years ended December 31, 1997 and 1998, AdForce executed five
lease-line agreements for a total of $8,000,000 in lease-line credit
availability. At December 31, 1998, related lease obligations bore interest at
an effective rate of 7.9% to 9.75% and were secured by the related property and
equipment. Approximately $2,110,000 in unused lease-line credit remained
available under lease agreements at December 31, 1998.
F-14
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS (CONTINUED)
As of December 31, 1998, minimum lease payments under all noncancelable
lease agreements were as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- -----------
<S> <C> <C>
1999.................................................... $ 1,943 $ 918
2000.................................................... 2,010 846
2001.................................................... 1,415 846
2002.................................................... 223 522
2003.................................................... -- 448
Thereafter.............................................. -- 60
----------- -----------
Total minimum lease payments............................ 5,591 $ 3,640
-----------
-----------
Less amount representing interest....................... 1,042
-----------
Present value of minimum lease payments................. 4,549
Less current portion of captial lease obligations....... 1,460
-----------
Long-term portion of capital lease obligations.......... $ 3,089
-----------
-----------
</TABLE>
7. BORROWING ARRANGEMENTS
During 1998, AdForce received funding from a private investor secured by
notes payable totaling $500,000. The notes payable plus accrued interest were
converted into 36,861 shares of Series D convertible preferred stock at a rate
of $13.73 per share during the year ended December 31, 1998.
During the period from January 16, 1996 (inception) to December 31,
1996, AdForce received funding from three investors secured by notes payable
totaling $1,757,000. During the period from January 16, 1996 (inception) to
December 31, 1996, $1,506,000 of these notes payable plus accrued interest were
converted into Series A convertible preferred stock at a rate of $2.51 per
share. The remaining notes payable plus accrued interest of $465,000 were repaid
to the related note holders during the period from January 16, 1996 (inception)
to December 31, 1996.
8. STOCKHOLDERS' EQUITY
GENERAL
In February 1998, AdForce's stockholders approved certain modifications
to AdForce's capital structure, including a two-for-one stock split of AdForce's
common stock, and a modification of the conversion ratio of all shares of
AdForce's preferred stock to common stock. All shares of preferred stock are now
convertible into two shares of common stock. In addition, the stockholders
approved the addition of 1,600,000 shares of common stock to the pool of shares
available for stock option grants under the 1997 Stock Plan. All common share
and per share amounts presented have been adjusted retroactively to reflect the
stock split.
F-15
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
CONVERTIBLE PREFERRED STOCK
Each share of convertible preferred stock is convertible into common
stock at the conversion ratio in effect at the time of conversion (two-for-one
at December 31, 1998) and is subject to appropriate adjustment for common stock
splits, stock dividends, and similar transactions. Conversion is automatic upon
the closing of an initial public offering of common stock in which, with respect
to the Series A, B, and C convertible preferred stock, the aggregate gross
proceeds to AdForce are at least $15,000,000 and the minimum offering price is
at least equal to $6.275 per share, and, with respect to the Series D and E
convertible preferred stock, the aggregate proceeds (gross with respect to
Series D and net with respect to Series E) to AdForce are at least $20,000,000
and the minimum offering price is at least equal to $125,000,000 divided by the
number of shares of AdForce's common stock outstanding immediately prior to the
offering, assuming conversion of all convertible securities and the exercise of
all options and warrants. In addition, the Series A, B, and C convertible
preferred stock is convertible upon the written consent or agreement of the
holders of a majority of the respective series of preferred stock.
Each holder of convertible preferred stock is entitled to a number of
votes equal to the number of shares of common stock into which such convertible
preferred stock is convertible.
Each holder of convertible preferred stock is entitled to receive, when
and as declared by the Board of Directors, noncumulative dividends at the annual
rate of $0.20, $0.20, $0.38, $1.10, and $1.10 per share for Series A, B, C, D,
and E convertible preferred stock, respectively, payable in preference and
priority to any payment of any dividend on common stock.
In the event of liquidation, the holders of convertible preferred stock
would be entitled to a liquidation preference equal to $2.51 per share for all
Series B convertible preferred stock, $4.73 per share for all Series C
convertible preferred stock and $13.73 per share for all Series D and E
convertible preferred stock, plus any declared but unpaid dividends on such
share, and if assets remain in the corporation that are legally available for
distribution, the holders of the Series B, C, D, and E convertible preferred
stock would receive from the remaining assets of the corporation available for
distribution to stockholders that portion of such assets equal to their pro rata
share of such assets based on the number of shares of common stock held by all
stockholders of the corporation, assuming the conversion to common stock of all
shares of Series A, B, C, D, and E convertible preferred stock. Then, and only
then, would the holders of Series A convertible preferred stock receive $2.51
per share, plus all declared but unpaid dividends. Any remaining assets would
then be distributed on a pro rata basis among the holders of Series A
convertible preferred stock and the holders of common stock.
COMMON STOCK
At December 31, 1998, AdForce had reserved 10,755,662 shares of its
common stock for issuance upon conversion of the outstanding shares of its
Series A, B, C, D, and E convertible preferred stock and shares of preferred
stock issuable upon the exercise of outstanding warrants, and 2,631,770 shares
of common stock for issuance upon exercise of options outstanding and available
under the 1997 Stock Plan and shares of common stock issuable upon the exercise
of outstanding warrants.
A total of 1,449,620 shares of common stock issued to two of AdForce's
founders in 1996 are subject to certain repurchase rights held by AdForce. Such
repurchase rights lapsed immediately with respect to 25% of the shares and lapse
ratably with respect to the remaining shares over 36 months beginning in June
1996. During 1998, the founders ceased their employment with AdForce. AdForce
F-16
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
elected not to exercise its repurchase right with respect to the remaining
256,195 shares subject to repurchase at that time. Compensation expense of
$1,407,000 was recorded in 1998 related to such shares based on the difference
between the exercise price and the fair value of such shares at the time the
founders ceased employment with AdForce.
At December 31, 1998, 562,500 shares of common stock held by an officer
were subject to repurchase by AdForce at their original purchase price of $0.125
per share. Such repurchase rights lapse ratably over the 48-month vesting period
of the underlying options to purchase common stock.
A total of 800,000 shares of common stock issued in conjunction with
AdForce's acquisition of StarPoint to three of StarPoint's founders, who are now
employees of AdForce, were subject to certain repurchase rights held by AdForce.
At December 31, 1998, 266,667 of these shares of common stock remained subject
to repurchase. The repurchase rights lapsed as to 22/48 of the shares on the
date of acquisition, as to 9/48 of the shares after the employees had completed
nine months of continuous employment at AdForce and as to 1/48 of these shares
each month thereafter.
NOTE RECEIVABLE FROM STOCKHOLDER
During 1997, AdForce received a note receivable from a stockholder of
AdForce upon his exercise of an option to purchase 900,000 shares of common
stock. As of December 31, 1998, 562,500 of the shares issued were subject to
repurchase by AdForce at the original exercise price. The repurchase rights
lapse ratably over the 48 month vesting period of the underlying option. The
note bears interest at 6.8% and is secured by the related stock. The note and
related interest is being forgiven ratably over a period of four years of
service/employment.
F-17
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
WARRANTS
In association with certain transactions, AdForce issued warrants to
third parties for the purchase of AdForce's common stock and convertible
preferred stock. The warrants that remained outstanding at December 31, 1998
were as follows:
<TABLE>
<CAPTION>
SHARES UNDER EXPIRATION OF
PARTY CLASS OF STOCK DATE OF ISSUANCE WARRANT EXERCISE PRICE EXERCISABILITY
- ------------------- ------------------- ------------------ ------------ ---------------- -------------------
<S> <C> <C> <C> <C> <C>
Vendor Common stock April 1997 6,142 $1.26 - $2.37 October 15, 2007
Leasing vendor Series B March 1997 27,889 $2.51 December 31, 2002
convertible
preferred stock
Leasing vendors Series C December 1997 59,197 $4.73 December 31, 2002
convertible through December
preferred stock 2, 2007
Leasing vendor Series D September 1998 10,925 $13.73 September 29, 2008
convertible
preferred stock
Private Investors Series D July 1998 36,430 $13.73 July 14, 2003
convertible
preferred stock
Private Investor/ Series E July 1998 509,831 $13.73 July 14, 2003
Data Vendor convertible
preferred stock
</TABLE>
Warrants to purchase 6,142 shares of common stock, included above,
expire on the earlier of October 15, 2007 or the filing by AdForce of an initial
public offering. Warrants to purchase 36,998 and 10,925 shares of Series C and
Series D convertible preferred stock, included above, expire on the later of
December 2, 2007 and September 29, 2008, respectively, or five years subsequent
to the filing by AdForce of an initial public offering. Warrants to purchase
36,430 shares of Series D convertible preferred stock and 509,831 shares of
Series E convertible preferred stock, included above, expire on the later of
July 14, 2003 or the closing of any merger, tender offer, or other transaction
in which all of the holders of AdForce's outstanding common stock and preferred
stock (if any) receive only cash or cash and other securities payable only in
cash. Warrants to purchase 400,000 shares of common stock issued to a data
vendor were exercised during 1998 but are subject to certain repurchase rights
held by AdForce. These repurchase rights lapsed as to 25% of the shares in April
1997 and 2.08% of the shares each month thereafter. As of December 31, 1998,
133,360 shares acquired pursuant to this warrant exercise remained subject to
AdForce's repurchase right.
F-18
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
AdForce has determined the value of all warrants granted to third
parties, excluding the value attributable to equity investments, to be
approximately $2,274,000 and will record the related expense over the term of
the respective agreements. AdForce recognized interest expense of $23,000 and
$56,000 during the years ended December 31, 1997 and 1998, respectively, related
to the estimated fair market value of these warrants.
STOCK OPTION PLANS
AdForce has elected to follow APB Opinion No. 25 and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FAS
No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION" ("FAS 123"), requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB Opinion No 25, when the exercise price of AdForce's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
During 1997, AdForce adopted the 1997 Stock Plan (the "Plan"). Under the
Plan, options to purchase common stock may be granted at no less than 85% of the
fair value of the underlying common stock on the date of the grant, as
determined by the Board of Directors. Options generally have a maximum term of
10 years and are exercisable immediately, but vest over a 48-month period. Under
the Plan, an optionee may exercise part or all of the options prior to the
stated vesting date. However, unvested shares are subject to repurchase, at
AdForce's option, upon a stockholder's termination of employment for any reason.
As of December 31, 1998, 763,088 of the shares issued upon exercise of stock
options, including the options exercised by an officer of AdForce that are
discussed under "NOTE RECEIVABLE FROM SALE OF COMMON STOCK," were subject to
repurchase by AdForce at the exercise price.
In connection with the acquisition by AdForce of StarPoint as described
in Note 2, AdForce assumed all options outstanding under the StarPoint Software,
Inc. 1996 Stock Plan ("StarPoint Plan"). These options vest over a 48-month
period with 9/48 of the underlying shares vesting after the employee had
completed nine months of continuous employment at AdForce and 1/48 of the
underlying shares vesting each month thereafter.
A summary of activity under the Plan and the StarPoint Plan is as
follows:
<TABLE>
<CAPTION>
SHARES WEIGHTED
AVAILABLE FOR OPTIONS PRICE PER AVERAGE
GRANT OUTSTANDING SHARE EXERCISE PRICE
------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C>
Shares authorized...................... 2,400,000 -- -- --
Options granted........................ (2,360,098) 2,360,098 $0.125-$0.250 $ 0.159
Options exercised...................... -- (937,830) $0.125 $ 0.125
Options canceled....................... 49,168 (49,168) $0.153 $ 0.153
------------- ------------ -------------
Balances at December 31, 1997............ 89,070 1,373,100 $0.125-$0.250 $ 0.183
Shares authorized...................... 1,600,000 -- -- --
Options granted........................ (1,485,085) 1,485,085 $0.250-$1.500 $ 1.048
Options assumed under Starpoint Plan... -- 48,056 $0.090-$0.360 $ 0.264
Options repurchased.................... 52,216 -- $0.125-$0.250 $ 0.204
Options exercised...................... -- (519,695) $0.090-$1.500 $ 0.188
Options canceled....................... 446,567 (463,686) $0.090-$1.500 $ 0.562
------------- ------------ -------------
Balances at December 31, 1998............ 702,768 1,922,860 $0.125-$1.500 $ 0.760
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
F-19
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information concerning outstanding
options at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------
WEIGHTED WEIGHTED
RANGE OF AVERAGE REMAINING AVERAGE
EXERCISE NUMBERS OF CONTRACTUAL LIFE EXERCISE
PRICES SHARES (IN YEARS) PRICE
- -------------- ----------- ----------------- -----------
<S> <C> <C> <C>
$0.125 -
$0.250 1,016,950 8.88 $ 0.228
$0.700 162,250 9.42 $ 0.700
$1.500 743,660 9.32 $ 1.500
----------- --- -----------
$0.125 -
$1.500 1,922,860 9.10 $ 0.760
----------- --- -----------
----------- --- -----------
</TABLE>
All outstanding options to purchase common stock of AdForce were
exercisable at December 31, 1998. As of December 31, 1998, options to purchase
314,101 shares of common stock were vested.
In connection with the grant of certain options to employees through
December 31, 1998, AdForce recorded deferred stock compensation of approximately
$1,052,000 for the aggregate difference between the exercise prices of those
options at their respective dates of grant and the deemed fair values for
accounting purposes of the shares of common stock subject to such options. Such
amount is included as a reduction of stockholders' equity and is being amortized
on a graded vesting method. The compensation expense of $1,052,000 in 1998
relates to options awarded to employees in all operating expense categories, as
well as employees in data center operations. This amount has not been separately
allocated between operating expense categories. In January 1999, AdForce granted
to employees options to purchase 777,000 shares of common stock with an exercise
price of $1.50 per share. AdForce estimates that it will record additional
deferred stock compensation of approximately $4,662,000 with regard to these
grants.
Pro forma information regarding net loss is required by FAS 123,
computed as if AdForce had accounted for its employee stock options granted or
otherwise modified under the fair value-based accounting method of that
statement. The value for these options was estimated at the date of grant using
the minimum value method with the following weighted average assumptions:
<TABLE>
<CAPTION>
1997 1998
--------- ----------------
<S> <C> <C>
Expected dividend yield........................................... 0.00% 0.00%
Weighted average risk-free interest rate.......................... 5.00% 4.45% - 5.63%
Weighted average expected life.................................... 4 years 5 years
</TABLE>
The weighted average fair value of options granted during 1997 and 1998
with an exercise price equal to the fair value of AdForce's common stock on the
date of grant was $0.06. The weighted-average
F-20
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
fair value of options granted during 1998 with an exercise price below the
deemed fair value of AdForce's common stock on the date of grant was $3.70.
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Pro forma net loss...................................................... ($ 5,720) ($ 15,095)
--------- ---------
--------- ---------
Pro forma basic and diluted net loss per share.......................... ($ 1.39)
---------
---------
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Future pro
forma net income (loss) results may be materially different from actual future
amounts reported.
9. ACQUISITION OF TECHNOLOGY AND OPERATING RIGHTS
In January 1996, AdForce assumed the assets and liabilities of Iron
Mountain Global Information Systems, Inc. in exchange for a combination of
1,720,000 shares of common stock in AdForce valued at $0.005 per share, the
assumption of notes payable of $214,000 and an agreement to make a cash payment
of $106,000 to an investor in Iron Mountain Global Information Systems, Inc. The
net assets acquired included in-process software technology for use in the
business of Internet ad-serving. However, this technology was initially
developed for online real estate advertising and inquiry and subsequently proved
to be unusable for AdForce's current Internet advertising processes. This
software technology was abandoned during 1996 in favor of the development of new
software technology to satisfy projected market needs. Accordingly, the entire
value assigned to the acquired technology of $319,000 was expensed to Research
and Development during the period from January 16, 1996 (inception) to December
31, 1996.
10. INCOME TAXES
Due to operating losses and the inability to recognize the benefits
therefrom, there is no provision for income taxes for the period from January
16, 1996 (inception) to December 31, 1996 and the years ended December 31, 1997
and 1998.
Significant components of AdForce's deferred tax assets and liabilities
are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......................... $ 3,275 $ 6,989
Tax credit carryforwards................................. 221 380
Other--net............................................... 204 1,214
--------- ---------
Total deferred tax assets.................................. 3,700 8,583
Valuation allowance........................................ (3,700) (7,962)
--------- ---------
Net deferred tax assets.................................... $ -- $ 621
--------- ---------
Deferred tax liability:
Acquired intangibles..................................... -- 621
--------- ---------
Net deferred tax assets and liabilities.................... $ -- $ --
--------- ---------
--------- ---------
</TABLE>
F-21
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES (CONTINUED)
FASB Statement No. 109 provides for the recognition of deferred tax
assets if realization of such assets is more likely than not. Based upon the
weight of available evidence, which includes AdForce's historical operating
performance and the reported cumulative net losses in all prior years, AdForce
has provided a full valuation allowance against its net deferred tax assets.
The valuation allowance increased by approximately $1,300,000 and $2,400,000
during the period from January 16, 1996 (inception) to December 31, 1996 and the
year ended December 31, 1997, respectively.
As of December 31, 1998, AdForce had federal and state net operating
loss carryforwards of approximately $17,000,000. AdForce also had federal and
state research and development tax credit carryforwards of approximately
$250,000 and $130,000, respectively. The net operating loss and tax credit
carryforwards, if not utilized, will expire at various dates beginning in 2004.
Utilization of the net operating loss and tax credit carryforwards may
be subject to a substantial annual limitation due to the "change in ownership"
provisions of the Internal Revenue Code of 1986, as amended, and similar state
provisions. The annual limitation may result in expiration of net operating loss
and tax credit carryforwards before utilization.
11. SUBSEQUENT EVENTS
In February 1999, the Board of Directors approved the reincorporation in
the state of Delaware as AdForce, Inc. subject to stockholder approval.
In February 1999, the Board of Directors adopted the 1999 Equity
Incentive Plan and reserved 2,000,000 shares for issuance thereunder, subject to
stockholder approval. The 1999 Equity Incentive Plan will become effective on
the effective date of the initial public offering and will serve as the
successor to the Plan. Options granted under the Plan before its termination
will remain outstanding according to their terms, but no further options will be
granted under the Plan after the effective date of the initial public offering.
The 1999 Equity Incentive Plan will terminate in February 2009, unless sooner
terminated in accordance with its terms. The 1999 Equity Incentive Plan
authorizes the award of incentive stock options and nonqualified stock options,
restricted stock awards and stock bonuses.
In February 1999, the Board of Directors adopted the 1999 Employee Stock
Purchase Plan and reserved a total of 300,000 shares of common stock for
issuance thereunder, subject to stockholder approval. On each January 1, the
aggregate number of shares reserved for issuance under the 1999 Employee Stock
Purchase Plan will be increased automatically by the number of shares purchased
under the 1999 Employee Stock Purchase Plan in the preceding calendar year. The
aggregate number of shares issued over the term of the 1999 Employee Stock
Purchase Plan may not exceed 3,000,000 shares. The 1999 Employee Stock Purchase
Plan will become effective on the effective date of the initial public offering.
Employees generally will be eligible to participate in the 1999 Employee Stock
Purchase Plan if they are customarily employed by AdForce or its parent or any
subsidiaries that AdForce designates for more than 20 hours per week and more
than five months in a calendar year. Under the 1999 Employee Stock Purchase
Plan, eligible employees will be permitted to acquire shares of AdForce's common
stock through payroll deductions. Eligible employees may select a rate of
payroll deduction between 2% and 10% of their compensation and are subject to
certain maximum purchase limitations described in the 1999 Employee Stock
Purchase Plan. Each offering period under the 1999 Employee Stock Purchase Plan
will be for two years and consist of six-month purchase periods. The first
offering period is expected to begin on the first business day on which price
quotations for AdForce's common stock are available on the
F-22
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. SUBSEQUENT EVENTS (CONTINUED)
Nasdaq National Market. Offering periods and purchase periods thereafter will
begin on February 1 and August 1. The purchase price for AdForce's common stock
purchased under the 1999 Employee Stock Purchase Plan is 85% of the lesser of
the fair market value of AdForce's common stock on the first day of the
applicable offering period or the last day of each purchase period. The 1999
Employee Stock Purchase Plan will terminate in February 1999, unless earlier
terminated pursuant to the terms of the 1999 Employee Stock Purchase Plan. The
Board of Directors will have the authority to amend, terminate, or extend the
term of the 1999 Employee Stock Purchase Plan.
In February 1999, the Board of Directors adopted the 1999 Directors
Stock Option Plan and reserved a total of 200,000 shares of common stock for
issuance under the 1999 Directors Stock Option Plan, subject to stockholder
approval. Members of the Board of Directors who are not employees of AdForce, or
any parent, subsidiary or affiliate of AdForce, are eligible to participate in
the 1999 Directors Stock Option Plan. Option grants under the 1999 Directors
Stock Option Plan are automatic and nondiscretionary, and the exercise price of
the options is the fair market value of the common stock on the date of grant.
Each eligible director who first becomes a member of the Board of Directors on
or after the effective date of the initial public offering will initially be
granted an option to purchase 10,000 shares of common stock on the date he or
she becomes a member of the Board of Directors. Each eligible director who first
becomes a member of the Board of Directors prior to the effective date of the
initial public offering will receive an initial grant immediately following the
first annual meeting of stockholders of AdForce after the effective date of the
initial public offering, provided that he or she is elected a member of the
Board of Directors at the first annual meeting of stockholders. Immediately
following each annual meeting of stockholders of AdForce, each eligible director
will automatically be granted an additional option to purchase 5,000 shares of
common stock if he or she has served continuously as a member of the Board of
Directors for a period of at least one year since the date of his or her initial
grant under this Plan. The options have ten-year terms. They will terminate
seven months following the date the director ceases to be a director or a
consultant to AdForce, or twelve months if the termination is due to death or
disability. All options granted under the 1999 Directors Stock Option Plan will
vest as to 25% of the shares on the first anniversary of the date of grant and
as to 2.08333% of the shares each month thereafter, provided the optionee
continues as a member of the Board of Directors or as a consultant to AdForce.
In the event of a merger or other transaction in which AdForce is not the
surviving corporation, all options issued under the 1999 Directors Stock Option
Plan will accelerate and become exercisable in full prior to the consummation of
the transaction.
In February 1999, AdForce executed a lease-line agreement for a total of
$4,000,000 in lease-line credit availability. Obligations under the lease-line
will be secured by the related equipment and will be payable over a 42 month
period.
In February 1999, AdForce executed a noncancellable operating lease for
a facility in Cupertino, California that expires in April 2003. Future minimum
lease payments under the noncancellable lease agreement is as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
1999............................................................. $ 835
2000............................................................. 1,213
2001............................................................. 1,261
2002............................................................. 1,312
2003............................................................. 417
---------
Total minimum lease payments..................................... $ 5,038
---------
---------
</TABLE>
F-23
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
AdForce, Inc.
We have audited the accompanying balance sheet of StarPoint Software,
Inc. as of May 31, 1997, and the related statements of operations, shareholders'
equity (net capital deficiency), and cash flows for the period from August 8,
1996 (inception) through May 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of StarPoint, Software,
Inc. at May 31, 1997, and the results of its operations and its cash flows for
the period from August 8, 1996 (inception) through May 31, 1997, in conformity
with generally accepted accounting principles.
San Jose, California
October 29, 1998
F-24
<PAGE>
STARPOINT SOFTWARE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31, NOVEMBER 30,
1997 1997
---------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash........................................................... $ 60,251 $ 42,515
Accounts receivable............................................ 47,500 12,600
Prepaid expenses and other current assets...................... 12,278 6,139
---------- -------------
Total current assets............................................. 120,029 61,254
Property and equipment, net...................................... 95,138 85,818
---------- -------------
Total assets..................................................... $ 215,167 $ 147,072
---------- -------------
---------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable............................................... $ 113,854 $ 128,273
Accrued compensation and related benefits...................... 172,415 336,313
Other accrued liabilities...................................... 45,483 235,548
Deferred revenue............................................... 42,500 13,333
Convertible promissory notes payable........................... 827,562 1,038,482
---------- -------------
Total current liabilities........................................ 1,201,814 1,751,949
Commitments
Shareholders' equity (net capital deficiency):
Convertible preferred stock, $0.0001 par value per share
issuable in series:
Authorized shares--5,000,000...............................
Series B convertible preferred stock:
Designated shares--1,500,000
Issued and outstanding shares--none........................ -- --
Common stock, $0.0001 par value:
Authorized shares--15,000,000
Issued and outstanding shares--2,544,918 at May 31, 1997 and
2,858,512 at November 30, 1997............................. 254 286
Additional paid-in capital..................................... 79,761 126,622
Accumulated deficit............................................ (1,066,662) (1,731,785)
---------- -------------
Total shareholders' equity (net capital deficiency).............. (986,647) (1,604,877)
---------- -------------
Total liabilities and shareholders' equity (net capital
deficiency).................................................... $ 215,167 $ 147,072
---------- -------------
---------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-25
<PAGE>
STARPOINT SOFTWARE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
AUGUST 8, 1996 AUGUST 8, 1996
(INCEPTION) (INCEPTION) SIX MONTHS ENDED
THROUGH MAY 31, THROUGH NOVEMBER NOVEMBER 30,
1997 30, 1996 1997
---------------- ---------------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
Net revenue............................................. $ 5,000 $ -- $ 110,267
Cost of sales........................................... -- -- 23,530
---------------- -------- --------
Gross margin.............................................. 5,000 -- 86,737
Operating expenses:
Research and development................................ 592,152 128,404 394,606
Marketing and selling................................... 224,821 -- 77,699
General and administrative.............................. 214,469 34,007 229,757
---------------- -------- --------
Total operating expenses.................................. 1,031,442 162,411 702,062
---------------- -------- --------
Loss from operations...................................... (1,026,442) (162,411) (615,325)
Interest expense, net..................................... (40,220) -- (49,798)
---------------- -------- --------
Net loss.................................................. $ (1,066,662) $ (162,411) $ (665,123)
---------------- -------- --------
---------------- -------- --------
</TABLE>
SEE ACCOMPANYING NOTES.
F-26
<PAGE>
STARPOINT SOFTWARE, INC.
STATEMENT OF SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
TOTAL
SHAREHOLDERS'
COMMON STOCK ADDITIONAL EQUITY
---------------------- PAID-IN ACCUMULATED (NET CAPITAL
SHARES AMOUNT CAPITAL DEFICIT DEFICIENCY)
--------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock to
founders....................... 2,470,000 $ 247 $ 24,453 $ -- $ 24,700
Issuance of common stock....... 74,918 7 5,428 -- 5,435
Issuance of stock purchase
warrants..................... -- -- 49,880 -- 49,880
Net loss....................... -- -- -- (1,066,662) (1,066,662)
--------- --- ----------- ------------ ------------
Balance at May 31, 1997.......... 2,544,918 254 79,761 (1,066,662) (986,647)
Issuance of common stock
(unaudited).................. 313,594 32 36,756 -- 36,788
Issuance of stock purchase
warrants (unaudited)......... -- -- 10,105 -- 10,105
Net loss (unaudited)........... -- -- -- (665,123) (665,123)
--------- --- ----------- ------------ ------------
Balance at November 30, 1997
(unaudited).................... 2,858,512 $ 286 $ 126,622 $(1,731,785) $(1,604,877)
--------- --- ----------- ------------ ------------
--------- --- ----------- ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-27
<PAGE>
STARPOINT SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
AUGUST 8, 1996 AUGUST 8, 1996
(INCEPTION) (INCEPTION) SIX MONTHS
THROUGH THROUGH ENDED
MAY 31, 1997 NOVEMBER 30, 1996 NOVEMBER 30, 1997
---------------- --------------------- ---------------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................ $ (1,066,662) $ (162,411) $ (665,123)
Reconciliation of net loss to net cash used in
operating activities:
Depreciation and amortization................. 19,294 336 15,559
Amortization of discount on convertible notes
payable..................................... 17,442 -- 27,925
Changes in operating assets and liabilities:
Accounts receivable......................... (47,500) -- 34,900
Prepaid expenses and other current assets... (12,278) (12,278) 6,139
Accounts payable............................ 113,854 376 14,419
Accrued compensation and related benefits... 172,415 95,339 163,898
Deferred revenue............................ 42,500 -- (29,167)
Other accrued liabilities................... 45,483 12,008 190,065
---------------- -------- --------
Net cash used in operating activities........... (715,452) (66,630) (241,385)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................ (114,432) (8,070) (6,239)
---------------- -------- --------
Net cash used in investing activities........... (114,432) (8,070) (6,239)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock and
warrants, net................................. 80,015 27,600 46,893
Proceeds from issuance of convertible notes
payable....................................... 810,120 47,100 182,995
---------------- -------- --------
Net cash provided by financing activities....... 890,135 74,700 229,888
---------------- -------- --------
Net increase (decrease) in cash................. 60,251 -- (17,736)
Cash at beginning of period..................... -- -- 60,251
---------------- -------- --------
Cash at end of period........................... $ 60,251 $ -- $ 42,515
---------------- -------- --------
---------------- -------- --------
</TABLE>
SEE ACCOMPANYING NOTES.
F-28
<PAGE>
STARPOINT SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
StarPoint Software Inc. ("StarPoint") was incorporated on August 8, 1996
to provide software products for serving Internet advertising. StarPoint has
developed technology that is used to electronically place advertisements on
Internet web pages using highly sophisticated targeting techniques. It has
deployed such technology as part of a marketed software offering that
facilitates the delivery of Internet ads for a variety of market segments,
including (i) advertisers; (ii) advertising agencies; (iii) advertising
representation firms; and (iv) Internet service providers, content providers
(i.e., "Web sites"), and search engines. StarPoint's principal activities to
date have been recruiting personnel, performing research and development, and
building a sales and marketing function. StarPoint was in the development stage
through May 1997, when it first began generating revenues.
INTERIM FINANCIAL STATEMENTS
The accompanying balance sheet as of November 30, 1997 and the
statements of operations and cash flows for the period from August 8, 1996
(inception) through November 30, 1996 and the six month period ended November
30, 1997 are unaudited. In the opinion of management, the unaudited financial
statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting of normal recurring entries,
necessary for a fair statement of the financial position, result of operations,
and cash flows for the interim periods. The results of operations for the
six-month period ended November 30, 1997 are not necessarily indicative of
operating results to be expected for the full fiscal year.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
StarPoint markets, sells, and grants credit for its products to its
customers without requiring collateral or third-party guarantees. To date, all
of StarPoint's customers are participants in the Internet industry. Only a few
of all participants in the Internet industry have a demonstrated history of
profitability, and accordingly, unsecured credit granted to such customers
carries with it a greater risk of loss. StarPoint monitors its exposure for
credit losses and maintains appropriate allowances.
DEPRECIATION AND AMORTIZATION
StarPoint records property and equipment at cost and calculates
depreciation using an accelerated depreciation method over the estimated useful
life of the assets, generally three to seven years.
ADVERTISING COSTS
Advertising costs are charged to expense when incurred. Advertising
expense was $19,294 for the period from August 8, 1996 (inception) through May
31, 1997.
F-29
<PAGE>
STARPOINT SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
StarPoint licenses software to end users under noncancelable license
agreements. Software license revenue is generally recognized at the time the
product has been shipped, provided StarPoint does not have any significant
remaining obligations and collection of the resulting receivable is probable.
Maintenance revenue is recognized ratably over the term of the related
agreement, which in most cases is one year. Revenue is recorded net of revenue
allowances.
STOCK-BASED COMPENSATION
StarPoint accounts for employee stock option grants in accordance with
Accounting Principals Board Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES" (APB Opinion No. 25). StarPoint grants stock options for a fixed
number of shares to employees with an exercise price equal to the fair value of
the shares at the date of grant and, accordingly, recognizes no compensation
expense for the employee stock option grants.
RESEARCH AND DEVELOPMENT COSTS
Costs incurred in the development of new software (and substantial
enhancements to existing software) used in the processes of StarPoint's Internet
advertisement serving services are expensed to operations as incurred until
technological feasibility of such software has been established, at which time
any additional costs would be capitalized in accordance with Statement of
Financial Accounting Standards No. 86, "ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED" (FAS 86). Because StarPoint
believes that its present process for developing software is essentially
completed concurrently with the establishment of technological feasibility, no
costs have been capitalized to date.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
MAY 31, 1997
-------------
<S> <C>
Computer hardware and software................................ $ 101,172
Office furniture and equipment................................ 13,260
-------------
114,432
Less accumulated depreciation and amortization................ 19,294
-------------
$ 95,138
-------------
-------------
</TABLE>
3. COMMITMENTS
StarPoint has leased its facility under a noncancelable operating lease
agreement which expires in November 1997. As of May 31, 1997, minimum lease
payments under the noncancelable lease agreement for the year ended May 31, 1998
was $37,125.
Rent expense was approximately $60,500 for the period from August 8,
1996 (inception) through May 31, 1997.
F-30
<PAGE>
STARPOINT SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. CONVERTIBLE PROMISSORY NOTES PAYABLE
During the period from August 8, 1996 (inception) through May 31, 1997,
StarPoint received funding from investors secured by convertible promissory
notes payable totaling $860,000. The notes bear interest at 6.5% and mature on
demand or on the stated maturity date which is from November 29, 1997 to March
4, 1998. Prior to the maturity date, the promissory notes and accrued interest
will automatically convert into preferred stock upon the closing of an equity
financing of StarPoint's preferred stock for an aggregate consideration of at
least $1,500,000.
In connection with the convertible promissory notes issued, StarPoint
has issued warrants to purchase $172,000 of preferred stock at an exercise price
equal to the lower of $2.00 or the issuance price of the preferred stock at the
time of the financing. The warrants are exercisable at any time prior to
expiration and will expire at the earlier of: (i) five years, (ii) the merger or
consolidation of StarPoint into a third party pursuant to which StarPoint's
shareholders own less than 50% of the surviving entity, (iii) the sale of
substantially all of the assets of StarPoint, or (iv) the closing of an initial
public offering of common stock. StarPoint has allocated $49,880 of the proceeds
received from the issuance of the promissory notes to the value of the warrants.
The principal amounts of the convertible promissory notes were reduced by the
value assigned to the warrants, and such amount is being recognized as
additional interest expense over the life of the notes. StarPoint recognized
interest expense of $17,442 related to the estimated fair market value of the
warrants.
As of May 31, 1997, StarPoint has reserved 526,624 shares of preferred
stock for issuance upon conversion of the convertible promissory notes and
exercise of stock purchase warrants. No warrants were exercised in the period
from August 8, 1996 (inception) through May 31, 1997.
5. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
COMMON STOCK
As of May 31, 1997, StarPoint has reserved 741,000 shares of its common
stock for issuance upon exercise of options outstanding and available under the
1996 Stock Plan.
A total of 2,470,000 shares of common stock issued in 1996 to three of
StarPoint's founders and a consultant are subject to certain repurchase rights
held by StarPoint. Such repurchase rights lapse 10% immediately, 15% in August
1997, and the remainder ratably over 48 months beginning in September 1997. As
of May 31, 1997, 2,223,000 shares of common stock are subject to repurchase by
StarPoint at the original purchase price of $0.01 per share.
STOCK OPTION PLANS
StarPoint has elected to follow APB Opinion No. 25, and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123, "ACCOUNTING FOR STOCK-BASED
COMPENSATION" (FAS 123), requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB Opinion 25, when
the exercise price of StarPoint's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.
During the period from August 8, 1996 (inception) through May 31, 1997,
StarPoint adopted the 1996 Stock Plan (the Plan). Under the Plan, up to 741,000
shares of StarPoint's common stock may be
F-31
<PAGE>
STARPOINT SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) (CONTINUED)
granted to directors, employees, and certain consultants. Under the Plan,
options to purchase common stock may be granted at no less than 100% of the fair
value on the date of the grant as determined by the Board of Directors. Options
generally vest over a 48-month period and have a maximum term of ten years.
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE
AVAILABLE OPTIONS PRICE PER EXERCISE
FOR GRANT OUTSTANDING SHARE PRICE
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Shares authorized............ 741,000 -- $ -- $ --
$ 0.03 -
Options granted.............. (174,000) 174,000 $0.12 $ 0.07
Options canceled............. 4,000 (4,000) $ 0.07 $ 0.07
----------- -------------
$ 0.03 -
Balance at May 31, 1997...... 571,000 170,000 $0.12 $ 0.07
----------- -------------
----------- -------------
</TABLE>
All outstanding options to purchase common stock of StarPoint were
exercisable at May 31, 1997. As of May 31, 1997, options to purchase 7,292
shares of common stock were vested. The weighted average remaining contractual
life of those options is approximately 9.7 years.
Pro forma information regarding net income (loss) is required by FAS
123, which also requires that the information be determined as if StarPoint has
accounted for its employee stock options granted subsequent to December 31, 1994
under the fair value method of FAS 123. The fair value of these options was
estimated at the date of grant using the minimum-value method option-pricing
model. The following weighted average assumptions were used for the period ended
May 31, 1997: (i) a risk-free interest rate of 5%, (ii) a dividend yield of
zero, and (iii) a weighted average expected life of the option of four years.
The weighted average fair value of options granted during 1997 was $0.03.
The effect of applying FAS 123 to StarPoint's stock option awards
resulted in a pro forma net loss of $1,066,915 for the period from August 8,
1996 (inception) through May 31, 1997.
6. INCOME TAXES
As of May 31, 1997, StarPoint had federal and state net operating loss
carryforwards of approximately $1,100,000. The net operating loss carryforwards
will expire at various dates beginning in 2005 through 2012, if not utilized.
Utilization of the net operating losses may, in the future, be subject
to a substantial annual limitation due to the "change in ownership" provisions
of the Internal Revenue Code of 1986, as amended, and similar state provisions.
The annual limitation may result in the expiration of net operating losses
before utilization.
As of May 31, 1997, StarPoint had deferred tax assets of approximately
$400,000. The net deferred tax asset has been fully offset by a valuation
allowance. The net valuation allowance increased by $400,000 during the period
from August 8, 1996 (inception) through May 31, 1997. Deferred tax assets
primarily relate to net operating loss carryforwards.
F-32
<PAGE>
STARPOINT SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. SUBSEQUENT EVENTS
In June and October 1997, StarPoint amended the terms of the convertible
promissory notes to allow the holders to convert the outstanding principal and
accrued interest into Series B preferred stock at a conversion price of $0.60
per share upon the earlier of the maturity date or a change in control.
In June, July, and October 1997, StarPoint received funding from
investors secured by convertible promissory notes payable totaling $192,500. The
notes bear interest at 6.5% and mature on demand or on the stated maturity date,
which is from June 13, 1998 to October 16, 1998. The promissory notes are
convertible into preferred stock at the then fair market value of such stock. In
connection with the convertible promissory notes issued, StarPoint has issued
warrants to purchase $96,250 of preferred stock at an exercise price equal to
the lower of $2.00 or the issuance price of the preferred stock at the time of
the financing.
In December 1997, StarPoint entered into a definitive agreement to merge
with AdForce, Inc. (formerly Imgis, Inc.), a company providing a comprehensive
service infrastructure that facilitates the planning, scheduling, targeting,
delivery, monitoring, analysis, reporting of, and accounting for advertising on
the Internet. The merger became effective on February 13, 1998 and was accounted
for as a purchase by AdForce, Inc. AdForce, Inc. assumed all assets and
liabilities of StarPoint, issued 877,834 shares of common stock in exchange for
all outstanding common stock of StarPoint, and issued 309,738 shares of Series C
preferred stock for all outstanding preferred stock of StarPoint.
F-33
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
[LOGO]
COMMON STOCK
---------------
PROSPECTUS
---------------
HAMBRECHT & QUIST
LEHMAN BROTHERS
VOLPE BROWN WHELAN & COMPANY
CHARLES SCHWAB & CO., INC.
---------
, 1999
--------------
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.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES
TO PERMIT A PUBLIC OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OF
THIS PROSPECTUS IN THAT JURISDICTION. PERSONS WHO COME INTO POSSESSION OF THIS
PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE REQUIRED TO INFORM
THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS OFFERING AND THE
DISTRIBUTION OF THIS PROSPECTUS APPLICABLE TO THAT JURISDICTION.
UNTIL , 1999, ALL DEALERS THAT BUY, SELL OR TRADE IN OUR COMMON
STOCK, 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 expenses to be paid by the Registrant in connection with this
offering are as follows. All amounts other than the Securities and Exchange
Commission registration fee, the NASD filing fee and the Nasdaq National Market
application fee are estimates.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $ 15,290
NASD filing fee.................................................... 6,000
Nasdaq National Market listing fee................................. 95,000
Printing and engraving expenses.................................... *
Legal fees and expenses............................................ *
Accounting fees and expenses....................................... *
Blue sky fees and expenses......................................... *
Transfer agent and registrar fees and expenses..................... *
Road show expenses................................................. *
Miscellaneous...................................................... *
---------
Total............................................................ $ *
---------
---------
</TABLE>
- ------------------------
*To be completed by amendment.
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 such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act").
As permitted by the Delaware General Corporation Law, the Registrant's
Second Amended and Restated Certificate of Incorporation, which will become
effective upon the closing of this offering, includes a provision that
eliminates the personal liability of its directors for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Registrant or its stockholders, (ii)
for acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law, (iii) under section 174 of the Delaware General
Corporation Law (regarding unlawful dividends and stock purchases) or (iv) for
any transaction from which the director derived an improper personal benefit.
As permitted by the Delaware General Corporation Law, the Bylaws of the
Registrant provide that (i) the Registrant is required to indemnify its
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law, provided that any indemnified officer and director acted in
good faith and in a manner which such officer and director reasonably believed
to be in or not opposed to the Registrant's best interests, (ii) the Registrant
may indemnify its other employees and agents as set forth in the Delaware
General Corporation Law, (iii) the Registrant is required to advance expenses,
as incurred, to its directors and officers in connection with a legal proceeding
to the fullest extent permitted by the Delaware General Corporation Law, subject
to certain very limited exceptions and (iv) the rights conferred in the Bylaws
are not exclusive.
The Registrant intends to enter into Indemnification Agreements with
each of its current directors and officers to give such directors and officers
additional contractual assurances regarding the scope of the indemnification set
forth in the Registrant's Second Amended and Restated Certificate of
II-1
<PAGE>
Incorporation and to provide additional procedural protections. At present,
there is no pending litigation or proceeding involving a director, officer or
employee of the Registrant regarding which indemnification is sought, nor is the
Registrant aware of any threatened litigation that may result in claims for
indemnification.
Reference is also made to Section 7 of the Underwriting Agreement, which
provides for the indemnification of officers, directors and controlling persons
of the Registrant against certain liabilities. The indemnification provision in
the Registrant's Second Amended and Restated Certificate of Incorporation,
Bylaws and the Indemnification Agreements entered into between the Registrant
and each of its directors and officers may be sufficiently broad to permit
indemnification of the Registrant's directors and officers for liabilities
arising under the Securities Act.
The Registrant, with approval by the Registrant's Board of Directors,
expects to obtain directors' and officers' liability insurance.
See also the undertakings set out in response to Item 17.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
DOCUMENT EXHIBIT NUMBER
- ----------------------------------------------------------- ---------------
<S> <C>
Underwriting Agreement (draft dated March , 1999)......... 1.1
Registrant's First Amended and Restated Certificate of
Incorporation............................................ 3.1
Registrant's Second Amended and Restated Certificate of
Incorporation to be effective upon the closing of the
offering................................................. 3.2
Registrant's Bylaws, as amended............................ 3.3
Form of Indemnity Agreement to be entered into between the
Registrant and its executive officers and directors...... 10.1
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following table sets forth information regarding all securities sold
by the Registrant, or its California predecessor, since its incorporation on
January 16, 1996. Reference to warrants below assume full exercise of all
warrants. All preferred stock numbers are presented on an as-converted to common
stock basis, and all common stock numbers have been adjusted retroactively to
reflect a two-for-one stock-split that occurred in February 1998.
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PURCHASE
CLASS OF PURCHASERS DATE OF SALE TITLE OF SECURITIES(1) SECURITIES PRICE FORM OF CONSIDERATION
- ------------------------ ------------------- ------------------------ --------- ----------- ------------------------
<S> <C> <C> <C> <C> <C>
4 shareholders April 26, 1996 Common Stock 3,720,000 $ 18,600 Assignment of software
and cash
5 investors May 30, 1996 Series B Preferred 220,000 550,000 Cash
Stock(2)
IBL Corporation July 15, 1996 Warrant to purchase -- -- --(3)
123,400 shares of Common
Stock
2 former employees August 7, 1996 Common Stock 3,000 15 Cash
AMGIT Marketing, Inc. December 2, 1996 Warrant to purchase -- -- --(4)
400,000 shares of Common
Stock
2 investors December 5, 1996 Series A Preferred Stock 1,200,914 1,503,500 Cancellation of debt
owed by AdForce
6 investors December 5, 1996 Series B Preferred Stock 2,054,636 2,578,568 Cash
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PURCHASE
CLASS OF PURCHASERS DATE OF SALE TITLE OF SECURITIES(1) SECURITIES PRICE FORM OF CONSIDERATION
- ------------------------ ------------------- ------------------------ --------- ----------- ------------------------
<S> <C> <C> <C> <C> <C>
2 investors March 26, 1997 Warrant to purchase -- -- --(5)
55,778 shares of Series
B Preferred Stock
BridgeGate Group April 28, 1997 Warrant to purchase -- -- --(6)
6,142 shares of Common
Stock
Arun Swami June 4, 1997 Common Stock 2,400 600 Services Rendered
6 investors July 2, 1997 Series C Preferred Stock 1,733,616 4,100,002 Cash
2 investors November 25, 1997 Series C Preferred Stock 816,384 1,930,748 Cash
Comdisco, Inc. December 2, 1997 Warrant to purchase -- -- --(7)
73,996 shares of Series
C Preferred Stock
2 investors December 17, 1997 Warrant to purchase -- -- --(8)
44,398 shares of Series
C Preferred Stock
Convergence Ventures I, February 3, 1998 Series C Preferred Stock 60,994 144,251 Cash
L.P.
Convergence February 3, 1998 Series C Preferred Stock 42,284 100,002 Cash
Entrepreneurs Fund I,
L.P.
9 shareholders February 13, 1998 Common Stock 877,834 -- Exchange for Common
Stock of StarPoint
Software, Inc.(9)
17 shareholders February 13, 1998 Series C Preferred Stock 619,476 -- Exchange for Preferred
Stock of StarPoint
Software, Inc.(9)
Comdisco, Inc. March 6, 1998 Series C Preferred Stock 21,142 50,000 Cash
19 investors April 27, 1998 Series D Preferred Stock 1,457,532 10,005,977 Cash and cancellation of
debt owed by AdForce
19 investors July 15, 1998 Warrant to purchase -- -- --(10)
72,860 shares of Series
D Preferred Stock
America Online, Inc. July 15, 1998 Series E Preferred Stock 1,456,664 9,999,998 Cash
America Online, Inc. July 15, 1998 Warrant to purchase -- -- --(11)
1,019,662 shares of
Series E Preferred Stock
AMGIT Marketing, Inc. September 4, 1998 Exercise of warrant to 400,000 2,000 Cash
purchase Common Stock
Jane Anderson September 17, 1998 Common Stock 960 1,440 Services rendered
Communications
Comdisco, Inc. September 29, 1998 Warrant to purchase -- -- --(12)
21,850 shares of Series
D Preferred Stock
Jane Anderson October 28, 1998 Series D Preferred Stock 2,604 17,876 Services rendered
Communications
Ulrich Schmidt October 28, 1998 Series D Preferred Stock 872 5,986 Cash
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PURCHASE
CLASS OF PURCHASERS DATE OF SALE TITLE OF SECURITIES(1) SECURITIES PRICE FORM OF CONSIDERATION
- ------------------------ ------------------- ------------------------ --------- ----------- ------------------------
<S> <C> <C> <C> <C> <C>
Officers, directors, January 16, 1996 to Exercise of options to 1,457,525 $ 215,169 Cash(13)
employees and other December 31, 1998 purchase Common Stock
eligible participants
</TABLE>
- ------------------------------
* As part of the reincorporation of AdForce into Delaware, AdForce exchanged
shares of its Common Stock, shares of its
convertible preferred stock and warrants to purchase shares of
its convertible preferred stock for shares of Common Stock,
shares of preferred stock and warrants to purchase
shares of preferred stock, respectively.
(1) Each share of Series A, Series B, Series C, Series D, and Series E
Preferred Stock will convert automatically into two shares of common stock,
respectively, upon the consummation of this offering.
(2) Converted to Common Stock on December 5, 1996 as a condition to the Series
B Preferred Stock financing.
(3) Issued to IBL Corporation as consideration for a loan and terminated on
December 5, 1996 as a condition to the Series B1 Preferred Stock financing.
(4) In connection with a joint venture with AMGIT Marketing, Inc. to develop
certain research and information products for database application services,
AdForce granted AMGIT an option to purchase 400,000 shares of Common Stock
in exchange for a 50% interest in a joint venture.
(5) Issued to Venture Lending & Leasing Inc. and Robert Kingsbook as additional
consideration to establish a credit line for acquisition of equipment and
other corporate purposes.
(6) Issued to BridgeGate Group as additional consideration for consulting
services performed for AdForce.
(7) Issued to Comdisco, Inc. as additional consideration to establish a credit
line for equipment acquisitions.
(8) Issued to Venture Lending & Leasing Inc. and Robert Kingsbook as additional
consideration to establish a credit line for acquisition of equipment and
other corporate purposes.
(9) In connection with AdForce's acquisition of StarPoint, AdForce exchanged
877,834 shares of Common Stock for StarPoint's Common Stock and 619,476
shares (as converted to Common Stock basis) of Series C Preferred Stock for
StarPoint's Preferred Stock.
(10) Issued to the holders of the Series D Preferred Stock in connection with
the closing of the Series E Preferred Stock financing on July 15, 1998.
(11) Issued to America Online, Inc. in connection with AdForce's Series E
Preferred Stock financing on July 15, 1998.
(12) Issued to Comdisco, Inc. as additional consideration for the extension of a
credit line for equipment acquisitions.
(13) With respect to the grant of stock options, exemption from registration
under the Securities Act was unnecessary in that none of such transactions
involved a "sale" of securities as such term is used in Section 2(3) of the
Securities Act.
------------------
All sales of common stock made pursuant to the exercise of stock options
were made in reliance on Rule 701 under the Securities Act or on Section 4(2) of
the Securities Act.
All other sales were made in reliance on Section 4(2) of the Securities
Act and/or Regulation D promulgated under the Securities Act. These sales were
made without general solicitation or advertising. Each purchaser was a
sophisticated investor with access to all relevant information necessary to
evaluate the investment and represented to the Registrant that the shares were
being acquired for investment.
II-4
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
DOCUMENT NUMBER
- ---------------------------------------------------------------------------------- -----------
<S> <C>
Underwriting Agreement (draft dated March , 1999)................................ 1.1
Agreement and Plan of Reorganization by and between Imgis, Inc. and StarPoint
Software, Inc. dated December 19, 1997.......................................... 2.1
Agreement and Plan of Merger by and between the Registrant and Imgis, Inc. dated
February , 1998................................................................ 2.2
Registrant's First Amended and Restated Certificate of Incorporation.............. 3.1
Registrant's Second Amended and Restated Certificate of Incorporation to be
effective upon the closing of the offering...................................... 3.2
Registrant's Bylaws, as amended................................................... 3.3
Specimen Stock Certificate........................................................ 4.1+
Amended and Restated Investors' Rights Agreement by and between Imgis, Inc. and
certain investors dated as of July 15, 1998..................................... 4.2
Amended and Restated Voting Agreement by and between Imgis, Inc. and certain
investors dated as of July 15, 1998............................................. 4.3
Opinion of Fenwick & West LLP..................................................... 5.1+
Form of Indemnity Agreement to be entered into between the Registrant and its
executive officers and directors................................................ 10.1+
StarPoint Software, Inc. 1996 Stock Plan.......................................... 10.2
Imgis, Inc. 1997 Stock Plan....................................................... 10.3
Registrant's 1999 Equity Incentive Plan and associated documents.................. 10.4+
Registrant's 1999 Directors' Stock Option Plan and associated documents........... 10.5+
Registrant's 1999 Employee Stock Purchase Plan and associated documents........... 10.6+
Sublease by and between Concentric Network Corporation and Imgis, Inc. dated
February 12, 1999............................................................... 10.7
Office Lease by and between De Anza Plaza II, LLC and Imgis, Inc. dated May 29,
1998............................................................................ 10.8
Office Lease Agreement between Imgis, Inc., and Two Town Center Associates dated
December 20, 1996............................................................... 10.9+
First Amendment to Office Lease Agreement between Imgis, Inc. and Two Town Center
Associates dated February 18, 1998.............................................. 10.10
Letter Agreement between Imgis, Inc. and Charles W. Berger dated June 27, 1997.... 10.11
Letter Agreement between Imgis, Inc. (dba "AdForce") and Charles W. Berger dated
November 19, 1998............................................................... 10.12
Letter Agreement between Imgis, Inc. (dba "AdForce") and Harish S. Rao dated
December 11, 1998............................................................... 10.13
Employment Agreement between Imgis, Inc. (dba "AdForce") and John A. Tanner dated
December 9, 1998................................................................ 10.14
Letter Agreement between Imgis, Inc. (dba "AdForce") and A. Dee Cravens dated
January 21, 1999................................................................ 10.15
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
DOCUMENT NUMBER
- ---------------------------------------------------------------------------------- -----------
<S> <C>
Letter Agreement between Imgis, Inc. (dba "AdForce") and Anthony P. Glaves dated
December 28, 1998, as revised in December 31, 1998.............................. 10.16
Letter Agreement between Imgis, Inc. and Rex S. Jackson dated July 22, 1998....... 10.17
Settlement Agreement between Imgis, Inc. (dba "AdForce") and Chad Steelberg dated
November 20, 1998............................................................... 10.18
Loan Agreement between Imgis, Inc. and Venture Lending & Leasing, Inc. dated March
26, 1997........................................................................ 10.19
Loan and Security Agreement between Imgis, Inc. and Venture Lending & Leasing,
Inc. dated December 16, 1997.................................................... 10.20
Loan and Security Agreement between Imgis, Inc. and Venture Lending & Leasing II,
Inc. dated December 16, 1997.................................................... 10.21
Master Lease Agreement between Imgis, Inc. and Comdisco, Inc. dated December 2,
1997............................................................................ 10.22
Service Agreement between Imgis, Inc. and GeoCities dated May 14, 1998............ 10.23**
Software License and Support Agreement between StarPoint Software, Inc. and
GeoCities dated July 11, 1997................................................... 10.24**
Settlement Agreement between Imgis, Inc. and 24/7 Media, Inc. dated May 28,
1998............................................................................ 10.25**+
Services Agreement between Imgis, Inc. and 2CAN Media dated August 25, 1998....... 10.26**
Services Agreement between Imgis, Inc. and Netscape Communications, Inc. dated
August 1, 1998.................................................................. 10.27**
Demographic Data Agreement by and between America Online, Inc. and Imgis, Inc.
dated as of July 15, 1998....................................................... 10.28**
License Agreement by and between America Online, Inc. and Imgis, Inc. dated as of
July 15, 1998................................................................... 10.29**
Consent of Fenwick & West LLP (included in Exhibit 5.1)........................... 23.1+
Consent of Ernst & Young LLP, independent auditors................................ 23.2
Power of Attorney (see Page II-5 of this Registration Statement).................. 24.1
Financial Data Schedule........................................................... 27.1
</TABLE>
- ------------------------
+ To be supplied by amendment.
** Confidential treatment has been requested.
(b) The following financial data schedule is filed herewith:
Schedule II-- Valuation and Qualifying Accounts.
All other financial statement schedules are omitted because the
information called for is not required or is shown either in the financial
statements or the 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 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under
II-6
<PAGE>
Item 14 above, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
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, 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-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cupertino, State of
California, on the 26th day of February 1999.
<TABLE>
<S> <C> <C>
ADFORCE, INC.
By: /s/ CHARLES W. BERGER
-----------------------------------------
Charles W. Berger
Chief Executive Officer, President and
Chairman of the Board
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Charles W. Berger and John A. Tanner, and
each of them, his true and lawful attorneys-in-fact and agents with full power
of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to sign any registration statement for the
same offering covered by the Registration Statement that is to be effective upon
filing pursuant to Rule 462(b) promulgated under the Securities Act, and all
post-effective amendments thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done or by
virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ CHARLES W. BERGER Chief Executive Officer, February 26, 1999
- ---------------------------- President and Chairman of
Charles W. Berger the Board
PRINCIPAL FINANCIAL OFFICER
AND
PRINCIPAL ACCOUNTING OFFICER:
/s/ JOHN A. TANNER Executive Vice President February 26, 1999
- ---------------------------- and Chief Financial
John A. Tanner Officer
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
ADDITIONAL DIRECTORS:
/s/ ERIC DI BENEDETTO Director February 26, 1999
- ----------------------------
Eric Di Benedetto
/s/ MARK P. GORENBERG Director February 26, 1999
- ----------------------------
Mark P. Gorenberg
/s/ J. NEIL WEINTRAUT Director February 26, 1999
- ----------------------------
J. Neil Weintraut
/s/ DIRK A. WRAY Director February 26, 1999
- ----------------------------
Dirk A. Wray
</TABLE>
II-9
<PAGE>
ADFORCE
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 1997 AND DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
AMOUNTS
CHARGED TO
BALANCE AT REVENUE,
BEGINNING OF COSTS, OR WRITE-OFFS AND BALANCE AT
YEAR EXPENSES RECOVERIES END OF YEAR
------------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
1997
Allowance for Doubtful Accounts.............................. $ -- $ 131 $ -- $ 131
1998
Allowance for Doubtful Accounts.............................. $ 131 $ 1,355 $ 451 $ 1,035
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
EXHIBIT TITLE NUMBER
- ---------------------------------------------------------------------------------- -----------
<S> <C>
Underwriting Agreement (draft dated March , 1999)................................ 1.1
Agreement and Plan of Reorganization by and between Imgis, Inc. and StarPoint
Software, Inc. dated December 19, 1997.......................................... 2.1
Agreement and Plan of Merger by and between the Registrant and Imgis, Inc. dated
February , 1998................................................................ 2.2
Registrant's First Amended and Restated Certificate of Incorporation.............. 3.1
Registrant's Second Amended and Restated Certificate of Incorporation to be
effective upon the closing of the offering...................................... 3.2
Registrant's Bylaws, as amended................................................... 3.3
Specimen Stock Certificate........................................................ 4.1+
Amended and Restated Investors' Rights Agreement by and between Imgis, Inc. and
certain investors dated as of July 15, 1998..................................... 4.2
Amended and Restated Voting Agreement by and between Imgis, Inc. and certain
investors dated as of July 15, 1998............................................. 4.3
Opinion of Fenwick & West LLP..................................................... 5.1+
Form of Indemnity Agreement to be entered into between the Registrant and its
executive officers and directors................................................ 10.1+
StarPoint Software, Inc. 1996 Stock Plan.......................................... 10.2
Imgis, Inc. 1997 Stock Plan....................................................... 10.3
Registrant's 1999 Equity Incentive Plan and associated documents.................. 10.4+
Registrant's 1999 Directors' Stock Option Plan and associated documents........... 10.5+
Registrant's 1999 Employee Stock Purchase Plan and associated documents........... 10.6+
Sublease by and between Concentric Network Corporation and Imgis, Inc. dated
February 12, 1999............................................................... 10.7
Office Lease by and between De Anza Plaza II, LLC and Imgis, Inc. dated May 29,
1998............................................................................ 10.8
Office Lease Agreement between Imgis, Inc., and Two Town Center Associates dated
December 20, 1996............................................................... 10.9+
First Amendment to Office Lease Agreement between Imgis, Inc. and Two Town Center
Associates dated February 18, 1998.............................................. 10.10
Letter Agreement between Imgis, Inc. and Charles W. Berger dated June 27, 1997.... 10.11
Letter Agreement between Imgis, Inc. (dba "AdForce") and Charles W. Berger dated
November 19, 1998............................................................... 10.12
Letter Agreement between Imgis, Inc. (dba "AdForce") and Harish S. Rao dated
December 11, 1998............................................................... 10.13
Employment Agreement between Imgis, Inc. (dba "AdForce") and John A. Tanner dated
December 9, 1998................................................................ 10.14
Letter Agreement between Imgis, Inc. (dba "AdForce") and A. Dee Cravens dated
January 21, 1999................................................................ 10.15
Letter Agreement between Imgis, Inc. (dba "AdForce") and Anthony P. Glaves dated
December 28, 1998, as revised in December 31, 1998.............................. 10.16
Letter Agreement between Imgis, Inc. and Rex S. Jackson dated July 22, 1998....... 10.17
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
EXHIBIT TITLE NUMBER
- ---------------------------------------------------------------------------------- -----------
<S> <C>
Settlement Agreement between Imgis, Inc. (dba "AdForce") and Chad Steelberg dated
November 20, 1998............................................................... 10.18
Loan Agreement between Imgis, Inc. and Venture Lending & Leasing, Inc. dated March
26, 1997........................................................................ 10.19
Loan and Security Agreement between Imgis, Inc. and Venture Lending & Leasing,
Inc. dated December 16, 1997.................................................... 10.20
Loan and Security Agreement between Imgis, Inc. and Venture Lending & Leasing II,
Inc. dated December 16, 1997.................................................... 10.21
Master Lease Agreement between Imgis, Inc. and Comdisco, Inc. dated December 2,
1997............................................................................ 10.22
Service Agreement between Imgis, Inc. and GeoCities dated May 14, 1998............ 10.23**
Software License and Support Agreement between StarPoint Software, Inc. and
GeoCities dated July 11, 1997................................................... 10.24**
Settlement Agreement between Imgis, Inc. and 24/7 Media, Inc. dated May 28,
1998............................................................................ 10.25**+
Services Agreement between Imgis, Inc. and 2CAN Media dated August 25, 1998....... 10.26**
Services Agreement between Imgis, Inc. and Netscape Communications, Inc. dated
August 1, 1998.................................................................. 10.27**
Demographic Data Agreement by and between America Online, Inc. and Imgis, Inc.
dated as of July 15, 1998....................................................... 10.28**
License Agreement by and between America Online, Inc. and Imgis, Inc. dated as of
July 15, 1998................................................................... 10.29**
Consent of Fenwick & West LLP (included in Exhibit 5.1)........................... 23.1+
Consent of Ernst & Young LLP, independent auditors................................ 23.2
Power of Attorney (see Page II-5 of this Registration Statement).................. 24.1
Financial Data Schedule........................................................... 27.1
</TABLE>
- ------------------------
+ To be supplied by amendment.
** Confidential treatment has been requested.
<PAGE>
Exhibit 1.1
ADFORCE, INC.
_____ SHARES(1)
COMMON STOCK
UNDERWRITING AGREEMENT
March ___, 1999
HAMBRECHT & QUIST LLC
Cristina Morgan
c/o Hambrecht & Quist LLC
One Bush Street
San Francisco, CA 94104
Ladies and Gentlemen:
AdForce, Inc., a Delaware corporation (referred to herein as the
Company), proposes to issue and sell _______ shares of its authorized but
unissued Common Stock, no par value (herein called the Common Stock, said
_______ shares of Common Stock being herein called the Underwritten Stock). The
Company proposes to grant to the Underwriters (as hereinafter defined) an option
to purchase up to * additional shares of Common Stock (herein called
the Option Stock and with the Underwritten Stock herein collectively called the
Stock). The Common Stock is more fully described in the Registration Statement
and the Prospectus hereinafter mentioned.
The Company hereby confirms the agreements made with respect to the
purchase of the Stock by the several underwriters, for whom you are acting,
named in Schedule I hereto (herein collectively called the Underwriters, which
term shall also include any underwriter purchasing Stock pursuant to Section
3(b) hereof). You represent and warrant that you have been authorized by each
of the other Underwriters to enter into this Agreement on its behalf and to act
for it in the manner herein provided.
1. REGISTRATION STATEMENT. The Company has filed with the Securities
and Exchange Commission (herein called the Commission) a registration statement
on Form S-1 (No. 33-_____), including the related preliminary prospectus, for
the registration under the Securities Act of 1933, as amended (herein called the
Securities Act) of the Stock. Copies of such registration statement and of each
amendment thereto, if any, including the related preliminary prospectus (meeting
the requirements of Rule 430A of the rules and regulations of the Commission)
heretofore filed by the Company with the Commission have been delivered to you.
The term Registration Statement as used in this agreement shall mean such
registration statement, including all exhibits and financial statements, all
information omitted therefrom in reliance upon Rule 430A and contained in the
Prospectus referred to below, in the form in which it became effective, and any
registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the Stock (herein called a Rule
462(b) registration statement), and, in the event of any amendment thereto after
the effective date of such registration statement (herein called the Effective
Date), shall also mean (from and after the effectiveness of such amendment) such
registration statement as so amended (including any Rule 462(b) registration
statement). The term Prospectus as used in this Agreement shall mean the
prospectus relating to the Stock first filed with the Commission pursuant to
Rule 424(b) and Rule 430A (or if no such filing is required, as included in the
Registration Statement) and, in the event of any supplement or amendment to such
prospectus after the Effective Date, shall also
- -------------------------
(1) Plus an option to purchase from the Company up to _______ additional
shares to cover overallotments.
<PAGE>
mean (from and after the filing with the Commission of such supplement or the
effectiveness of such amendment) such prospectus as so supplemented or amended.
The term Preliminary Prospectus as used in this Agreement shall mean each
preliminary prospectus included in such registration statement prior to the time
it becomes effective.
The Registration Statement has been declared effective under the
Securities Act, and no post-effective amendment to the Registration Statement
has been filed as of the date of this Agreement. The Company has caused to be
delivered to you copies of each Preliminary Prospectus and has consented to the
use of such copies for the purposes permitted by the Securities Act.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
(a) The Company hereby represents and warrants as follows:
(i) Each of the Company and its subsidiaries has been
duly incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has full corporate
power and authority to own or lease its properties and conduct its business as
described in the Registration Statement and the Prospectus and as being
conducted, and is duly qualified as a foreign corporation and in good standing
in all jurisdictions in which the character of the property owned or leased or
the nature of the business transacted by it makes qualification necessary
(except where the failure to be so qualified would not have a material adverse
effect on the business, properties, financial condition or results of operations
of the Company and its subsidiaries, taken as a whole). Except as disclosed in
the Prospectus, the Company owns all of the shares of capital stock of each
subsidiary of the Company and each of the Company's subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has full corporate power and
authority to own or lease its properties and conduct its business as described
in the Registration Statement and the Prospectus and as being conducted, and is
duly qualified as a foreign corporation and in good standing in all
jurisdictions in which the character of the property owned or leased or the
nature of the business transacted by it makes qualification necessary (except
where the failure to be so qualified would not have a material adverse effect on
the business, properties, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole). All of the issued shares of
capital stock of each subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable, and are owned directly
by the Company, free and clear of all liens, encumbrances, equities or claims.
(ii) Since the respective dates as of which information
is given in the Registration Statement and the Prospectus, there has not been
any materially adverse change in the business, properties, financial condition
or results of operations of the Company and its subsidiaries, taken as a whole,
whether or not arising from transactions in the ordinary course of business,
other than as set forth in the Registration Statement and the Prospectus, and
since such dates, except in the ordinary course of business, neither the Company
nor any of its subsidiaries (i) has entered into any material transaction or
incurred any material liability or obligation, direct or contingent, not
referred to in the Registration Statement and the Prospectus; (ii) has purchased
any of its outstanding capital stock, or declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock; or (iii) has had any
material change in the capital stock, short-term debt or long-term debt of the
Company and its consolidated subsidiaries, taken as a whole, except in each case
as described or specifically contemplated in the Registration Statement and the
Prospectus.
(iii) The Commission has not issued any order preventing
or suspending the use of any Preliminary Prospectus relating to the proposed
offering of the Stock nor instituted or, to the knowledge of the Company,
threatened instituting proceedings for that purpose. The Registration Statement
and the Prospectus comply, and on the Closing Date (as hereinafter defined) and
any later date on which Option Stock is to be purchased, the Prospectus will
comply, in all material respects, with the provisions of the Securities Act and
the Securities Exchange Act of 1934, as amended (herein called the Exchange Act)
and the rules and regulations of the Commission thereunder; on the Effective
Date, the Registration Statement did not contain any untrue statement of a
material fact and did not omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading;
and, on the Effective Date the Prospectus did not and, on the Closing Date and
any later date on which Option Stock is to be purchased, will not contain any
untrue statement of a material fact
2
<PAGE>
or omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; PROVIDED, HOWEVER, that none of the representations and warranties
in this subparagraph (iii) shall apply to statements in, or omissions from, the
Registration Statement or the Prospectus made in reliance upon and in conformity
with information herein or otherwise furnished in writing to the Company by or
on behalf of the Underwriters for use in the Registration Statement or the
Prospectus.
(iv) The Common Stock outstanding prior to the issuance
of the Common Stock to be sold by the Company has been duly authorized and is
validly issued, fully paid and non-assessable. Except as set forth in the
Prospectus and other than options to purchase __________ shares of the Company's
Common Stock granted to employees pursuant to the Company's 1997 Stock Option
Plan (herein referred to as the 1997 Plan) as described in the Prospectus,
neither the Company nor any of its subsidiaries has outstanding any options to
purchase, or any preemptive rights or other rights to subscribe for or to
purchase, any securities or obligations convertible into, or any contracts or
commitments to issue or sell, shares of its capital stock or any such options,
rights, convertible securities or obligations. All outstanding shares of
capital stock and options and other rights to acquire capital stock have been
issued in compliance with the registration and qualification provisions of all
applicable securities laws (or applicable exemptions thereof) and were not
issued in violation of any preemptive rights, rights of first refusal and other
similar rights. The Stock to be sold by the Company has been duly authorized,
and when issued and delivered in accordance with the terms of this Agreement,
will be validly issued, fully paid and non-assessable, and the issuance of such
Shares will not be subject to any preemptive or similar rights. No further
approval or authority of the stockholders or the Board of Directors of the
Company will be required for the transfer and sale of the Stock to be sold by
the Company or the issuance and sale of the Stock as contemplated herein.
(v) The authorized capital stock of the Company
conforms as to legal matters in all material respects to the description thereof
contained in the Prospectus. The form of certificates for the Stock conforms in
all material respects to the corporate law of the jurisdiction of the Company's
incorporation.
(vi) Prior to the Closing Date, the Stock to be sold by
the Company will be authorized for listing by the Nasdaq National Market upon
official notice of issuance.
(vii) The consolidated financial statements of the
Company, together with related notes and schedules as set forth in the
Registration Statement ("Financial Statements"), present fairly the financial
position and the results of operations of the Company and its subsidiaries,
taken as a whole, at the indicated dates and for the indicated periods. The
Financial Statements, schedules and related notes have been prepared in
accordance with generally accepted accounting principles, consistently applied
through the period involved, except as may be otherwise stated therein, and all
adjustments necessary for a fair presentation of results for such periods have
been made.
(viii) Neither the Company nor any of its subsidiaries is
in violation or default under any provision of their respective charter
documents or bylaws, as currently in effect, or any indenture, license,
mortgage, lease, franchise, permit, deed of trust or other agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries or their respective properties is
bound or may be affected, except where such violation or default would not have
a material adverse effect on the business, financial condition or results of
operations of the Company and its subsidiaries taken as a whole.
(ix) The Company has full legal right, power and
authority to enter into this Agreement and perform the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered by the
Company and is a valid and binding agreement on the part of the Company,
enforceable in accordance with its terms, except as rights to indemnity and
contribution hereunder may be limited by applicable laws and except as the
enforcement hereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally, or by general equitable principles.
(x) The execution and performance of this Agreement
and the consummation of the transactions herein contemplated do not and will not
conflict with or result in a breach of, or violation of, any of the terms or
provisions of, or constitute, either by itself or upon notice or the passage of
time or both, a default under,
3
<PAGE>
any indenture, license, mortgage, lease, franchise, permit, deed of trust or
other agreement or instrument to which the Company or any of its subsidiaries is
a party or by which the Company or any of its subsidiaries or their respective
properties is bound or may be affected, except where such breach, violation or
default would not have a materially adverse effect on the business, financial
condition or results of operations of the Company and its subsidiaries taken as
a whole or violate any of the provisions of the certificate or articles of
incorporation or bylaws, as applicable, each as amended, of the Company or
violate any material order, judgment, statute, rule or regulation applicable to
the Company of any court or of any regulatory, administrative or governmental
body or agency having jurisdiction over the Company or its properties.
(xi) There are no legal or governmental proceedings
pending or, to the Company's knowledge, threatened to which the Company or any
of its subsidiaries is a party or to which any of the properties of the Company
or its subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or any
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described or filed as
required. The contracts so described in the Prospectus are in full force and
effect on the date hereof except as disclosed therein; and neither the Company
nor any of its subsidiaries nor, to the Company's knowledge any other party, is
in material breach of or default under any of such contracts.
(xii) The Company and its subsidiaries possess all
consents, approvals, orders, certificates, authorizations and permits issued by,
and has made all declarations and filings with, all appropriate federal, state
or foreign governmental and self-regulatory authorities and all courts and other
tribunals, including but not limited to the California Public Utilities
Commission and all required state agencies in connection with applicable
franchise laws, regulations and requirements necessary to conduct their
respective businesses and to own, lease, license and use their properties in the
manner described in the Prospectus, except to the extent that the failure to
obtain or file would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole, and neither the Company nor its subsidiaries has
received any notice of proceedings related to the revocation or modification of
any such consent, approval, order, certificate, authorization or permit that,
singly or in the aggregate, could reasonably be expected to result in a material
adverse change in the condition, financial or otherwise, or in the earnings,
business or operations of the Company and its subsidiaries, taken as a whole.
(xiii) The Company and each of its subsidiaries (i) are
in compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws with
respect to its business as conducted and as proposed to be conducted in the
Registration Statement and (iii) are in compliance with all terms and conditions
of any such permit, license or approval, except where such noncompliance with
Environmental Laws, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a material
adverse effect on the Company or its subsidiaries, taken as a whole.
(xiv) The Company and each of its subsidiaries has good
and marketable title in fee simple to all real property and good and marketable
title to all personal property that they respectively own free and clear of all
liens, encumbrances and defects except such as are described in the Registration
Statement or the Prospectus or such as do not materially affect the value of
such property and do not interfere with the use made and proposed to be made of
such property by the Company or its subsidiaries; and any real property and
buildings held under lease by the Company or its subsidiaries are held under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company or its subsidiaries.
(xv) The Company has not taken and will not take,
directly or indirectly, any action designed to cause or result in, or which
constitutes or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the shares of Common Stock to
facilitate the sale or resale of the Stock.
(xvi) The Company and each of its subsidiaries owns or
possesses adequate rights to use, all
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material patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service marks and
trade names currently employed by them in connection with the business now
operated by them, and, except as described in the Prospectus, neither the
Company nor its subsidiaries has received any notice of infringement of or
conflict with asserted rights of others with respect to any of the foregoing
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would result in any material adverse change in the condition,
financial or otherwise, or in the earnings, business or operations of the
Company or its subsidiaries, taken as a whole.
(xvii) The Company is in compliance, in all material
respects, with all presently applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for
with the Company would have any liability; the Company has not incurred and
does not expect to incur liability under (i) Title IV or ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or
4971 of the Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each "pension plan"
for which the Company would have any liability that is intended to be qualified
under Section 401(a) of the Code is so qualified and nothing has occurred,
whether by action or failure to act, that would cause the loss of such
qualification.
(xviii) The Company is not and, after giving effect to the
offering and sale of the Stock and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended.
(xix) There is no owner of any securities of the Company
who has any right, not effectively satisfied or waived, to require registration
of any shares of capital stock of the Company in connection with the filing of
the Registration Statement or the sale of any shares thereunder. There are no
contracts, agreements or understandings between the Company and any person
granting such person the right to require the Company to file a registration
statement under the Securities Act with respect to any securities of the Company
or to require the Company to include such securities with the Stock registered
pursuant to the Registration Statement, except in each case as described in the
Prospectus.
(xx) The Company has complied with all provisions of
Section 517.075, Florida Statutes relating to doing business with the Government
of Cuba or with any person or affiliate located in Cuba.
(xxi) The Company and its subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principals of the United States and to maintain asset accountability;
(iii) access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(xxii) No material labor dispute with employees of the
Company or any of its subsidiaries or franchisees exists or to the knowledge of
the Company is imminent, and, without conducting any independent investigation,
the Company is not aware of any written communication of any existing,
threatened or imminent labor disturbance by the employees of any of its
principal suppliers, manufacturers or contractors that could result in any
material adverse change in the condition, financial or otherwise, the earnings,
the business or operations of the Company and its subsidiaries, taken as a
whole. The employment of each officer and employee of the Company and its
subsidiaries is terminable at the will of the Company. To its knowledge, the
Company and its subsidiaries have each complied in all material respects with
all applicable state and federal equal employment opportunity laws and with
other laws related to employment. To the Company's knowledge, no employee of
the Company or any of its subsidiaries, nor any consultant or independent
contractor with whom the Company or any of its subsidiaries has
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contracted, is in violation of any term of any employment contract, proprietary
information agreement or any other agreement relating to the right of any such
individual to be employed by, or to contract with, the Company because of the
nature of the business to be conducted by the Company or any of its
subsidiaries; and to the Company's knowledge the continued employment by the
Company and its subsidiaries of its present employees, and the performance of
the Company's contracts with its independent contractors, will not result in any
such violation. The Company and its subsidiaries have not received any notice
alleging that any such violation has occurred. No employee of the Company or
any of its subsidiaries has been granted the right to continued employment by
the Company or to any other material compensation following termination of
employment with the Company. The Company is not aware that any officer or key
employee, or that any group of key employees, intends to terminate their
employment with the Company or any of its subsidiaries, nor does the Company
have a present intention to terminate the employment of any of the foregoing.
(xxiii) The Company has not offered, or caused the
Underwriters to offer, Stock to any person by way of directed shares with the
specific intent to unlawfully influence (i) a customer or supplier of the
Company to alter the customer's or supplier's level or type of business with the
Company, or (ii) a trade journalist or publication to write or publish favorable
information about the Company or its products.
(xxiv) To the Company's knowledge, after due
investigation, each of the Company's products will produce no material, logical
or arithmetic inconsistencies when dealing with leap years or dates beyond the
year 1999. Without limiting the foregoing, to the Company's knowledge, the
Company's services and products will not materially impede the accurate
processing of data, or cause programming or processing errors resulting from the
rollover of two-digit year values to "00" on January 1, 2000. The foregoing
does not constitute a warranty or representation that the Company's software
will be capable of recording, storing, processing, calculating and displaying
correct calendar dates based on software supplied by any party other than the
Company, or that other Company's software will properly interact with such third
party software.
(b) Charles W. Berger, President of the Company, hereby
represents and warrants and agrees with each Underwriter that, to his knowledge
without independent investigation, the representations and warranties of the
Company set forth in Section 2(a)(iii) above are true and correct.
3. PURCHASE OF THE STOCK BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell * shares of the Underwritten Stock to the several
Underwriters, and each of the Underwriters agrees to purchase from the Company
the respective aggregate number of shares of Underwritten Stock set forth
opposite its name in Schedule I. The price at which such shares of Underwritten
Stock shall be sold by the Company and purchased by the several Underwriters
shall be $___ per share. The obligation of each Underwriter to the Company
shall be to purchase from the Company that number of shares of the Underwritten
Stock which represents the same proportion of the total number of shares of the
Underwritten Stock to be sold by the Company pursuant to this Agreement as the
number of shares of the Underwritten Stock set forth opposite the name of such
Underwriter in Schedule I hereto represents of the total number of shares of the
Underwritten Stock to be purchased by all Underwriters pursuant to this
Agreement, as adjusted by you in such manner as you deem advisable to avoid
fractional shares. In making this Agreement, each Underwriter is contracting
severally and not jointly; except as provided in paragraphs (b) and (c) of this
Section 3, the agreement of each Underwriter is to purchase only the respective
number of shares of the Underwritten Stock specified in Schedule I.
(b) If for any reason one or more of the Underwriters shall
fail or refuse (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 8 or 9 hereof) to
purchase and pay for the number of shares of the Stock agreed to be purchased by
such Underwriter or Underwriters, the Company shall immediately give notice
thereof to you, and the non-defaulting Underwriters shall have the right within
24 hours after the receipt by you of such notice to purchase, or procure one or
more other Underwriters to purchase, in such proportions as may be agreed upon
between you and such purchasing Underwriter or Underwriters and upon the terms
herein set forth, all or any part of the shares of the Stock which such
defaulting Underwriter or Underwriters agreed to purchase. If the
non-defaulting Underwriters fail so to make such
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arrangements with respect to all such shares and portion, the number of shares
of the Stock which each non-defaulting Underwriter is otherwise obligated to
purchase under this Agreement shall be automatically increased on a pro rata
basis to absorb the remaining shares and portion which the defaulting
Underwriter or Underwriters agreed to purchase; PROVIDED, HOWEVER, that the
non-defaulting Underwriters shall not be obligated to purchase the shares and
portion which the defaulting Underwriter or Underwriters agreed to purchase if
the aggregate number of such shares of the Stock exceeds 10% of the total number
of shares of the Stock which all Underwriters agreed to purchase hereunder. If
the total number of shares of the Stock which the defaulting Underwriter or
Underwriters agreed to purchase shall not be purchased or absorbed in accordance
with the two preceding sentences, the Company shall have the right, within 24
hours next succeeding the 24-hour period above referred to, to make arrangements
with other underwriters or purchasers satisfactory to you for purchase of such
shares and portion on the terms herein set forth. In any such case, either you
or the Company shall have the right to postpone the Closing Date determined as
provided in Section 5 hereof for not more than seven business days after the
date originally fixed as the Closing Date pursuant to said Section 5 in order
that any necessary changes in the Registration Statement, the Prospectus or any
other documents or arrangements may be made. If neither the non-defaulting
Underwriters nor the Company shall make arrangements within the 24-hour periods
stated above for the purchase of all the shares of the Stock which the
defaulting Underwriter or Underwriters agreed to purchase hereunder, this
Agreement shall be terminated without further act or deed and without any
liability on the part of the Company to any non-defaulting Underwriter and
without any liability on the part of any non-defaulting Underwriter to the
Company. Nothing in this paragraph (b), and no action taken hereunder, shall
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and
covenants herein contained, and subject to the terms and conditions herein set
forth, the Company grants an option to the several Underwriters to purchase,
severally and not jointly, up to * shares in the aggregate of the
Option Stock from the Company at the same price per share as the Underwriters
shall pay for the Underwritten Stock. Said option may be exercised only to
cover over-allotments in the sale of the Underwritten Stock by the Underwriters
and may be exercised in whole or in part at any time (but not more than once) on
or before the thirtieth day after the date of this Agreement upon written or
telegraphic notice by you to the Company setting forth the aggregate number of
shares of the Option Stock as to which the several Underwriters are exercising
the option. Delivery of certificates for the shares of Option Stock, and
payment therefor, shall be made as provided in Section 5 hereof. The number of
shares of the Option Stock to be purchased by each Underwriter shall be the same
percentage of the total number of shares of the Option Stock to be purchased by
the several Underwriters as such Underwriter is purchasing of the Underwritten
Stock, as adjusted by you in such manner as you deem advisable to avoid
fractional shares.
4. OFFERING BY UNDERWRITERS.
(a) The terms of the initial public offering by the
Underwriters of the Stock to be purchased by them shall be as set forth in the
Prospectus. The Underwriters may from time to time change the public offering
price after the closing of the initial public offering and increase or decrease
the concessions and discounts to dealers as they may determine.
(b) The information set forth in the last paragraph on the
front cover page and under "Underwriting" in the Registration Statement, any
Preliminary Prospectus and the Prospectus relating to the Stock filed by the
Company (insofar as such information relates to the Underwriters) constitutes
the only information furnished by the Underwriters to the Company for inclusion
in the Registration Statement, any Preliminary Prospectus, and the Prospectus,
and you on behalf of the respective Underwriters represent and warrant to the
Company that the statements made therein are correct.
5. DELIVERY OF AND PAYMENT FOR THE STOCK.
(a) Delivery of certificates for the shares of the Underwritten
Stock and the Option Stock (if the option granted by Section 3(c) hereof shall
have been exercised not later than 7:00 A.M., San Francisco time, on the date
two business days preceding the Closing Date), and payment therefor, shall be
made at the office of Fenwick & West LLP, at 7:00 a.m., San Francisco time, on
the fourth business day after the date of this Agreement, or at such
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time on such other day, not later than seven full business days after such
fourth business day, as shall be agreed upon in writing by the Company and you.
The date and hour of such delivery and payment (which may be postponed as
provided in Section 3(b) hereof) are herein called the Closing Date.
(b) If the option granted by Section 3(c) hereof shall be
exercised after 7:00 a.m., San Francisco time, on the date two business days
preceding the Closing Date, delivery of certificates for the shares of Option
Stock, and payment therefor, shall be made at the office of Fenwick & West LLP,
at 7:00 a.m., San Francisco time, on the third business day after the exercise
of such option.
(c) Payment for the Stock purchased from the Company shall be
made to the Company or its order by one or more certified or official bank check
or checks in same day funds. Such payment shall be made upon delivery of
certificates for the Stock to you for the respective accounts of the several
Underwriters against receipt therefor signed by you. Certificates for the Stock
to be delivered to you shall be registered in such name or names and shall be in
such denominations as you may request at least one business day before the
Closing Date, in the case of Underwritten Stock, and at least one business day
prior to the purchase thereof, in the case of the Option Stock. Such
certificates will be made available to the Underwriters for inspection, checking
and packaging at the offices of Lewco Securities Corporation, 2 Broadway, New
York, New York 10004 on the business day prior to the Closing Date or, in the
case of the Option Stock, by 3:00 p.m., New York time, on the business day
preceding the date of purchase.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
for shares to be purchased by any Underwriter whose check shall not have been
received by you on the Closing Date or any later date on which Option Stock is
purchased for the account of such Underwriter. Any such payment by you shall
not relieve such Underwriter from any of its obligations hereunder.
6. FURTHER AGREEMENTS OF THE COMPANY. The Company further covenants
and agrees as follows:
(a) The Company will (i) prepare and timely file with the
Commission under Rule 424(b) a Prospectus containing information previously
omitted at the time of effectiveness of the Registration Statement in reliance
on Rule 430A and (ii) not file any amendment to the Registration Statement or
supplement to the Prospectus of which you shall not previously have been advised
and furnished with a copy or to which you shall have reasonably objected in
writing or which is not in compliance with the Securities Act or the rules and
regulations of the Commission.
(b) The Company will promptly notify each Underwriter in the
event of (i) the request by the Commission for amendment of the Registration
Statement or for supplement to the Prospectus or for any additional information,
(ii) the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement, (iii) the institution or notice of
intended institution of any action or proceeding for that purpose, (iv) the
receipt by the Company of any notification with respect to the suspension of the
qualification of the Stock for sale in any jurisdiction, or (v) the receipt by
it of notice of the initiation or threatening of any proceeding for such
purpose. The Company will make every reasonable effort to prevent the issuance
of such a stop order and, if such an order shall at any time be issued, to
obtain the withdrawal thereof at the earliest possible moment.
(c) The Company will (i) on or before the Closing Date, deliver
to you a signed copy of the Registration Statement as originally filed and of
each amendment thereto filed prior to the time the Registration Statement
becomes effective and, promptly upon the filing thereof, a signed copy of each
post-effective amendment, if any, to the Registration Statement (together with,
in each case, all exhibits thereto unless previously furnished to you) and will
also deliver to you, for distribution to the Underwriters, a sufficient number
of additional conformed copies of each of the foregoing (but without exhibits)
so that one copy of each may be distributed to each Underwriter, (ii) as
promptly as possible deliver to you and send to the several Underwriters, at
such office or offices as you may designate, as many copies of the Prospectus as
you may reasonably request, and (iii) thereafter from time to time during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, likewise send to the Underwriters as many additional
copies of the Prospectus and as many copies of any
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supplement to the Prospectus and of any amended prospectus, filed by the Company
with the Commission, as you may reasonably request for the purposes contemplated
by the Securities Act.
(d) If at any time during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer any event relating
to or affecting the Company, or of which the Company shall be advised in writing
by you, shall occur as a result of which it is necessary, in the opinion of
counsel for the Company or of counsel for the Underwriters, to supplement or
amend the Prospectus in order to make the Prospectus not misleading in the light
of the circumstances existing at the time it is delivered to a purchaser of the
Stock, the Company will forthwith prepare and file with the Commission a
supplement to the Prospectus or an amended prospectus so that the Prospectus as
so supplemented or amended will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances existing at the time such
Prospectus is delivered to such purchaser, not misleading. If, after the
initial public offering of the Stock by the Underwriters and during such period,
the Underwriters shall propose to vary the terms of offering thereof by reason
of changes in general market conditions or otherwise, you will advise the
Company in writing of the proposed variation, and, if in the opinion either of
counsel for the Company or of counsel for the Underwriters such proposed
variation requires that the Prospectus be supplemented or amended, the Company
will forthwith prepare and file with the Commission a supplement to the
Prospectus or an amended prospectus setting forth such variation. The Company
authorizes the Underwriters and all dealers to whom any of the Stock may be sold
by the several Underwriters to use the Prospectus, as from time to time amended
or supplemented, in connection with the sale of the Stock in accordance with the
applicable provisions of the Securities Act and the applicable rules and
regulations thereunder for such period.
(e) Prior to the filing thereof with the Commission, the
Company will submit to you, for your information, a copy of any post-effective
amendment to the Registration Statement and any supplement to the Prospectus or
any amended prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you,
in the qualification of the Stock for offer and sale under the securities or
blue sky laws of such jurisdictions as you may designate and, during the period
in which a prospectus is required by law to be delivered by an Underwriter or
dealer, in keeping such qualifications in good standing under said securities or
blue sky laws; PROVIDED, HOWEVER, that the Company shall not be obligated to
file any general consent to service of process or to qualify as a foreign
corporation in any jurisdiction in which it is not so qualified. The Company
will, from time to time, prepare and file such statements, reports, and other
documents as are or may be required to continue such qualifications in effect
for so long a period as you may reasonably request for distribution of the
Stock.
(g) During a period of five years commencing with the date
hereof, the Company will furnish to you, and to each Underwriter who may so
request in writing, copies of all periodic and special reports furnished to
stockholders of the Company and of all information, documents and reports filed
with the Commission.
(h) Not later than the 45th day following the end of the fiscal
quarter first occurring after the first anniversary of the Effective Date, the
Company will make generally available to its security holders an earnings
statement in accordance with Section 11(a) of the Securities Act and Rule 158
thereunder.
(i) The Company agrees to pay all costs and expenses incident
to the performance of obligations under this Agreement, including all costs and
expenses incident to (i) the preparation, printing and filing with the
Commission and the National Association of Securities Dealers, Inc. ("NASD") of
the Registration Statement, any Preliminary Prospectus and the Prospectus,
(ii) the furnishing to the Underwriters of copies of any Preliminary Prospectus
and of the several documents required by paragraph (c) of this Section 6 to be
so furnished, (iii) the printing of this Agreement and related documents
delivered to the Underwriters, (iv) the preparation, printing and filing of all
supplements and amendments to the Prospectus referred to in paragraph (d) of
this Section 6, (v) the furnishing to you and the Underwriters of the reports
and information referred to in paragraph (g) of this Section 6 and (vi) the
printing and issuance of stock certificates, including the transfer agent's
fees.
(j) The Company agrees to reimburse you, for the account of the
several Underwriters, for blue sky
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fees and related disbursements (including counsel fees and disbursements and
cost of printing memoranda for the Underwriters) paid by or for the account of
the Underwriters or their counsel in qualifying the Stock under state securities
or blue sky laws and in the review of the offering by the NASD.
(k) THE COMPANY HEREBY AGREES THAT, WITHOUT THE PRIOR WRITTEN
CONSENT OF HAMBRECHT & QUIST LLC ON BEHALF OF THE UNDERWRITERS, THE COMPANY WILL
NOT, FOR A PERIOD OF [180] DAYS FOLLOWING THE COMMENCEMENT OF THE PUBLIC
OFFERING OF THE STOCK BY THE UNDERWRITERS, DIRECTLY OR INDIRECTLY, (i) SELL,
OFFER, CONTRACT TO SELL, MAKE ANY SHORT SALE, PLEDGE, SELL ANY OPTION OR
CONTRACT TO PURCHASE, PURCHASE ANY OPTION OR CONTRACT TO SELL, GRANT ANY OPTION,
RIGHT OR WARRANT TO PURCHASE OR OTHERWISE TRANSFER OR DISPOSE OF ANY SHARES OF
COMMON STOCK OR ANY SECURITIES CONVERTIBLE INTO OR EXCHANGEABLE OR EXERCISABLE
FOR OR ANY RIGHTS TO PURCHASE OR ACQUIRE COMMON STOCK OR (ii) ENTER INTO ANY
SWAP OR OTHER AGREEMENT THAT TRANSFERS, IN WHOLE OR IN PART, ANY OF THE ECONOMIC
CONSEQUENCES OR OWNERSHIP OF COMMON STOCK, WHETHER ANY SUCH TRANSACTION
DESCRIBED IN CLAUSE (i) OR (ii) ABOVE IS TO BE SETTLED BY DELIVERY OF COMMON
STOCK OR SUCH OTHER SECURITIES, IN CASH OR OTHERWISE. THE FOREGOING SENTENCE
SHALL NOT APPLY TO (A) THE STOCK TO BE SOLD TO THE UNDERWRITERS PURSUANT TO THIS
AGREEMENT, [(B) SHARES OF COMMON STOCK ISSUED BY THE COMPANY UPON THE EXERCISE
OF OPTIONS GRANTED UNDER THE STOCK OPTION PLANS OF THE COMPANY (THE "OPTION
PLANS"), ALL AS DESCRIBED IN THE PRELIMINARY PROSPECTUS, AND (C) OPTIONS TO
PURCHASE COMMON STOCK GRANTED UNDER THE OPTION PLANS.]
(l) If at any time during the 25-day period after the
Registration Statement becomes effective any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price for the Stock has been or is likely to be materially
affected (regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising the Company to the effect set forth above, forthwith
prepare, consult with you concerning the substance of, and disseminate a press
release or other public statement, reasonably satisfactory to you, responding to
or commenting on such rumor, publication or event.
(m) The Company is familiar with the Investment Company Act of
1940, as amended, and has in the past conducted its affairs, and will in the
future conduct its affairs, in such a manner to ensure that the Company was not
and will not be an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, and the rules and regulations thereunder.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the provisions of paragraph (f) of this Section
7, the Company agrees to indemnify and hold harmless each Underwriter and each
person (including each partner or officer thereof) who controls any Underwriter
within the meaning of Section 15 of the Securities Act from and against any and
all losses, claims, damages or liabilities, joint or several, to which such
indemnified parties or any of them may become subject under the Securities Act,
the Securities Exchange Act of 1934, as amended (herein called the Exchange
Act), or the common law or otherwise, and the Company agrees to reimburse each
such Underwriter and controlling person for any legal or other expenses
(including, except as otherwise hereinafter provided, reasonable fees and
disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (ii) any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus or the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment thereof or supplement thereto) or the omission or alleged omission
to state therein a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; PROVIDED, HOWEVER, that (1) the indemnity agreements of the Company
contained in this paragraph (a) shall not apply to any such losses, claims,
damages, liabilities or expenses if such statement or omission was made in
reliance upon and in conformity with information furnished as herein stated or
otherwise furnished in writing to the Company by or on
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behalf of any Underwriter for use in any Preliminary Prospectus or the
Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto, and (2) the indemnity agreement contained in this
paragraph (a) with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any such losses,
claims, damages, liabilities or expenses purchased the Stock which is the
subject thereof (or to the benefit of any person controlling such Underwriter)
if at or prior to the written confirmation of the sale of such Stock a copy of
the Prospectus (or the Prospectus as amended or supplemented) was not sent or
delivered to such person and the untrue statement or omission of a material fact
contained in such Preliminary Prospectus was corrected in the Prospectus (or the
Prospectus as amended or supplemented) unless the failure is the result of
noncompliance by the Company with paragraph (c) of Section 6 hereof. The
indemnity agreements of the Company contained in this paragraph (a) and the
representations and warranties of the Company contained in Section 2 hereof
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall survive
the delivery of and payment for the Stock.
(b) Each Underwriter severally agrees to indemnify and hold
harmless the Company, each of its officers who signs the Registration Statement
on his own behalf or pursuant to a power of attorney, each of its directors,
each other Underwriter and each person (including each partner or officer
thereof) who controls the Company or any such other Underwriter within the
meaning of Section 15 of the Securities Act, from and against any and all
losses, claims, damages or liabilities, joint or several, to which such
indemnified parties or any of them may become subject under the Securities Act,
the Exchange Act, or the common law or otherwise and to reimburse each of them
for any legal or other expenses (including, except as otherwise hereinafter
provided, reasonable fees and disbursements of counsel) incurred by the
respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in connection with any investigation
or inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof and any Rule
462(b) registration statement) or any post-effective amendment thereto
(including any Rule 462(b) registration statement) or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or (ii) any untrue
statement or alleged untrue statement of a material fact contained in the
Prospectus (as amended or as supplemented if the Company shall have filed with
the Commission any amendment thereof or supplement thereto) or the omission or
alleged omission to state therein a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, if such statement or omission was made in reliance upon
and in conformity with information furnished as herein stated or otherwise
furnished in writing to the Company by or on behalf of such indemnifying
Underwriter for use in the Registration Statement or the Prospectus or any such
amendment thereof or supplement thereto. The indemnity agreement of each
Underwriter contained in this paragraph (b) shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the Stock.
(c) Each party indemnified under the provision of
paragraphs (a) and (b) of this Section 7 agrees that, upon the service of a
summons or other initial legal process upon it in any action or suit instituted
against it or upon its receipt of written notification of the commencement of
any investigation or inquiry of, or proceeding against, it in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, it will promptly give written notice (herein called the Notice) of
such service or notification to the party or parties from whom indemnification
may be sought hereunder. No indemnification provided for in such paragraphs
shall be available to any party who shall fail so to give the Notice if the
party to whom such Notice was not given was unaware of the action, suit,
investigation, inquiry or proceeding to which the Notice would have related and
was prejudiced by the failure to give the Notice, but the omission so to notify
such indemnifying party or parties of any such service or notification shall not
relieve such indemnifying party or parties from any liability which it or they
may have to the indemnified party for contribution or otherwise than on account
of such indemnity agreement. Any indemnifying party shall be entitled at its
own expense to participate in the defense of any action, suit or proceeding
against, or investigation or inquiry of, an indemnified party. Any indemnifying
party shall be entitled, if it so elects within a reasonable time after receipt
of the Notice by giving written notice (herein called the Notice of Defense) to
the indemnified party, to assume (alone or in conjunction with any other
indemnifying party or parties) the entire defense of such action, suit,
investigation, inquiry or proceeding, in which event such defense shall be
conducted, at
11
<PAGE>
the expense of the indemnifying party or parties, by counsel chosen by such
indemnifying party or parties and reasonably satisfactory to the indemnified
party or parties; PROVIDED, HOWEVER, that (i) if the indemnified party or
parties reasonably determine that there may be a conflict between the positions
of the indemnifying party or parties and of the indemnified party or parties in
conducting the defense of such action, suit, investigation, inquiry or
proceeding or that there may be legal defenses available to such indemnified
party or parties different from or in addition to those available to the
indemnifying party or parties, then counsel for the indemnified party or parties
shall be entitled to conduct the defense to the extent reasonably determined by
such counsel to be necessary to protect the interests of the indemnified party
or parties and (ii) in any event, the indemnified party or parties shall be
entitled to have counsel chosen by such indemnified party or parties participate
in, but not conduct, the defense. If, within a reasonable time after receipt of
the Notice, an indemnifying party gives a Notice of Defense and the counsel
chosen by the indemnifying party or parties is reasonably satisfactory to the
indemnified party or parties, the indemnifying party or parties will not be
liable under paragraphs (a) through (c) of this Section 7 for any legal or other
expenses subsequently incurred by the indemnified party or parties in connection
with the defense of the action, suit, investigation, inquiry or proceeding,
except that (A) the indemnifying party or parties shall bear the legal and other
expenses incurred in connection with the conduct of the defense as referred to
in clause (i) of the proviso to the preceding sentence and (B) the indemnifying
party or parties shall bear such other expenses as it or they have authorized to
be incurred by the indemnified party or parties. If, within a reasonable time
after receipt of the Notice, no Notice of Defense has been given, the
indemnifying party or parties shall be responsible for any legal or other
expenses incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding.
(d) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 7, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in paragraph (a) or (b) of this Section 7 (i) in such
proportion as is appropriate to reflect the relative benefits received by each
indemnifying party from the offering of the Stock or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each indemnifying party in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, or actions in respect thereof, as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same respective proportions as the total net proceeds from the offering
of the Stock received by the Company and the total underwriting discount
received by the Underwriters, as set forth in the table on the cover page of the
Prospectus, bear to the aggregate public offering price of the Stock. Relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by each
indemnifying party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this paragraph
(d). The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities, or actions in respect thereof, referred to in the first
sentence of this paragraph (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigation, preparing to defend or defending against any action or claim
which is the subject of this paragraph (d). Notwithstanding the provisions of
this paragraph (d), no Underwriter shall be required to contribute any amount in
excess of the underwriting discount applicable to the Stock purchased by such
Underwriter. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this paragraph (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give
12
<PAGE>
written notice of such service to the party or parties from whom contribution
may be sought, but the omission so to notify such party or parties of any such
service shall not relieve the party from whom contribution may be sought from
any obligation it may have hereunder or otherwise (except as specifically
provided in paragraph (c) of this Section 7).
(e) The Company will not, without the prior written consent of
each Underwriter, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action, suit or proceeding in respect of
which indemnification may be sought hereunder (whether or not such Underwriter
or any person who controls such Underwriter within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act is a party to such claim,
action, suit or proceeding) unless such settlement, compromise or consent
includes an unconditional release of such Underwriter and each such controlling
person from all liability arising out of such claim, action, suit or proceeding.
8. TERMINATION. This Agreement may be terminated by you at any time
prior to the Closing Date by giving written notice to the Company if after the
date of this Agreement trading in the Common Stock shall have been suspended, or
if there shall have occurred (i) the engagement in hostilities or an escalation
of major hostilities by the United States or the declaration of war or a
national emergency by the United States on or after the date hereof, (ii) any
outbreak of hostilities or other national or international calamity or crisis or
change in economic or political conditions if the effect of such outbreak,
calamity, crisis or change in economic or political conditions in the financial
markets of the United States would, in the Underwriters' reasonable judgment,
make the offering or delivery of the Stock impracticable, (iii) suspension of
trading in securities generally or a material adverse decline in value of
securities generally on the New York Stock Exchange, the American Stock
Exchange, or The Nasdaq Stock Market, or limitations on prices (other than
limitations on hours or numbers of days of trading) for securities on either
such exchange or system, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of, or
commencement of any proceeding or investigation by, any court, legislative body,
agency or other governmental authority which in the Underwriters' reasonable
opinion materially and adversely affects or will materially or adversely affect
the business or operations of the Company, (v) declaration of a banking
moratorium by either federal or New York State authorities or (vi) the taking of
any action by any federal, state or local government or agency in respect of its
monetary or fiscal affairs which in the Underwriters' reasonable opinion has a
material adverse effect on the securities markets in the United States. If this
Agreement shall be terminated pursuant to this Section 8, there shall be no
liability of the Company to the Underwriters and no liability of the
Underwriters to the Company; PROVIDED, HOWEVER, that in the event of any such
termination the Company agrees to indemnify and hold harmless the Underwriters
from all costs or expenses incident to the performance of the obligations of the
Company under this Agreement, including all costs and expenses referred to in
paragraphs (i) and (j) of Section 6 hereof.
9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Stock shall be subject to the
performance by the Company of all their respective obligations to be performed
hereunder at or prior to the Closing Date or any later date on which Option
Stock is to be purchased, as the case may be, and to the following further
conditions:
(a) The Registration Statement shall have become effective; and
no stop order suspending the effectiveness thereof shall have been issued and no
proceedings therefor shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the Stock
hereunder and the validity and form of the certificates representing the Stock,
all corporate proceedings and other legal matters incident to the foregoing, and
the form of the Registration Statement and of the Prospectus (except as to the
financial statements contained therein), shall have been approved at or prior to
the Closing Date by Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP, counsel for the Underwriters.
(c) You shall have received from Fenwick & West LLP, counsel
for the Company, an opinion, addressed to the Underwriters and dated the Closing
Date, covering the matters set forth in Annex A hereto, and if Option Stock is
purchased at any date after the Closing Date, additional opinions from each such
counsel, addressed
13
<PAGE>
to the Underwriters and dated such later date, confirming that the statements
expressed as of the Closing Date in such opinions remain valid as of such later
date.
(d) You shall be satisfied that (i) as of the Effective Date,
the statements made in the Registration Statement and the Prospectus were true
and correct and neither the Registration Statement nor the Prospectus omitted to
state any material fact required to be stated therein or necessary in order to
make the statements therein, respectively, not misleading, (ii) since the
Effective Date, no event has occurred which should have been set forth in a
supplement or amendment to the Prospectus which has not been set forth in such a
supplement or amendment, (iii) since the respective dates as of which
information is given in the Registration Statement in the form in which it
originally became effective and the Prospectus contained therein, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the business, properties, financial
condition or results of operations of the Company [and its subsidiaries, taken
as a whole], whether or not arising from transactions in the ordinary course of
business, and, since such dates, except in the ordinary course of business.
Neither the Company nor any of its subsidiaries has entered into any material
transaction not referred to in the Registration Statement in the form in which
it originally became effective and the Prospectus contained therein,
(iv) neither the Company nor any of its subsidiaries has any material contingent
obligations which are not disclosed in the Registration Statement and the
Prospectus, (v) there are not any pending or known threatened legal proceedings
to which the Company or any of its subsidiaries is a party or of which property
of the Company or any of its subsidiaries is the subject which are material and
which are not disclosed in the Registration Statement and the Prospectus,
(vi) there are not any franchises, contracts, leases or other documents which
are required to be filed as exhibits to the Registration Statement which have
not been filed as required, (vii) the representations and warranties of the
Company herein are true and correct in all material respects as of the Closing
Date or any later date on which Option Stock is to be purchased, as the case may
be, and (viii) there has not been any material change in the market for
securities in general or in political, financial or economic conditions from
those reasonably foreseeable as to render it impracticable in your reasonable
judgment to make a public offering of the Stock, or a material adverse change in
market levels for securities in general (or those of companies in particular) or
financial or economic conditions which render it inadvisable to proceed.
(e) You shall have received on the Closing Date and on any
later date on which Option Stock is purchased a certificate, dated the Closing
Date or such later date, as the case may be, and signed by the President and the
Chief Financial Officer of the Company, stating that the respective signers of
said certificate have carefully examined the Registration Statement in the form
in which it originally became effective and the Prospectus contained therein and
any supplements or amendments thereto, and that the statements included in
clauses (i) through (vii) of paragraph (d) of this Section 9 are true and
correct.
(f) You shall have received from Ernst & Young a letter or
letters addressed to the Underwriters and dated the Closing Date and any later
date on which Option Stock is purchased, confirming that they are independent
public accountants with respect to the Company within the meaning of the
Securities Act and the applicable published rules and regulations thereunder and
based upon the procedures described in their letter delivered to you
concurrently with the execution of this Agreement (herein called the Original
Letter), but carried out to a date not more than three business days prior to
the Closing Date or such later date on which Option Stock is purchased
(i) confirming, to the extent true, that the statements and conclusions set
forth in the Original Letter are accurate as of the Closing Date or such later
date, as the case may be, and (ii) setting forth any revisions and additions to
the statements and conclusions set forth in the Original Letter which are
necessary to reflect any changes in the facts described in the Original Letter
since the date of the Original Letter or to reflect the availability of more
recent financial statements, data or information. The letters shall not
disclose any change, or any development involving a prospective change, in or
affecting the business or properties of the Company [or any of its subsidiaries]
which, in your sole judgment, makes it impractical or inadvisable to proceed
with the public offering of the Stock or the purchase of the Option Stock as
contemplated by the Prospectus.
[(g) You shall have received from Ernst & Young a letter stating
that their review of the Company's system of internal accounting controls, to
the extent they deemed necessary in establishing the scope of
14
<PAGE>
their examination of the Company's financial statements as at _______, 19___,
did not disclose any weakness in internal controls that they considered to be
material weaknesses.]
(h) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several jurisdictions,
or other evidence satisfactory to you, of the qualification referred to in
paragraph (f) of Section 6 hereof.
(i) Prior to the Closing Date, the Stock to be issued and sold
by the Company shall have been duly authorized for listing by the Nasdaq
National Market upon official notice of issuance.
(j) On or prior to the Closing Date, you shall have received
from all stockholders agreements, in form reasonably satisfactory to Hambrecht &
Quist LLC, stating that without the prior written consent of Hambrecht & Quist
LLC on behalf of the Underwriters, such person or entity will not, for a period
of 180 days following the commencement of the public offering of the Stock by
the Underwriters, directly or indirectly, (i) sell, lend, offer, contract to
sell, make any short sale, pledge, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of any shares of Common Stock or any
securities convertible into or exchangeable or exercisable for or any rights to
purchase or acquire Common Stock or (ii) enter into any swap or other agreement
that transfers, in whole or in part, any of the economic consequences or
ownership of Common Stock, whether any such transaction described in clause (i)
or (ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise.
All the agreements, opinions, certificates and letters mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP, counsel for the Underwriters, shall be satisfied that they
comply in form and scope.
In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company. Any such termination shall be without liability of the Company to the
Underwriters and without liability of the Underwriters to the Company; PROVIDED,
HOWEVER, that (i) in the event of such termination, the Company agrees to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company under this Agreement,
including all costs and expenses referred to in paragraphs (i) and (j) of
Section 6 hereof, and (ii) if this Agreement is terminated by you because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein, to fulfill any of the conditions herein, or to comply with any
provision hereof other than by reason of a default by any of the Underwriters,
the Company will reimburse the Underwriters severally upon demand for all
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
that shall have been incurred by them in connection with the transactions
contemplated hereby.
10. CONDITIONS OF THE OBLIGATION OF THE COMPANY. The obligation of
the Company to deliver the Stock shall be subject to the conditions that (a) the
Registration Statement shall have become effective and (b) no stop order
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 10 shall not
be fulfilled, this Agreement may be terminated by the Company by giving notice
to you. Any such termination shall be without liability of the Company to the
Underwriters and without liability of the Underwriters to the Company; PROVIDED,
HOWEVER, that in the event of any such termination the Company agrees to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company under this Agreement,
including all costs and expenses referred to in paragraphs (i) and (j) of
Section 6 hereof.
11. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to their other
obligations under Section 7 of this Agreement the Company agrees to reimburse on
a quarterly basis the Underwriters for all reasonable legal and other expenses
incurred in connection with investigating or defending any claim, action,
investigation, inquiry or other proceeding arising out of or based upon any
statement or omission, or any alleged statement or omission, described in
paragraph (a) of Section 7 of this Agreement, notwithstanding the absence of a
judicial determination as to the
15
<PAGE>
propriety and enforceability of the obligations under this Section 11 and the
possibility that such payments might later be held to be improper; PROVIDED,
HOWEVER, that (i) to the extent any such payment is ultimately held to be
improper, the persons receiving such payments shall promptly refund them and
(ii) such persons shall provide to the Company, upon request, reasonable
assurances of their ability to effect any refund, when and if due.
12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall
inure to the benefit of the Company and the several Underwriters and, with
respect to the provisions of Section 7 hereof, the several parties (in addition
to the Company and the several Underwriters) indemnified under the provisions of
said Section 7, and their respective personal representatives, successors and
assigns. Nothing in this Agreement is intended or shall be construed to give to
any other person, firm or corporation any legal or equitable remedy or claim
under or in respect of this Agreement or any provision herein contained. The
term "successors and assigns" as herein used shall not include any purchaser, as
such purchaser, of any of the Stock from any of the several Underwriters.
13. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to Hambrecht & Quist LLC, One Bush Street,
San Francisco, California 94104; and if to the Company, shall be mailed,
telegraphed or delivered to it at its office, 10101 North De Anza Boulevard,
Suite 210, Cupertino, CA 95014. All notices given by telegraph shall be
promptly confirmed by letter.
14. MISCELLANEOUS. The reimbursement, indemnification and
contribution agreements contained in this Agreement and the representations,
warranties and covenants in this Agreement shall remain in full force and effect
regardless of (a) any termination of this Agreement, (b) any investigation made
by or on behalf of any Underwriter or controlling person thereof, or by or on
behalf of the Company or its directors or officers, and (c) delivery and payment
for the Stock under this Agreement; PROVIDED, HOWEVER, that if this Agreement is
terminated prior to the Closing Date, the provisions of paragraphs (k) and (l)
of Section 6 hereof shall be of no further force or effect.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of California.
16
<PAGE>
Please sign and return to the Company the enclosed duplicates of this
letter, whereupon this letter will become a binding agreement among the Company
and the several Underwriters in accordance with its terms.
Very truly yours,
IMGIS, INC.
By
-----------------------------------------
Charles W. Berger
President and CEO
The foregoing Agreement is hereby confirmed
and accepted as of the date first above
written.
HAMBRECHT & QUIST LLC
LEHMAN BROTHERS
VOLPE BROWN WHELAN & COMPANY
CHARLES SCHWAB AND COMPANY
By Hambrecht & Quist LLC
By
-----------------------------------------
Managing Director
Acting on behalf of the several Underwriters,
including themselves, named in Schedule I
hereto.
<PAGE>
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITERS TO BE PURCHASED
------------ ----------------
<S> <C>
Hambrecht & Quist LLC...............................
SG Cowen Securities Corporation.....................
Sound View Financial Group, Inc.....................
-----------------
Total...............................................
</TABLE>
S-1
<PAGE>
ANNEX A
MATTERS TO BE COVERED IN THE OPINION OF FENWICK & WEST LLP
COUNSEL FOR THE COMPANY
(i) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, is duly qualified as a foreign
corporation and in good standing in each state of the United States of America
in which its ownership or leasing of property requires such qualification
(except where the failure to be so qualified would not have a material adverse
effect on the business, properties, financial condition or results of operations
of the Company and its subsidiaries, taken as a whole), and has full corporate
power and authority to own or lease its properties and conduct its business as
described in the Registration Statement; all the issued and outstanding capital
stock of each of the subsidiaries of the Company has been duly authorized and
validly issued and is fully paid and nonassessable, and is owned by the Company
free and clear of all liens, encumbrances and security interests, and to the
best of such counsel's knowledge, no options, warrants or other rights to
purchase, agreements or other obligations to issue or other rights to convert
any obligations into shares of capital stock or ownership interests in such
subsidiaries are outstanding;
(ii) the authorized capital stock of the Company consists of *
shares of * Stock, of which there are outstanding * shares,
and * shares of Common Stock, $ * par value, of which there are
outstanding * shares (including the Underwritten Stock plus the
number of shares of Option Stock issued on the date hereof) and such additional
number of shares, if any, as may have been issued after * and prior to
the Closing Date, pursuant to * ; proper corporate proceedings have been
taken validly to authorize such authorized capital stock; all of the outstanding
shares of such capital stock (including the Underwritten Stock and the shares of
Option Stock issued, if any) have been duly and validly issued and are fully
paid and nonassessable; any Option Stock purchased after the Closing Date, when
issued and delivered to and paid for by the Underwriters as provided in the
Underwriting Agreement, will have been duly and validly issued and be fully paid
and nonassessable; and no preemptive rights of, or rights of refusal in favor
of, stockholders exist with respect to the Stock, or the issue and sale thereof,
pursuant to the Certificate of Incorporation or Bylaws of the Company;
(iii) the Registration Statement has become effective under the
Securities Act and, to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement or suspending or
preventing the use of the Prospectus is in effect and no proceedings for that
purpose have been instituted or are pending or contemplated by the Commission;
(iv) the Registration Statement and the Prospectus (except as to the
financial statements and schedules and other financial data contained therein,
as to which such counsel need express no opinion) comply as to form in all
material respects with the requirements of the Securities Act[, the Exchange
Act] and with the rules and regulations of the Commission thereunder;
(v) such counsel have no reason to believe that the Registration
Statement (except as to the financial statements and schedules and other
financial and statistical data contained or incorporated by reference therein,
as to which such counsel need not express any opinion or belief) at the
Effective Date contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus (except as to the
financial statements and schedules and other financial and statistical data
contained or incorporated by reference therein, as to which such counsel need
not express any opinion or belief) as of its date or at the Closing Date (or any
later date on which Option Stock is purchased), contained or contains any untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading;
(vi) the information required to be set forth in the Registration
Statement in answer to Items 9, 10 (insofar as it relates to such counsel) and
11(c) of Form S-1 is to the best of such counsel's knowledge accurately and
adequately
A-1
<PAGE>
set forth therein in all material respects or no response is required with
respect to such Items, and the description of the Company's stock option plan
and the options granted and which may be granted thereunder and the options
granted otherwise than under such plan set forth in the Prospectus accurately
and fairly presents the information required to be shown with respect to said
plan and options to the extent required by the Securities Act and the rules and
regulations of the Commission thereunder;
(vii) such counsel do not know of any franchises, contracts, leases,
documents or legal proceedings, pending or threatened, which in the opinion of
such counsel are of a character required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement, which are not described and filed as required;
(viii) the Underwriting Agreement has been duly authorized, executed and
delivered by the Company;
(ix) the issue and sale by the Company of the shares of Stock sold by
the Company as contemplated by the Underwriting Agreement will not conflict
with, or result in a breach of, the Certificate of Incorporation or Bylaws of
the Company or any of its subsidiaries or any agreement or instrument known to
such counsel to which the Company or any of its subsidiaries is a party or any
applicable law or regulation, or so far as is known to such counsel, any order,
writ, injunction or decree, of any jurisdiction, court or governmental
instrumentality;
(x) all holders of securities of the Company having rights to the
registration of shares of Common Stock, or other securities, because of the
filing of the Registration Statement by the Company have waived such rights or
such rights have expired by reason of lapse of time following notification of
the Company's intent to file the Registration Statement;
(xi) no consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the transactions
contemplated in the Underwriting Agreement, except such as have been obtained
under the Securities Act and such as may be required under state securities or
blue sky laws in connection with the purchase and distribution of the Stock by
the Underwriters; and
(xii) the Stock sold by the Company will been duly authorized for
listing by the * Stock Exchange upon official notice of issuance.
- --------------------------------------------------------------------------------
Counsel rendering the foregoing opinion may rely as to questions of law
not involving the laws of the United States or of the State of California, upon
opinions of local counsel satisfactory in form and scope to counsel for the
Underwriters. Copies of any opinions so relied upon shall be delivered to the
Representatives and to counsel for the Underwriters and the foregoing opinion
shall also state that counsel knows of no reason the Underwriters are not
entitled to rely upon the opinions of such local counsel.
A-2
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "AGREEMENT") is
entered into as of this 19th day of December, 1997, by and between IMGIS, Inc.,
a California corporation ("ACQUIRER"), and StarPoint Software, Inc., a
Delaware corporation ("TARGET").
RECITALS
A. The parties intend that, subject to the terms and conditions
hereinafter set forth, Target merge with and into Acquirer in a statutory
merger (the "MERGER"), with Acquirer to be the surviving corporation, all
pursuant to the terms and conditions of this Agreement and an Agreement of
Merger substantially in the form of EXHIBIT A (the "AGREEMENT OF MERGER") and
the applicable provisions of the laws of the States of California and
Delaware. Upon the effectiveness of the Merger, all outstanding capital stock
of Target ("TARGET STOCK") will be converted into capital stock of Acquirer
("ACQUIRER STOCK"), and Acquirer will assume all outstanding options to
purchase shares of capital stock of Target, as provided in this Agreement and
the Agreement of Merger.
B. The Merger is intended to be treated as a tax-free reorganization
pursuant to the provisions of Section 368(a)(1)(A) of the Internal Revenue
Code of 1986, as amended (the "CODE").
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. PLAN OF REORGANIZATION
1.1 THE MERGER. Subject to the terms and conditions of this
Agreement, Target will be merged with and into Acquirer pursuant to this
Agreement and the Agreement of Merger and in accordance with applicable
provisions of the laws of the States of California and Delaware as follows:
1.1.1 CONVERSION OF SHARES. Each share of Common Stock of
Target ("TARGET COMMON STOCK") issued and outstanding immediately prior to
the filing of the Agreement of Merger with the Secretary of State of the
State of California (the "EFFECTIVE TIME"), other than shares, if any, for
which dissenters rights have been or will be perfected in compliance with
applicable law, and other than the Repurchased Shares (as defined in
Section 1.1.5), will by virtue of the Merger and at the Effective Time, and
without further action on the part of any holder thereof, be converted into
the right to receive one-sixth (1/6th) (the "APPLICABLE FRACTION") of a fully
paid and nonassessable share of Common Stock of Acquirer ("ACQUIRER COMMON
STOCK"). Each share of Preferred Stock of Target ("TARGET PREFERRED STOCK")
issued and outstanding immediately prior to the Effective Time, other than
shares, if any, for
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which dissenters rights have been or will be perfected in compliance with
applicable law, will by virtue of the Merger and at the Effective Time, and
without further action on the part of any holder thereof, be converted into
and represent the right to receive the Applicable Fraction of a fully paid
and nonassessable share of Series C Preferred Stock of Acquirer ("ACQUIRER
PREFERRED STOCK"). The Amended and Restated Articles of Incorporation
setting forth the terms of the Acquirer Preferred Stock of Acquirer are
attached as EXHIBIT 1.1.1.
1.1.2 ASSUMPTION OF RESTRICTED STOCK PURCHASE AGREEMENTS. The
shares of Acquirer Common Stock issued to each person listed on EXHIBIT 1.1.2
will continue to be subject to the terms and conditions of the restricted
stock purchase agreement that applied to the shares of Target Common Stock
held by such person prior to the Effective Time, except for the adjustments
in the number of shares described above. At the Effective Time, each such
person will have the repurchase option contained in the restricted stock
purchase agreement released as to 22/48ths of such shares. No additional
shares will vest under such restricted stock purchase agreement until such
person completes nine (9) months of continuous employment at Acquirer, at
which time an additional 9/48ths of such shares will vest, with the balance
of such shares to vest 1/48th of such shares every month thereafter for so
long as such holder is continuously employed at Acquirer. If any of the
persons listed on EXHIBIT 1.1.2 dies, becomes disabled or is terminated
without cause during such person's first nine (9) months of continuous
employment with Acquirer, an additional 6/48ths of such shares will vest,
after which time there will be no additional vesting of such shares. For
purposes of this Section, "cause" for an employee's termination will exist at
any time after the happening of one or more of the following events:
(a) employee's repeated failure or a refusal to comply in any material
respect with the reasonable policies, standards or regulations of Acquirer
after reasonable notice from Acquirer; (b) employee's unprofessional,
unethical or fraudulent conduct or conduct that materially discredits
Acquirer or is materially detrimental to the reputation, character or
standing of Acquirer; (c) employee's dishonest conduct or a deliberate
attempt to do an injury to Acquirer; (d) employee's material breach of a term
of this Agreement or the employee's invention assignment agreement,
including, without limitation, employee's theft of Acquirer's proprietary
information; and (e) employee's unlawful or criminal act which would reflect
badly on Acquirer in Acquirer's reasonable judgment.
1.1.3 ADJUSTMENTS FOR CAPITAL CHANGES. If prior to the
Merger Acquirer or Target recapitalizes through a split-up of its outstanding
shares into a greater number, or a combination of its outstanding shares into
a lesser number, reorganizes, reclassifies or otherwise changes its
outstanding shares into the same or a different number of shares of other
classes (other than through a split-up or combination of shares provided for
in the previous clause), or declares a dividend on its outstanding shares
payable in shares or securities convertible into shares, the number of shares
of Acquirer Common Stock into which the Target shares are to be converted
will be adjusted appropriately so as to maintain the proportionate interests
of the holders of the Target shares and the holders of Acquirer shares.
Acquirer contemplates effecting a 2-for-1 split of Acquirer Common Stock
prior to the Closing, which will trigger the adjustments described herein.
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1.1.4 DISSENTING SHARES. Holders of shares of Target Stock
who have complied with all requirements for perfecting stockholders' rights
of appraisal, as set forth in Section 262 of the Delaware General Corporation
Law ("DELAWARE LAW"), shall be entitled to their rights under the Delaware
Law with respect to such shares ("DISSENTING SHARES").
1.1.5 REPURCHASED SHARES. Immediately prior to the
Effective Time, Acquirer will purchase 225,000 shares of Target Common Stock
held by Audrey MacLean (the "REPURCHASED SHARES"), and Audrey MacLean will
sell such shares to Acquirer, for an aggregate purchase price of $112,500 or
$0.50 per share of Target Common Stock, payment to be made using a promissory
note in substantially the form of EXHIBIT 1.1.5.
1.2 FRACTIONAL SHARES. No fractional shares of Acquirer Common
Stock will be issued in connection with the Merger, but in lieu thereof each
holder of Target Common Stock who would otherwise be entitled to receive a
fraction of a share of Acquirer Common Stock will receive from Acquirer, upon
surrender of a certificate or certificates representing Target Common Stock,
an amount of cash (without interest) determined by multiplying such fraction
by $0.50. No fractional shares of Acquirer Preferred Stock will be issued in
connection with the Merger, but in lieu thereof each holder of Target
Preferred Stock who would otherwise be entitled to receive a fraction of a
share of Acquirer Preferred Stock will receive from Acquirer, upon surrender
of a certificate or certificates representing Target Preferred Stock, an
amount of cash (without interest) determined by multiplying such fraction by
$4.73. Acquirer will, subject to any applicable statute of limitation or
abandoned property or similar law, until three years after the Effective
Time, pay to such holders, upon surrender of their certificate or
certificates representing Target Common Stock or Target Preferred Stock
outstanding immediately prior to the Effective Time, the cash value of such
fractions so determined, without interest.
1.3 TARGET OPTIONS.
1.3.1 At the Effective Time, each holder of an outstanding
option (collectively, the "TARGET OPTIONS") to purchase Target Common Stock
granted under Target's 1996 Stock Plan (the "TARGET PLAN") shall be entitled,
in accordance with the terms of such Target Option, to purchase after the
Effective Time that number of shares of Acquirer Common Stock, determined by
multiplying the number of shares of Target Common Stock subject to such
Target Option at the Effective Time by the Applicable Fraction, and the
exercise price per share for each such Option will equal the exercise price
of the Target Option immediately prior to the Effective Time divided by the
Applicable Fraction. If the foregoing calculation results in an assumed
option being exercisable for a fraction of a share, then the number of shares
of Acquirer Common Stock subject to such option will be rounded down to the
nearest whole number with no cash being payable for such fractional share.
EXHIBIT 1.3.1 sets forth a true and complete list as of the date hereof of
all holders of Target Options, including the number of shares of Target
Common Stock subject to such options, a breakdown as between vested and
unvested options, the exercise price per share and the expiration date of
such options.
1.3.2 Each Target Option so assumed by Acquirer will continue
to have, and be subject to, substantially the same terms and conditions set
forth in the documents
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governing such Target Option immediately prior to the Effective Time, except
for the adjustments in the number of shares subject to such option and the
exercise price of such option described above, and except that no additional
shares will vest under such Target Option until the holder of such Target
option completes nine (9) months of continuous employment at Acquirer, at
which time an additional 9/48ths of the shares subject to such Target Option
will vest, with 1/48th of the shares subject to such Target Option to vest
every month thereafter for so long as such holder is continuously employed at
Acquirer.
1.3.3 Consistent with the terms of the Target Options and the
documents governing the Target Options, the Merger will not terminate or
accelerate any Target Option or any right of exercise, vesting or repurchase
relating thereto with respect to shares of Acquirer Common Stock acquired
upon exercise of such Target Option; provided that each holder of a Target
Option execute a document in substantially the form of EXHIBIT 1.3.3
evidencing such holder's consent to the vesting provisions set forth above.
In the event that any holder does not so consent, such holder's option will
terminate at the Effective Time.
1.4 ESCROW AGREEMENT. At the closing of the Merger (the
"CLOSING"), Acquirer will withhold ten percent (10%) of the shares of
Acquirer Common Stock and ten percent (10%) of the shares of Acquirer
Preferred Stock to be issued to the stockholders of Target (the "TARGET
STOCKHOLDERS") in accordance with Section 1.1 (rounded down to the nearest
whole number of shares) to be issued to each Target Stockholder, and deliver
such shares (the "ESCROW SHARES") to The First National Bank of Boston (the
"ESCROW AGENT"), as escrow agent, to be held by Escrow Agent as collateral
for Target's indemnification obligations under Section 10.2 and pursuant to
the provisions of an escrow agreement (the "ESCROW AGREEMENT") in substantially
the form of EXHIBIT 1.4. The Escrow Shares will be represented by a
certificate or certificates issued in the name of the Escrow Agent and will
be held by the Escrow Agent from the Closing until the date that is one year
after the Closing Date (as defined in Section 6.1) (the "ESCROW PERIOD"). In
the event that the Merger is approved by the Target Stockholders as provided
herein, the Target Stockholders shall, without any further act of any Target
Stockholder, be deemed to have consented to and approved (i) the use of the
Escrow Shares as collateral for Target's indemnification obligations under
Section 10.2 in the manner set forth in the Escrow Agreement, (ii) the
appointment of Michael Tanne as the representative of the Target Stockholders
(the "REPRESENTATIVE") under the Escrow Agreement and as the attorney-in-fact
and agent for and on behalf of each Target Stockholder (other than holders of
Dissenting Shares), and the taking by the Representative of any and all
actions and the making of any decisions required or permitted to be taken by
him under the Escrow Agreement (including, without limitation, the exercise
of the power to: authorize delivery to Acquirer of Escrow Shares in
satisfaction of claims by Acquirer; agree to, negotiate, enter into
settlements and compromises of and demand arbitration and comply with orders
of courts and awards of arbitrators with respect to such claims; resolve any
claim made pursuant to Section 10.2; and take all actions necessary in the
judgment of the Representative for the accomplishment of the foregoing),
(iii) all of the other terms, conditions and limitations in the Escrow
Agreement, including, without limitation, the $25,000 basket described
therein.
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1.5 EFFECTS OF THE MERGER. At the Effective Time: (a) the
separate existence of Target will cease and Target will be merged with and
into Acquirer, and Acquirer will be the surviving corporation, pursuant to
the terms of the Agreement of Merger, (b) the Articles of Incorporation and
Bylaws of Acquirer will continue unchanged to be the Articles of Incorporation
and Bylaws of the surviving corporation, (c) each share of Acquirer Common
Stock and Acquirer Preferred Stock outstanding immediately prior to the
Effective Time will continue to be an identical outstanding share,
respectively, of the surviving corporation, (d) the Board of Directors and
officers of Acquirer will remain unchanged, (e) each share of Target Common
Stock and Target Preferred Stock and each Target Option outstanding
immediately prior to the Effective Time will be converted or assumed as
provided in Sections 1.1, 1.2 and 1.3; and (f) the Merger will, from and
after the Effective Time, have all of the effects provided by applicable law.
1.6 FURTHER ASSURANCES. Target agrees that if, at any time after
the Effective Time, Acquirer considers or is advised that any further deeds,
assignments or assurances are reasonably necessary or desirable to vest,
perfect or confirm in Acquirer title to any property or rights of Target,
Acquirer and its proper officers and directors may execute and deliver all
such proper deeds, assignments and assurances and do all other things
necessary or desirable to vest, perfect or confirm title to such property or
rights in Acquirer and otherwise to carry out the purpose of this Agreement,
in the name of Target or otherwise.
1.7 TAX FREE REORGANIZATION.
1.7.1 The parties intend to adopt this Agreement as a plan of
reorganization and to consummate the Merger in accordance with the provisions
of Section 368(a)(1)(A) of the Code. The parties believe that the value of
the Acquirer Stock to be received in the Merger is equal, in each instance,
to the value of the Target Stock to be surrendered in exchange therefor. The
Acquirer Stock issued in the Merger will be issued solely in exchange for the
Target Stock, and no other transaction other than the Merger represents,
provides for or is intended to be an adjustment to, the consideration paid
for the Target Stock. Except for cash paid in lieu of fractional shares, for
the Repurchased Shares or for Dissenting Shares, no consideration that could
constitute "other property" within the meaning of Section 356 of the Code is
being paid by Acquirer for the Target Stock in the Merger. The parties shall
comply with the information requirements of Treasury Regulations
Section 1.368-3, and shall not take a position on any tax returns
inconsistent with this Section 1.7.1. In addition, Acquirer represents now,
and as of the Closing Date, that it presently intends to continue Target's
historic business or use a significant portion of Target's business assets in
a business. At the Closing, officers of each of Acquirer and Target shall
execute and deliver officers' certificates as requested by counsel to Target
and Acquirer pursuant to Sections 7.7 or 8.19, respectively. The provisions
and representations contained or referred to in this Section 1.7 shall
survive until the expiration of the applicable statute of limitations.
1.7.2 In the event of the issuance of final or temporary
Treasury regulations relating to the continuity of shareholder interest (on
which topic proposed regulations were issued in the Federal Register on
December 23, 1996 (Reg-252231-96) that would, among
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other things, add a new section 1.368-1(e) to the existing regulations), the
parties agree to use their reasonable best efforts to take advantage of, and
comply with, any provisions therein (such as an election and/or reporting
requirements) to the extent necessary to cause such regulations to apply to
the Merger.
1.8 PURCHASE ACCOUNTING. The parties intend that the Merger be
treated as a purchase for accounting purposes.
2. REPRESENTATIONS AND WARRANTIES OF TARGET
Target hereby represents and warrants that, except as set forth on the Target
Schedule of Exceptions delivered to Acquirer herewith as EXHIBIT 2.0:
2.1 ORGANIZATION AND GOOD STANDING. Target is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware, has the corporate power and authority to own, operate and lease
its properties and to carry on its business as now conducted and as proposed
to be conducted, and is qualified as a foreign corporation in each
jurisdiction in which a failure to be so qualified could reasonably be
expected to have a material adverse effect on its present or expected
operations or financial condition.
2.2 POWER, AUTHORIZATION AND VALIDITY.
2.2.1 Target has the right, power, legal capacity and
authority to enter into and perform its obligations under this Agreement, and
all agreements to which Target is or will be a party that are required to be
executed pursuant to this Agreement (the "TARGET ANCILLARY AGREEMENTS"). The
execution, delivery and performance of this Agreement and the Target
Ancillary Agreements have been duly and validly approved and authorized by
Target's Board of Directors.
2.2.2 No filing, authorization or approval, governmental or
otherwise, is necessary to enable Target to enter into, and to perform its
obligations under, this Agreement and the Target Ancillary Agreements, except
for (a) the filing of the Agreement of Merger with the Secretaries of State
of the States of California and Delaware, the recording of the Agreement of
Merger in the office of the Recorder of the Delaware county in which Target's
registered office is located, and the filing of appropriate documents with
the relevant authorities of other states in which Target is qualified to do
business, if any, (b) such filings as may be required to comply with federal
and state securities laws, and (c) the approval of the Target Stockholders of
the transactions contemplated hereby.
2.2.3 This Agreement and the Target Ancillary Agreements are,
or when executed by Target will be, valid and binding obligations of Target
enforceable in accordance with their respective terms, except as to the
effect, if any, of (a) applicable bankruptcy and other similar laws affecting
the rights of creditors generally, (b) rules of law governing specific
performance, injunctive relief and other equitable remedies and (c) the
enforceability of provisions requiring indemnification in connection with the
offering, issuance or sale of
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securities; provided, however, that the Agreement of Merger will not be
effective until filed with the Secretaries of State of the States of
California and Delaware.
2.3 CAPITALIZATION. The authorized capital stock of Target
consists of 15,000,000 shares of Common Stock, $0.0001 par value, of which
2,852,262 shares are issued and outstanding, and 5,000,000 shares of
Preferred Stock, $0.0001 par value, of which 2,000,000 are designated Series B
Preferred Stock, of which no shares are issued and outstanding, and 3,000,000
shares are undesignated as to series. As of December 31, 1997, pursuant to
the conversion of certain convertible promissory notes in the aggregate
principal and accrued interest amount of $1,112,659, a total of 1,854,432
shares of Series B Preferred Stock will be issued and outstanding. An
aggregate of 741,000 shares of Target Common Stock are reserved and
authorized for issuance pursuant to the Target Plan, of which options to
purchase a total of 144,172 shares of Target Common Stock are outstanding.
All issued and outstanding shares of Target Stock have been, and at the
Effective Time will be, duly authorized and validly issued, are now, and at
the Effective Time will be, fully paid and nonassessable, are not now, and
will not be at the Effective Time, subject to any right of rescission, and
have been, and at the Effective Time will have been, offered, issued, sold
and delivered by Target in compliance with all registration or qualification
requirements (or applicable exemptions therefrom) of applicable federal and
state securities laws. A list of all holders of Target Stock and the number
of shares held by each has been delivered by Target to Acquirer herewith as
EXHIBIT 2.3A, and a list of all holders of options to purchase Target Stock,
and the number of options held by each has been delivered by Target to
Acquirer as EXHIBIT 1.3.1. A list of all the holders of warrants to purchase
Target Stock (the "WARRANTS") and the number of Warrants held by each has
been delivered by Target to Acquirer as EXHIBIT 2.3B. All of the Warrants by
their terms terminate upon a change of control transaction of Target. Except
as set forth in this Section, on EXHIBIT 1.3.1, on EXHIBIT 2.3A and on
EXHIBIT 2.3B, there are no options, warrants, calls, commitments, conversion
privileges or preemptive or other rights or agreements outstanding to
purchase any of Target's authorized but unissued capital stock or any
securities convertible into or exchangeable for shares of Target Stock or
obligating Target to grant, extend, or enter into any such option, warrant,
call, right, commitment, conversion privilege or other right or agreement,
and there is no liability for dividends accrued but unpaid. There are no
voting agreements, rights of first refusal or other restrictions (other than
normal restrictions on transfer under applicable federal and state securities
laws) applicable to any of Target's outstanding securities. Target is not
under any obligation to register under the Securities Act any of its
presently outstanding securities or any securities that may be subsequently
issued.
2.4 SUBSIDIARIES. Except as provided in SCHEDULE 2.4 of the
Schedule of Exceptions, Target does not have any subsidiaries or any
interest, direct or indirect, in any corporation, partnership, joint venture
or other business entity (each a "SUBSIDIARY").
2.5 NO VIOLATION OF EXISTING AGREEMENTS. Neither the execution
and delivery of this Agreement nor any Target Ancillary Agreement, nor the
consummation of the transactions contemplated hereby, will conflict with, or
(with or without notice or lapse of time, or both) result in a termination,
breach, impairment or violation of (a) any provision of the Certificate of
Incorporation or Bylaws of Target or any Subsidiary, as currently in effect,
(b) in any material
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respect, any material instrument or contract to which Target or any
Subsidiary is a party or by which Target or any Subsidiary is bound, or
(c) any federal, state, local or foreign judgment, writ, decree, order,
statute, rule or regulation applicable to Target or any Subsidiary or their
respective assets or properties. The consummation of the Merger and the
transfer to Acquirer of all material rights, licenses, franchises, leases and
agreements of Target and each Subsidiary will not require the consent of any
third party.
2.6 LITIGATION. There is no action, proceeding, claim or
investigation pending against Target or any Subsidiary before any court or
administrative agency that if determined adversely to Target or any
Subsidiary may reasonably be expected to have a material adverse effect on
the present or future operations or financial condition of Target or any
Subsidiary, nor, to the best of Target's knowledge, has any such action,
proceeding, claim or investigation been threatened. There is, to the best of
Target's knowledge, no reasonable basis for any stockholder or former
stockholder of Target, or any other person, firm, corporation, or entity, to
assert a claim against Target or Acquirer based upon: (a) ownership or rights
to ownership of any shares of Target Stock (except for dissenter's rights
with respect to shares of Acquirer Stock issuable by virtue of the Merger),
(b) any rights as a Target Stockholder, including any option or preemptive
rights or rights to notice or to vote, or (c) any rights under any agreement
among Target and its stockholders.
2.7 TAXES. Target and each of its Subsidiaries has filed all
federal, state, local and foreign tax returns required to be filed, has paid
all taxes required to be paid in respect of all periods for which returns
have been filed or has established an adequate accrual or reserve for the
payment of all such taxes, and has no material liability for taxes in excess
of the amount so paid or accruals or reserves so established. Neither Target
nor any Subsidiary is delinquent in the payment of any material tax or is
delinquent in the filing of any material tax returns, and no deficiencies for
any tax have been threatened, claimed, proposed or assessed. No tax return
of Target or any Subsidiary has ever been audited by the Internal Revenue
Service or any state taxing agency or authority, nor has Target or any
Subsidiary received any notice that they will be audited, nor has Target or
any Subsidiary granted the Internal Revenue Service or any state taxing
agency or authority an extension to any applicable statute of limitation nor
has Target or any Subsidiary has been asked to do so. For the purposes of
this Agreement, the terms "TAX" and "TAXES" include all federal, state, local
and foreign income, gains, franchise, excise, property, sales, use,
employment, license, payroll, occupation, recording, value added or transfer
taxes, governmental charges, fees, levies or assessments (whether payable
directly or by withholding), and, with respect to such taxes, any estimated
tax, interest and penalties or additions to tax and interest on such
penalties and additions to tax.
2.8 TARGET FINANCIAL STATEMENTS. Target has delivered to Acquirer
as EXHIBIT 2.8 Target's audited balance sheet as of October 31, 1997 (the
"BALANCE SHEET") and income statement and statement of cash flows for the
period then ended (collectively the "TARGET FINANCIAL STATEMENTS"). The
Target Financial Statements (a) are in accordance with the books and records
of Target, (b) fairly present the financial condition of Target at the date
therein indicated and the results of operations for the period therein
specified and (c) have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis.
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Target has no material debt, liability or obligation of any nature, whether
accrued, absolute, contingent or otherwise, and whether due or to become due,
that is not reflected or reserved against in the Target Financial Statements,
except for those that may have been incurred after the date of the Target
Financial Statements in the ordinary course of its business, consistent with
past practice and that are not material in amount either individually or
collectively.
2.9 TITLE TO PROPERTIES. Target has good and marketable title to
all of its assets as shown on the Balance Sheet, free and clear of all liens,
charges, restrictions or encumbrances (other than for taxes not yet due and
payable). All machinery and equipment included in such properties is in good
condition and repair, normal wear and tear excepted, and all leases of real
or personal property to which Target or any Subsidiary is a party are fully
effective and afford Target or the Subsidiary peaceful and undisturbed
possession of the subject matter of the lease. Neither Target nor any
Subsidiary is in violation of any zoning, building, safety or environmental
ordinance, regulation or requirement or other law or regulation applicable to
the operation of owned or leased properties (the violation of which would
have a material adverse effect on its business), or has received any notice
of violation with which it has not complied.
2.10 ABSENCE OF CERTAIN CHANGES. Since the date of the Balance
Sheet, there has not been with respect to Target or any Subsidiary:
(a) any change in the financial condition, properties,
assets, liabilities, business or operations thereof which change by itself or
in conjunction with all other such changes, whether or not arising in the
ordinary course of business, has had or will have a material adverse effect
thereon;
(b) any contingent liability incurred thereby as guarantor or
otherwise with respect to the obligations of others;
(c) any mortgage, encumbrance or lien placed on any of the
properties thereof;
(d) any material obligation or liability incurred thereby
other than obligations and liabilities incurred in the ordinary course of
business;
(e) any purchase or sale or other disposition, or any
agreement or other arrangement for the purchase, sale or other disposition,
of any of the properties or assets thereof other than in the ordinary course
of business;
(f) any damage, destruction or loss, whether or not covered
by insurance, materially and adversely affecting the properties, assets or
business thereof;
(g) any declaration, setting aside or payment of any dividend
on, or the making of any other distribution in respect of, the capital stock
thereof, any split, combination or recapitalization of the capital stock
thereof or any direct or indirect redemption, purchase or other acquisition
of the capital stock thereof;
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(h) any labor dispute or claim of unfair labor practices, any
change in the compensation payable or to become payable to any of its
officers, employees or agents, or any bonus payment or arrangement made to or
with any of such officers, employees or agents;
(i) any change with respect to the management, supervisory or
other key personnel thereof;
(j) any payment or discharge of a material lien or liability
thereof which lien was not either shown on the Balance Sheet or incurred in
the ordinary course of business thereafter; or
(k) any obligation or liability incurred thereby to any of
its officers, directors or stockholders or any loans or advances made thereby
to any of its officers, directors or stockholders except normal compensation
and expense allowances payable to officers.
2.11 CONTRACTS AND COMMITMENTS. Neither Target nor any Subsidiary
has any contract, obligation or commitment which is material to the business
of Target or any Subsidiary or which involves a potential commitment in
excess of $25,000 or any stock redemption or purchase agreement, financing
agreement, license, lease or franchise. Neither Target nor any Subsidiary is
in default in any material respect under any contract, obligation or
commitment that is otherwise material to the business of Target or a
Subsidiary. Neither Target nor any Subsidiary is a party to any contract or
arrangement which has had or could reasonably be expected to have a material
adverse effect on its business or prospects. Neither Target nor any
Subsidiary has any material liability for renegotiation of government
contracts or subcontracts, if any.
2.12 INTELLECTUAL PROPERTY. Target and its Subsidiaries own, or
have the right to use, sell or license all material Intellectual Property
Rights (as defined below) necessary or required for the conduct of their
respective businesses as presently conducted (such Intellectual Property
Rights being hereinafter collectively referred to as the "TARGET IP RIGHTS")
and such rights to use, sell or license are reasonably sufficient for such
conduct of their respective businesses. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby will not constitute a material breach of any instrument
or agreement governing any Target IP Right (the "TARGET IP RIGHTS
AGREEMENTS"), will not cause the forfeiture or termination or give rise to a
right of forfeiture or termination of any Target IP Right or materially
impair the right of Target or any Subsidiaries to use, sell or license any
Target IP Right or portion thereof (except where such breach, forfeiture or
termination would not have a material adverse effect on Target and the Target
Subsidiaries, taken as a whole). There are no royalties, honoraria, fees or
other payments payable by Target to any person by reason of the ownership,
use, license, sale or disposition of the Target IP Rights (other than as set
forth in the Target IP Rights Agreements listed in EXHIBIT 2.12). Neither the
manufacture, marketing, license, sale or intended use of any product
currently licensed or sold by Target or any of the Target Subsidiaries or
currently under development by Target or any of the Target Subsidiaries
violates any license or agreement between Target or any of the Target
Subsidiaries and any third
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party or infringes any Intellectual Property Right of any other party; and
there is no pending or, to the best knowledge of Target, threatened claim or
litigation contesting the validity, ownership or right to use, sell, license
or dispose of any Target IP Right nor, to the best knowledge of Target, is
there any basis for any such claim, nor has Target received any notice
asserting that any Target IP Right or the proposed use, sale, license or
disposition thereof conflicts or will conflict with the rights of any other
party, nor, to the best knowledge of Target, is there any basis for any such
assertion. Target has taken reasonable and practicable steps designed to
safeguard and maintain the secrecy and confidentiality of, and its
proprietary rights in, all material Target IP Rights. All officers,
employees and consultants of Target and each Subsidiary have executed and
delivered to Target or the Subsidiary an agreement regarding the protection
of proprietary information and the assignment to Target or the Subsidiary of
all Intellectual Property Rights arising from the services performed for
Target or the Subsidiary by such persons. Exhibit 2.12 contains a list of
all applications, registrations, filings and other formal actions made or
taken pursuant to federal, state and foreign laws by Target to perfect or
protect its interest in Target IP Rights, including, without limitation, all
patents, patent applications, trademarks, trademark applications and service
marks. As used herein, the term "INTELLECTUAL PROPERTY RIGHTS" shall mean
all worldwide industrial and intellectual property rights, including, without
limitation, patents, patent applications, patent rights, trademarks,
trademark applications, trade names, domain names, service marks, service
mark applications, copyright, copyright applications, franchises, licenses,
inventories, know-how, trade secrets, customer lists, proprietary processes
and formulae, all source and object code, algorithms, architecture,
structure, display screens, layouts, inventions, development tools and all
documentation and media constituting, describing or relating to the above,
including, without limitation, manuals, memoranda and records.
2.13 COMPLIANCE WITH LAWS. Target and each of its Subsidiaries has
complied, or prior to the Closing Date will have complied, and is or will be
at the Closing Date in full compliance, in all material respects with all
applicable laws, ordinances, regulations, and rules, and all orders, writs,
injunctions, awards, judgments, and decrees applicable to it or to the
assets, properties and business thereof (the violation of which would have a
material adverse effect upon its business), including, without limitation:
(a) all applicable federal and state securities laws and regulations; (b) all
applicable federal, state, and local laws, ordinances, regulations, and all
orders, writs, injunctions, awards, judgments, and decrees pertaining to
(i) the sale, licensing, leasing, ownership or management of its owned,
leased or licensed real or personal property, products and technical data,
(ii) employment and employment practices, terms and conditions of employment,
and wages and hours and (iii) safety, health, fire prevention, environmental
protection, toxic waste disposal, building standards, zoning and other
similar matters; (c) the Export Administration Act and regulations
promulgated thereunder and all other laws, regulations, rules, orders, writs,
injunctions, judgments and decrees applicable to the export or re-export of
controlled commodities or technical data; and (d) the Immigration Reform and
Control Act of 1986. Each of Target and the Subsidiaries has received all
permits and approvals from, and has made all filings with, third parties,
including government agencies and authorities, that are necessary in
connection with its present business. To the best of Target's knowledge,
there are no legal or administrative proceedings or investigations pending or
threatened, that, if enacted or determined adversely to Target or any
Subsidiary, would result in any material adverse change in the present or
future operations or financial condition thereof.
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2.14 CERTAIN TRANSACTIONS AND AGREEMENTS. None of the officers or
directors of Target or any Subsidiary, nor any member of their immediate
families, has any direct or indirect ownership interest in any firm or
corporation that competes with Target (except with respect to any interest in
less than one percent of the stock of any corporation whose stock is publicly
traded). None of said officers or directors, or any member of their
immediate families, is directly or indirectly interested in any contract or
informal arrangement with Target or any Subsidiary, except for normal
compensation for services as an officer, director or employee thereof. None
of said officers or directors or family members has any interest in any
property, real or personal, tangible or intangible, including inventions,
patents, copyrights, trademarks or trade names or trade secrets, used in or
pertaining to the business of Target or any Subsidiary, except for the normal
rights of a stockholder.
2.15 EMPLOYEES, ERISA AND OTHER COMPLIANCE.
2.15.1 Except as set forth in EXHIBIT 2.15.1, neither Target
nor any Subsidiary has any employment contracts or consulting agreements
currently in effect that are not terminable at will (other than agreements
with the sole purpose of providing for the confidentiality of proprietary
information or assignment of inventions). All officers, employees and
consultants of Target and the Subsidiaries having access to proprietary
information have executed and delivered to Target or the Subsidiary an
agreement regarding the protection of such proprietary information and the
assignment of inventions to Target or the Subsidiary; copies of all such
agreements have been delivered to Acquirer's counsel.
2.15.2 To the best of Target's knowledge, neither Target nor
any Subsidiary (i) has ever been or is now subject to a union organizing
effort, (ii) is subject to any collective bargaining agreement with respect
to any of its employees, (iii) is subject to any other contract, written or
oral, with any trade or labor union, employees' association or similar
organization, or (iv) has any current labor disputes. Target and each of its
Subsidiaries has good labor relations, and has no knowledge of any facts
indicating that the consummation of the transactions contemplated hereby will
have a material adverse effect on such labor relations, and has no knowledge
that any of its key employees intends to leave its employ.
2.15.3 EXHIBIT 2.15.3 identifies (i) each "employee benefit
plan," as defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and (ii) all other written or formal plans
or agreements involving direct or indirect compensation or benefits (including
any employment agreements entered into between Target or any Subsidiary and
any employee of Target or any Subsidiary, but excluding workers' compensation,
unemployment compensation and other government-mandated programs) currently
or previously maintained, contributed to or entered into by Target or any
Subsidiary under which Target or any Subsidiary or any ERISA Affiliate (as
defined below) thereof has any present or future obligation or liability
(collectively, the "TARGET EMPLOYEE PLANS"). For purposes of this Section 2.15,
"ERISA AFFILIATE" shall mean any entity which is a member of (A) a
"controlled group of corporations," as defined in Section 414(b) of the Code,
(B) a group of entities under "common control," as defined in Section 414(c)
of the Code, or (C) an "affiliated
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service group," as defined in Section 414(m) of the Code, or treasury
regulations promulgated under Section 414(o) of the Code, any of which
includes Target or any Subsidiary. Copies of all Target Employee Plans (and,
if applicable, related trust agreements) and all amendments thereto and
written interpretations thereof (including summary plan descriptions) have
been delivered to Acquirer or its counsel, together with the three most
recent annual reports (Form 5500, including, if applicable, Schedule B
thereto) prepared in connection with any such Target Employee Plan. All
Target Employee Plans which individually or collectively would constitute an
"employee pension benefit plan," as defined in Section 3(2) of ERISA
(collectively, the "TARGET PENSION PLANS"), are identified as such in
EXHIBIT 2.15.3. All contributions due from Target or any Subsidiary with
respect to any of the Target Employee Plans have been made as required under
ERISA or have been accrued on Target's or any such Target Subsidiary's
financial statements as of the date of the Balance Sheet. Each Target
Employee Plan has been maintained substantially in compliance with its terms
and with the requirements prescribed by any and all statutes, orders, rules
and regulations, including, without limitation, ERISA and the Code, which are
applicable to such Target Employee Plans.
2.15.4 No Target Pension Plan constitutes, or has since the
enactment of ERISA constituted, a "multiemployer plan," as defined in
Section 3(37) of ERISA. No Target Pension Plans are subject to Title IV of
ERISA. No "prohibited transaction," as defined in Section 406 of ERISA or
Section 4975 of the Code, has occurred with respect to any Target Employee
Plan which is covered by Title I of ERISA which would result in a material
liability to Target and its Subsidiaries taken as a whole, excluding
transactions effected pursuant to a statutory or administrative exemption.
Nothing done or omitted to be done and no transaction or holding of any asset
under or in connection with any Target Employee Plan has or will make Target
or any officer or director of Target subject to any material liability under
Title I of ERISA or liable for any material tax (as defined in Section 2.7)
or penalty pursuant to Sections 4972, 4975, 4976 or 4979 of the Code or
Section 502 of ERISA.
2.15.5 Any Target Pension Plan which is intended to be
qualified under Section 401(a) of the Code (a "TARGET 401(a) PLAN") is so
qualified and has been so qualified during the period from its adoption to
date, and the trust forming a part thereof is exempt from tax pursuant to
Section 501(a) of the Code. Target has delivered to Acquirer or its counsel
a complete and correct copy of the most recent Internal Revenue Service
determination opinion or advisory letter with respect to each Target 401(a)
Plan.
2.15.6 EXHIBIT 2.15.6 lists each employment, severance or
other similar contract, arrangement or policy and each plan or arrangement
(written or oral) providing for insurance coverage (including any
self-insured arrangements), workers' benefits, vacation benefits, severance
benefits, disability benefits, death benefits, hospitalization benefits,
retirement benefits, deferred compensation, profit-sharing, bonuses, stock
options, stock purchase, phantom stock, stock appreciation or other forms of
incentive compensation or post-retirement insurance, compensation or benefits
for employees, consultants or directors which (A) is entered into, maintained
or contributed to, as the case may be, by Target or any Subsidiary and
(B) covers any employee or former employee of Target or any Subsidiary. Such
contracts, plans and arrangements as are described in this Section 2.15.6 are
herein referred to collectively as the
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"TARGET BENEFIT ARRANGEMENTS." Each Target Benefit Arrangement has been
maintained in substantial compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations which are
applicable to such Target Benefit Arrangement. Target has delivered to
Acquirer or its counsel a complete and correct copy or description of each
Target Benefit Arrangement.
2.15.7 There has been no amendment to, written interpretation
or announcement (whether or not written) by Target or any Subsidiary relating
to, or change in employee participation or coverage under, any Target
Employee Plan or Target Benefit Arrangement that would increase materially
the expense of maintaining such Target Employee Plan or Target Benefit
Arrangement above the level of the expense incurred in respect thereof for
the fiscal year ended December 31, 1996.
2.15.8 Target has provided, or will have provided prior to
the Closing, to individuals entitled thereto all required notices and
coverage pursuant to Section 4980B of the Code and the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended ("COBRA"), with respect to any
"qualifying event" (as defined in Section 4980B(f)(3) of the Code) occurring
prior to and including the Closing Date, and no material Tax payable on
account of Section 4980B of the Code has been incurred with respect to any
current or former employees (or their beneficiaries) of Target or any
Subsidiary.
2.15.9 No benefit payable or which may become payable by
Target or any Subsidiary pursuant to any Target Employee Plan or any Target
Benefit Arrangement or as a result of or arising under this Agreement shall
constitute an "excess parachute payment" (as defined in Section 280G(b)(1) of
the Code) which is subject to the imposition of an excise Tax under Section 4999
of the Code or which would not be deductible by reason of Section 280G of the
Code.
2.15.10 Target and each Target Subsidiary is in compliance in
all material respects with all applicable laws, agreements and contracts
relating to employment, employment practices, wages, hours, and terms and
conditions of employment, including, but not limited to, employee
compensation matters, but not including ERISA.
2.15.11 To the best of Target's knowledge, no employee of
Target or an Subsidiary is in violation of any term of any employment
contract, patent disclosure agreement, noncompetition agreement, or any other
contract or agreement, or any restrictive covenant relating to the right of
any such employee to be employed thereby, or to use trade secrets or
proprietary information of others, and the employment of such employees does
not subject Target or any Subsidiary to any liability.
2.15.12 A list of all employees, officers and consultants of
Target and the Subsidiaries and their current compensation is set forth on
EXHIBIT 2.15.12, which has been delivered to Acquirer.
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2.15.13 Neither Target nor any Subsidiary is a party to any
(a) agreement with any executive officer or other key employee thereof (i) the
benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction involving Target in the nature
of any of the transactions contemplated by this Agreement and the Agreement
of Merger, (ii) providing any term of employment or compensation guarantee,
or (iii) providing severance benefits or other benefits after the termination
of employment of such employee regardless of the reason for such termination
of employment, or (b) agreement or plan, including, without limitation, any
stock option plan, stock appreciation rights plan or stock purchase plan, any
of the benefits of which will be materially increased, or the vesting of
benefits of which will be materially accelerated, by the occurrence of any of
the transactions contemplated by this Agreement and the Agreement of Merger
or the value of any of the benefits of which will be calculated on the basis
of any of the transactions contemplated by this Agreement and the Agreement
of Merger.
2.16 CORPORATE DOCUMENTS. Target has made available to Acquirer
for examination all documents and information listed in the Target Schedule
of Exceptions or other Exhibits called for by this Agreement which has been
requested by Acquirer's legal counsel, including, without limitation, the
following: (a) copies of Target's Certificate of Incorporation and Bylaws as
currently in effect; (b) its Minute Book containing all records of all
proceedings, consents, actions, and meetings of the stockholders, the board
of directors and any committees thereof; (c) its stock ledger and journal
reflecting all stock issuances and transfers; and (d) all permits, orders and
consents issued by any regulatory agency with respect to Target, or any
securities of Target, and all applications for such permits, orders and
consents.
2.17 NO BROKERS. Neither Target nor any of its stockholders (the
"TARGET STOCKHOLDERS") is obligated for the payment of fees or expenses of
any investment banker, broker or finder in connection with the origin,
negotiation or execution of this Agreement or the Agreement of Merger or in
connection with any transaction contemplated hereby or thereby.
2.18 DISCLOSURE. Neither this Agreement, its exhibits and
schedules, nor any of the certificates or documents to be delivered by Target
to Acquirer under this Agreement, taken together, contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements contained herein and therein, in light of the
circumstances under which such statements were made, not misleading.
2.19 INFORMATION SUPPLIED. None of the information supplied or to
be supplied by Target, if any, for inclusion in any necessary Proxy Statement
(collectively, "NOTICE MATERIALS"), at the date such information is supplied
and at the time of the meeting (or mailing of the written consent) of the
Target Stockholders to be held to approve the Merger, contains or will
contain any untrue statement of a material fact or omits or will omit to
state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they are made, not misleading.
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2.20 CERTAIN MATERIAL AGREEMENTS. Neither Target nor any
Subsidiary is a party or subject to any oral or written material contracts
not entered into in the ordinary course of business, including, but not
limited to any:
(a) Contract providing for payments by or to Target or any
Subsidiary in an aggregate amount of $25,000 or more;
(b) License agreement as licensor or licensee (except for
standard non-exclusive hardware and software licenses granted to end-user
customers in the ordinary course of business the form of which has been
provided to Acquirer's counsel);
(c) Material agreement for the lease of real or personal
property;
(d) Joint venture contract or arrangement or any other
agreement that involves a sharing of profits with other persons;
(e) Instrument evidencing or related in any way to
indebtedness for borrowed money by way of direct loan, sale of debt
securities, purchase money obligation, conditional sale, guarantee, or
otherwise, except for trade indebtedness incurred in the ordinary course of
business, and except as disclosed in the Target Financial Statements; or
(f) Contract containing covenants purporting to limit
Target's or any Subsidiary's freedom to compete in any line of business in
any geographic area.
All agreements, contracts, plans, leases, instruments,
arrangements, licenses and commitments listed in the Target Schedule of
Exceptions identified to this Section 2.20 are valid and in full force and
effect. Neither Target nor any Subsidiary is, nor, to the knowledge of
Target, is any other party thereto, in breach or default in any material
respect under the terms of any such agreement, contract, plan, lease,
instrument, arrangement, license or commitment, which breach or default may
reasonably be expected to have a material adverse effect on Target or any
Subsidiary.
2.21 BOOKS AND RECORDS.
2.21.1 The books, records and accounts of Target and its
Subsidiaries (a) are in all material respects true, complete and correct,
(b) have been maintained in accordance with good business practices on a
basis consistent with prior years, (c) are stated in reasonable detail and
accurately and fairly reflect the transactions and dispositions of the assets
of Target, and (d) accurately and fairly reflect the basis for the Target
Financial Statements.
2.21.2 Target has devised and maintains a system of internal
accounting controls sufficient to provide reasonable assurances that
(a) transactions are executed in accordance with management's general or
specific authorization; (b) transactions are recorded as necessary (i) to
permit preparation of financial statements in conformity with generally
accepted accounting principles or any other criteria applicable to such
statements, and (ii) to maintain
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accountability for assets, and (c) the amount recorded for assets on the
books and records of Target is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
2.22 INSURANCE. Target and its Subsidiaries maintain and at all
times during the prior three years have maintained fire and casualty, general
liability, business interruption, product liability, and sprinkler and water
damage insurance which it believes to be reasonably prudent for similarly
sized and similarly situated businesses.
2.23 ENVIRONMENTAL MATTERS.
2.23.1 During the period that Target and Subsidiary have leased or
owned their respective properties or owned or operated any facilities, there
have been no disposals, releases or threatened releases of Hazardous
Materials (as defined below) on, from or under such properties or facilities.
Target has no knowledge of any presence, disposals, releases or threatened
releases of Hazardous Materials on, from or under any of such properties or
facilities, which may have occurred prior to Target or any Subsidiary having
taken possession of any of such properties or facilities. For the purposes
of this Agreement, the terms "DISPOSAL," "RELEASE," and "THREATENED RELEASE"
shall have the definitions assigned thereto by the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et
seq., as amended ("CERCLA"). For the purposes of this Agreement "HAZARDOUS
MATERIALS" shall mean any hazardous or toxic substance, material or waste
which is or becomes prior to the Closing regulated under, or defined as a
"hazardous substance," "pollutant," "contaminant," "toxic chemical,"
"hazardous materials," "toxic substance" or "hazardous chemical" under
(1) CERCLA; (2) any similar federal, state or local law; or (3) regulations
promulgated under any of the above laws or statutes.
2.23.2 None of the properties or facilities of Target or any
Subsidiary is in violation of any federal, state or local law, ordinance,
regulation or order relating to industrial hygiene or to the environmental
conditions on, under or about such properties or facilities, including, but
not limited to, soil and ground water condition. During the time that Target
or any Subsidiary have owned or leased their respective properties and
facilities, neither Target nor any Subsidiary nor, to Target's knowledge, any
third party, has used, generated, manufactured or stored on, under or about
such properties or facilities or transported to or from such properties or
facilities any Hazardous Materials.
2.23.3 During the time that Target or any Subsidiary have owned or
leased their respective properties and facilities, there has been no
litigation brought or threatened against Target or any Subsidiary by, or any
settlement reached by Target or any Subsidiary with, any party or parties
alleging the presence, disposal, release or threatened release of any
Hazardous Materials on, from or under any of such properties or facilities.
2.24 INTERESTED PARTY TRANSACTIONS. No officer or director of
Target or any "affiliate" or "associate" (as those terms are defined in Rule 405
promulgated under the Securities Act) of any such person has had, either
directory or indirectly, a material interest in:
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(i) any person or entity which purchases from or sells, licenses or furnishes
to Target or any Subsidiary any goods, property, technology or intellectual
or other property rights or services; or (ii) any contract or agreement to
which Target or any Subsidiary is a party or by which it may be bound or
affected.
3. REPRESENTATIONS AND WARRANTIES OF ACQUIRER
Acquirer hereby represents and warrants, that, except as set forth
on the Acquirer Schedule of Exceptions delivered to Target as EXHIBIT 3.0:
3.1 ORGANIZATION AND GOOD STANDING. Acquirer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California, and has the corporate power and authority to own,
operate and lease its properties and to carry on its business as now
conducted and as proposed to be conducted.
3.2 POWER, AUTHORIZATION AND VALIDITY.
3.2.1 Acquirer has the right, power, legal capacity and
authority to enter into and perform its obligations under this Agreement, and
all agreements to which Acquirer is or will be a party that are required to
be executed pursuant to this Agreement (the "ACQUIRER ANCILLARY AGREEMENTS").
The execution, delivery and performance of this Agreement and the Acquirer
Ancillary Agreements have been duly and validly approved and authorized by
Acquirer's Board of Directors.
3.2.2 No filing, authorization or approval, governmental or
otherwise, is necessary to enable Acquirer to enter into, and to perform its
obligations under, this Agreement and the Acquirer Ancillary Agreements,
except for (a) the filing of the Agreement of Merger with the Secretaries of
State of the States of California and Delaware, the recording of the
Agreement of Merger in the office of the Recorder of the Delaware county in
which Target's registered office is located, and the filing of appropriate
documents with the relevant authorities of other states in which Acquirer is
qualified to do business, if any, and (b) such filings as may be required to
comply with federal and state securities.
3.2.3 This Agreement and the Acquirer Ancillary Agreements
are, or when executed by Acquirer will be, valid and binding obligations of
Acquirer enforceable in accordance with their respective terms, except as to
the effect, if any, of (a) applicable bankruptcy and other similar laws
affecting the rights of creditors generally, (b) rules of law governing
specific performance, injunctive relief and other equitable remedies and
(c) the enforceability of provisions requiring indemnification in connection
with the offering, issuance or sale of securities; provided, however, that
the Agreement of Merger will not be effective until filed with the
Secretaries of State of the States of California and Delaware.
3.3 CAPITALIZATION. The authorized capital stock of Acquirer
consists of 10,000,000 shares of Common Stock, of which 1,165,050 shares are
issued and outstanding, 600,457 shares of Series A Preferred Stock, all of
which are issued and outstanding, 1,055,207
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shares of Series B1 Preferred Stock, all of which are issued and outstanding,
and 1,275,000 shares of Series C Preferred Stock, all of which are issued and
outstanding. An aggregate of 1,200,000 shares of Acquirer Common Stock are
reserved and authorized for issuance pursuant to Acquirer's 1997 Stock Plan,
of which options to purchase a total of 1,129,799 shares of Acquirer Common
Stock are outstanding. All issued and outstanding shares of Acquirer Stock
have been duly authorized and validly issued, are fully paid and
nonassessable, are not subject to any right of rescission, and have been
offered, issued, sold and delivered by Acquirer in compliance with all
registration or qualification requirements (or applicable exemptions
therefrom) of applicable federal and state securities laws. A list of all
holders of Acquirer Stock and options to purchase Acquirer Stock and the
number of shares or options held by each has been delivered by Acquirer to
Target herewith as EXHIBIT 3.3. Except as set forth in this Section and on
EXHIBIT 3.3, there are no options, warrants, calls, commitments, conversion
privileges or preemptive or other rights or agreements outstanding to
purchase any of Acquirer's authorized but unissued capital stock or any
securities convertible into or exchangeable for shares of Acquirer Stock or
obligating Acquirer to grant, extend, or enter into any such option, warrant,
call, right, commitment, conversion privilege or other right or agreement,
and there is no liability for dividends accrued but unpaid. There are no
voting agreements, rights of first refusal or other restrictions (other than
normal restrictions on transfer under applicable federal and state securities
laws) applicable to any of Acquirer's outstanding securities.
3.4 ACQUIRER FINANCIAL STATEMENTS. Acquirer has delivered to
Target as EXHIBIT 3.4 Acquirer's unaudited balance sheet as of October 31,
1997 and income statement for the period then ended (collectively the
"ACQUIRER FINANCIAL STATEMENTS"). The Acquirer Financial Statements (a) are
in accordance with the books and records of Acquirer, and (b) fairly present
the financial condition of Acquirer at the date therein indicated and the
results of operations for the period therein specified. Acquirer has no
material debt, liability or obligation of any nature, whether accrued,
absolute, contingent or otherwise, and whether due or to become due, that is
not reflected or reserved against in the Acquirer Financial Statements,
except for those that may have been incurred after the date of the Acquirer
Financial Statements in the ordinary course of its business, consistent with
past practice and that are not material in amount either individually or
collectively. Notwithstanding the foregoing, management has not (i) subjected
the Acquirer Financial Statements to review for compliance with generally
accepted accounting principles, or (ii) reviewed related assets for net
realizable value or related liabilities for proper inclusion of all potential
liabilities; however, management is not aware of any adjustments required to
be made to the Acquirer Financial Statements.
3.5 LITIGATION. There is no action, proceeding, claim or
investigation pending against Acquirer before any court or administrative
agency that if determined adversely to Acquirer may reasonably be expected to
have a material adverse effect on the present or future operations or
financial condition of Acquirer, nor, to the best of Acquirer's knowledge,
has any such action, proceeding, claim or investigation been threatened.
There is, to the best of Acquirer's knowledge, no reasonable basis for any
shareholder or former shareholder of Acquirer, or any other person, firm,
corporation, or entity, to assert a claim against Acquirer based upon:
(a) ownership or rights to ownership of any shares of Acquirer Stock, (b) any
rights
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as a Acquirer shareholder, including any option or preemptive rights or
rights to notice or to vote, or (c) any rights under any agreement among
Acquirer and its shareholders.
3.6 COMPLIANCE WITH LAWS. Acquirer has complied, or prior to the
Closing Date will have complied, and is or will be at the Closing Date in
full compliance, in all material respects with all applicable laws,
ordinances, regulations, and rules, and all orders, writs, injunctions,
awards, judgments, and decrees applicable to it or to the assets, properties
and business thereof (the violation of which would have a material adverse
effect upon its business), including, without limitation: (a) all applicable
federal and state securities laws and regulations; (b) all applicable
federal, state, and local laws, ordinances, regulations, and all orders,
writs, injunctions, awards, judgments, and decrees pertaining to (i) the
sale, licensing, leasing, ownership or management of its owned, leased or
licensed real or personal property, products and technical data,
(ii) employment and employment practices, terms and conditions of employment,
and wages and hours and (iii) safety, health, fire prevention, environmental
protection, toxic waste disposal, building standards, zoning and other
similar matters; (c) the Export Administration Act and regulations
promulgated thereunder and all other laws, regulations, rules, orders, writs,
injunctions, judgments and decrees applicable to the export or re-export of
controlled commodities or technical data; and (d) the Immigration Reform and
Control Act of 1986. Acquirer has received all permits and approvals from,
and has made all filings with, third parties, including government agencies
and authorities, that are necessary in connection with its present business.
To the best of Acquirer's knowledge, there are no legal or administrative
proceedings or investigations pending or threatened, that, if enacted or
determined adversely to Acquirer, would result in any material adverse change
in the present or future operations or financial condition thereof.
3.7 TAXES. Acquirer has filed all federal, state, local and
foreign tax returns required to be filed, has paid all taxes required to be
paid in respect of all periods for which returns have been filed, has
established an adequate accrual or reserve for the payment of all such taxes,
and has no material liability for taxes in excess of the amount so paid or
accruals or reserves so established. Acquirer is not delinquent in the
payment of any material tax and is not delinquent in the filing of any
material tax returns, and no deficiencies for any tax have been threatened,
claimed, proposed or assessed. No tax return of Acquirer has ever been
audited by the Internal Revenue Service or any state taxing agency or
authority, nor has Acquirer received any notice that they will be audited,
nor has Acquirer granted the Internal Revenue Service or any state taxing
agency or authority an extension to any applicable statute of limitation nor
has Acquirer been asked to do so.
3.8 NO VIOLATION OF EXISTING AGREEMENTS. Neither the execution
and delivery of this Agreement nor any Acquirer Ancillary Agreement, nor the
consummation of the transactions contemplated hereby, will conflict with, or
(with or without notice or lapse of time, or both) result in a termination,
breach, impairment or violation of (a) any provision of the Articles of
Incorporation or Bylaws of Acquirer, as currently in effect, (b) in any
material respect, any material instrument or contract to which Acquirer is a
party or by which Acquirer is bound, or (c) any federal, state, local or
foreign judgment, writ, decree, order, statute, rule or regulation applicable
to Acquirer or its assets or properties.
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3.9 NO BROKERS. Acquirer is not obligated for the payment of fees
or expenses of any investment banker, broker or finder in connection with the
origin, negotiation or execution of this Agreement or the Agreement of Merger
or in connection with any transaction contemplated hereby or thereby.
3.10 SHARES ISSUED IN CONNECTION WITH THE MERGER. The shares of
Acquirer Common Stock and Acquirer Preferred Stock to be issued to the
holders of Target Common Stock and Target Preferred Stock, respectively,
pursuant to the Merger, when issued in accordance with this Agreement, will
be duly authorized, validly issued, fully paid and nonassessable.
4. TARGET PRECLOSING COVENANTS
During the period from the date of this Agreement until the
Effective Time, Target covenants and agrees as follows:
4.1 ADVICE OF CHANGES. Target will promptly advise Acquirer in
writing (a) of any event occurring subsequent to the date of this Agreement
that would render any representation or warranty of Target contained in this
Agreement, if made on or as of the date of such event or the Closing Date,
untrue or inaccurate in any material respect and (b) of any material adverse
change in Target's business, results of operations or financial condition.
To ensure compliance with this Section 4.1, Target shall deliver to Acquirer
within fifteen (15) days after the end of each monthly accounting period
ending after the date of this Agreement and before the Closing Date, an
unaudited balance sheet and statement of operations, which financial
statements shall be prepared in the ordinary course of business, in
accordance with Target's books and records and generally accepted accounting
principles and shall fairly present the financial position of Target as of
their respective dates and the results of Target's operations for the periods
then ended.
4.2 MAINTENANCE OF BUSINESS. Target will use its best efforts to
carry on and preserve its business and its relationships with customers,
suppliers, employees and others in substantially the same manner as it has
prior to the date hereof. If Target becomes aware of a material
deterioration in the relationship with any customer, supplier or key
employee, it will promptly bring such information to the attention of
Acquirer in writing and, if requested by Acquirer, will exert its best
efforts to restore the relationship.
4.3 CONDUCT OF BUSINESS. Target will continue to conduct its
business and maintain its business relationships in the ordinary and usual
course and will not, without the prior written consent of the President of
Acquirer:
(a) borrow any money;
(b) enter into any transaction not in the ordinary course of
business;
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(c) encumber or permit to be encumbered any of its assets
except in the ordinary course of its business consistent with past practice
and to an extent which is not material;
(d) dispose of any of its assets except in the ordinary
course of business consistent with past practice;
(e) enter into any material lease or contract for the
purchase or sale of any property, real or personal, except in the ordinary
course of business consistent with past practice;
(f) fail to maintain its equipment and other assets in good
working condition and repair according to the standards it has maintained to
the date of this Agreement, subject only to ordinary wear and tear;
(g) pay any bonus, increased salary or special remuneration
to any officer, employee or consultant (except for normal salary increases
consistent with past practices not to exceed 10% per year and except pursuant
to existing arrangements previously disclosed to and approved in writing by
Acquirer) or enter into any new employment or consulting agreement with any
such person;
(h) change accounting methods;
(i) declare, set aside or pay any cash or stock dividend or
other distribution in respect of capital stock, or redeem or otherwise
acquire any of its capital stock;
(j) amend or terminate any contract, agreement or license to
which it is a party except those amended or terminated in the ordinary course
of business, consistent with past practice, and which are not material in
amount or effect;
(k) lend any amount to any person or entity, other than
advances for travel and expenses which are incurred in the ordinary course of
business consistent with past practice, not material in amount and documented
by receipts for the claimed amounts;
(l) guarantee or act as a surety for any obligation except
for the endorsement of checks and other negotiable instruments in the
ordinary course of business, consistent with past practice, which are not
material in amount;
(m) waive or release any material right or claim except in
the ordinary course of business, consistent with past practice;
(n) issue or sell any shares of its capital stock of any
class (except upon the exercise of an option or warrant currently outstanding
or upon the conversion of the convertible notes listed in EXHIBITS 2.3A AND
2.3B), or any other of its securities, or issue or create any warrants,
obligations, subscriptions, options, convertible securities, or other
commitments to issue shares of capital stock, or accelerate the vesting of
any outstanding option or other security;
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(o) split or combine the outstanding shares of its capital
stock of any class or enter into any recapitalization affecting the number of
outstanding shares of its capital stock of any class or affecting any other
of its securities;
(p) merge, consolidate or reorganize with, or acquire any
entity;
(q) amend its Certificate of Incorporation or Bylaws;
(r) license any of its technology or intellectual property
except in the ordinary course of business consistent with past practice;
(s) agree to any audit assessment by any tax authority or
file any federal or state income or franchise tax return unless copies of
such returns have been delivered to Acquirer for its review prior to filing;
(t) change any insurance coverage or issue any certificates
of insurance; or
(u) agree to do, or permit any Subsidiary to do or agree to
do, any of the things described in the preceding clauses 4.3(a) through 4.3(t).
4.4 STOCKHOLDERS APPROVAL. Target will hold a special meeting of
its stockholders at the earliest practicable date to submit this Agreement,
the Merger and related matters for the consideration and approval of the
Target Stockholders, which approval will be recommended by Target's Board of
Directors and management. Such meeting will be called, held and conducted,
and any proxies will be solicited, in compliance with applicable law.
Alternatively, Target may solicit such approval in an action by written
consent of its stockholders in compliance with applicable law.
4.5 NOTICE MATERIALS. If required, Target will send to its
stockholders in a timely manner, for the purpose of considering and voting
upon the Merger at provided in Section 4.4, the Notice Materials. In such
case, Target will promptly provide all information relating to its business
or operations necessary for inclusion in the Notice Materials to satisfy all
requirements of applicable state and federal securities laws. Target shall
be solely responsible for any statement, information or omission in the
Notice Materials relating to it or its affiliates based upon written
information furnished by it.
4.6 REGULATORY APPROVALS. Target will execute and file, or join
in the execution and filing, of any application or other document that may be
necessary in order to obtain the authorization, approval or consent of any
governmental body, federal, state, local or foreign that may be reasonably
required, or which Acquirer may reasonably request, in connection with the
consummation of the transactions contemplated by this Agreement. Target will
use its best efforts to obtain all such authorizations, approvals and
consents.
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4.7 NECESSARY CONSENTS. Target will use its best efforts to
obtain such written consents and take such other actions as may be necessary
or appropriate in addition to those set forth in Section 4.6 to allow the
consummation of the transactions contemplated hereby and to allow Acquirer to
carry on Target's business after the Closing.
4.8 LITIGATION. Target will notify Acquirer in writing promptly
after learning of any material actions, suits, proceedings or investigations
by or before any court, board or governmental agency, initiated by or against
it or any Subsidiary, or known by it to be threatened against it or any
Subsidiary.
4.9 NO OTHER NEGOTIATIONS. From the date hereof until the earlier
of termination of this Agreement or consummation of the Merger, Target will
not, and will not authorize or permit any officer, director, employee or
affiliate of Target, or any other person, on its behalf to, directly or
indirectly, solicit or encourage any offer from any party or consider any
inquiries or proposals received from any other party, participate in any
negotiations regarding, or furnish to any person any information with respect
to, or otherwise cooperate with, facilitate or encourage any effort or
attempt by any person (other than Acquirer), concerning the possible
disposition of all or any substantial portion of Target's business, assets or
capital stock by merger, sale or any other means. Target will promptly
notify Acquirer orally and in writing of any such inquiries or proposals.
4.10 ACCESS TO INFORMATION. Until the Closing, Target will allow
Acquirer and its agents reasonable access the files, books, records and
offices of Target and each Subsidiary, including, without limitation, any and
all information relating to Target's taxes, commitments, contracts, leases,
licenses, and real, personal and intangible property (including source code)
and financial condition. Target will cause its accountants to cooperate with
Acquirer and its agents in making available all financial information
reasonably requested, including without limitation the right to examine all
working papers pertaining to all financial statements prepared or audited by
such accountants.
4.11 SATISFACTION OF CONDITIONS PRECEDENT. Target will use its
best efforts to satisfy or cause to be satisfied all the conditions precedent
which are set forth in Section 8, and Target will use its best efforts to
cause the transactions contemplated by this Agreement to be consummated, and,
without limiting the generality of the foregoing, to obtain all consents and
authorizations of third parties and to make all filings with, and give all
notices to, third parties that may be necessary or reasonably required on its
part in order to effect the transactions contemplated hereby.
4.12 STOCKHOLDER REPRESENTATION LETTERS. To ensure that the Merger
will qualify as a "tax-free" reorganization for federal income tax purposes,
Target will use its best efforts to cause each of the Target Stockholders to
execute, at or before the Closing, a representation letter in the form of
EXHIBIT 4.12 stating (a) that such Target Stockholder has no present plan or
intention to sell or otherwise dispose of a sufficient amount (as determined
by counsel for Target and Acquirer) of the shares of Acquirer Common Stock
which each such Target Stockholder receives in the Merger so as to meet the
"continuity of interest" test, and (b) making such other
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representations as may be reasonably requested by Acquirer or Target and
their respective accountants or attorneys for the purpose of ensuring such
tax treatment.
4.13 INVESTOR SUITABILITY QUESTIONNAIRES AND INVESTMENT
REPRESENTATION LETTERS. To ensure that the Merger will be exempt from the
registration and qualification requirements of all applicable federal and
state securities laws, Target will cause each of the Target Stockholders to
execute, at or before the Closing, a questionnaire in the form of EXHIBIT 4.13A
and a representation letter in the form of EXHIBIT 4.13B, and Acquirer and
its counsel will be entitled to rely upon the responses and representations
stated therein.
4.14 PURCHASER REPRESENTATIVE. Target shall assist Michael Tanne,
or any other person acceptable to Acquiror, in serving in his capacity as
"purchaser representative" to any Target Stockholders who do not, in
Acquirer's sole discretion, meet the suitability requirements of all
applicable federal and state securities laws.
4.15 TARGET DISSENTING SHARES. As promptly as practicable after
the date Target's stockholders approve the Merger and prior to the Closing
Date, Target shall furnish Acquirer with the name and address of each Target
Stockholder who retains dissenters rights under Delaware Law and the number
of shares owned by such Target Stockholder.
4.16 NON-COMPETITION AGREEMENTS. Target shall assist Acquirer in
obtaining from each of Michael Tanne, Stephen Kurtzman and Sandeep Nawathe an
agreement, in substantially the form of EXHIBIT 4.16, not to compete with the
business of Acquirer (or any successor corporation) for a period of two years
after the Effective Time of the Merger.
4.17 BLUE SKY LAWS. Target shall use its best efforts to assist
Acquirer to the extent necessary to comply with the securities and Blue Sky
laws of all jurisdictions which are applicable in connection with the Merger.
5. ACQUIRER PRECLOSING COVENANTS
During the period from the date of this Agreement until the
Effective Time, Acquirer covenants and agrees as follows:
5.1 ADVICE OF CHANGES. Acquirer will promptly advise Target in
writing (a) of any event occurring subsequent to the date of this Agreement
that would render any representation or warranty of Acquirer contained in
this Agreement, if made on or as of the date of such event or the Closing
Date, untrue or inaccurate in any material respect and (b) of any material
adverse change in Acquirer's business, results of operations or financial
condition.
5.2 REGULATORY APPROVALS. Acquirer will execute and file, or join
in the execution and filing, of any application or other document that may be
necessary in order to obtain the authorization, approval or consent of any
governmental body, federal, state, local or foreign, which may be reasonably
required, or which Target may reasonably request, in
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connection with the consummation of the transactions contemplated by this
Agreement. Acquirer will use its best efforts to obtain all such
authorizations, approvals and consents.
5.3 SATISFACTION OF CONDITIONS PRECEDENT. Acquirer will use its
best efforts to satisfy or cause to be satisfied all the conditions precedent
which are set forth in Section 7, and Acquirer will use its best efforts to
cause the transactions contemplated by this Agreement to be consummated, and,
without limiting the generality of the foregoing, to obtain all consents and
authorizations of third parties and to make all filings with, and give all
notices to, third parties that may be necessary or reasonably required on its
part in order to effect the transactions contemplated hereby.
5.4 ACCESS TO INFORMATION. Until the Closing, Acquirer will allow
Target and its agents reasonable access the files, books, records and offices
of Acquirer, including, without limitation, any and all information relating
to Acquirer's taxes, commitments, contracts, leases, licenses, and real,
personal and intangible property (including source code) and financial
condition. Acquirer will cause its accountants to cooperate with Target and
its agents in making available all financial information reasonably
requested, including without limitation the right to examine all working
papers pertaining to all financial statements prepared or audited by such
accountants.
6. CLOSING MATTERS; COVENANTS
6.1 THE CLOSING. Subject to termination of this Agreement as
provided in Section 9 below, the Closing will take place at the offices of
Fenwick & West LLP, Two Palo Alto Square, Palo Alto, California 94306 at the
close of business on January 15, 1998, or such other place, time and date as
Target and Acquirer may mutually select (the "CLOSING DATE"). Concurrently
with the Closing, the Agreement of Merger will be filed in the office of the
Secretaries of State of the States of California and Delaware. The Agreement
of Merger provides that the Merger shall become effective upon filing in the
office of the Secretary of State of the State of California. As soon as
practicable thereafter, the Agreement of Merger will be recorded in the
Office of the Recorder of the Delaware county in which Target maintains its
registered office.
6.2 EXCHANGE OF CERTIFICATES.
6.2.1 As of the Effective Time, all shares of Target Stock
that are outstanding immediately prior thereto will, by virtue of the Merger
and without further action, cease to exist and will be converted into the
right to receive from Acquirer the number of shares of Acquirer Stock
determined as set forth in Section 1.1.1, subject to Sections 1.1.3 and 1.2.
6.2.2 As soon as practicable after the Effective Time, each
holder of shares of Target Stock that are not Dissenting Shares will
surrender the certificate(s) for such shares (the "TARGET CERTIFICATES"),
duly endorsed as requested by Acquirer, to Acquirer for cancellation.
Promptly after the Effective Time and receipt of such Target Certificates,
Acquirer will issue to each tendering holder a certificate for the number of
shares of Acquirer Common Stock to which
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such holder is entitled pursuant to Section 1.1.1 hereof, less the shares of
Acquirer Common Stock deposited into escrow pursuant to Section 1.4 hereof,
and distribute any cash payable under Section 1.2.
6.2.3 No dividends or distributions payable to holders of
record of Acquirer Common Stock after the Effective Time, or cash payable in
lieu of fractional shares, will be paid to the holder of any unsurrendered
Target Certificate(s) until the holder of the Target Certificate(s)
surrenders such Target Certificate(s). Subject to the effect, if any, of
applicable escheat and other laws, following surrender of any Target
Certificate, there will be delivered to the person entitled thereto, without
interest, the amount of any dividends and distributions therefor paid with
respect to Acquirer Common Stock so withheld as of any date subsequent to the
Effective Time and prior to such date of delivery.
6.2.4 All Acquirer Common Stock delivered upon the surrender
of Target Stock in accordance with the terms hereof will be deemed to have
been delivered in full satisfaction of all rights pertaining to such Target
Stock. There will be no further registration of transfers on the stock
transfer books of Target or its transfer agent of the Target Stock. If,
after the Effective Time, Target Certificates are presented for any reason,
they will be canceled and exchanged as provided in this Section 6.2.
6.2.5 Until certificates representing Target Stock
outstanding prior to the Merger are surrendered pursuant to Section 6.2.2
above, such certificates will be deemed, for all purposes, to evidence
ownership of the number of shares of Acquirer Stock into which the Target
Stock will have been converted, reduced by the number of shares withheld as
Escrow Shares.
6.3 ASSUMPTION OF OPTIONS. Promptly after the Effective Time,
Acquirer will notify in writing each holder of a Target Option of the
assumption of such Target Option by Acquirer, and the number of shares of
Acquirer Common Stock that are then subject to such option and the exercise
price of such option, as determined pursuant to Sections 1.1 and 1.3 hereof.
6.4 GRANT OF ADDITIONAL OPTIONS. Promptly after the Effective
Time, Acquirer will grant stock options to purchase Acquirer Common Stock
under Acquirer's stock option plan to those persons and in the quantities set
forth on EXHIBIT 6.4 (the "ADDITIONAL OPTIONS"). All of the Additional
Options will be subject to the terms and conditions of Acquirer's stock
option plan. No shares subject to any Additional Option will vest until the
holder thereof completes twelve (12) months of continuous employment at
Acquirer, at which time one-quarter (1/4) of the shares subject to such
Additional Option will vest, with 1/48th of the shares subject to such
Additional Option to vest every month thereafter for so long as such holder
is continuously employed at Acquirer.
6.5 PAYMENT OF LIABILITIES. Acquirer will pay all of Target's
liabilities, including, but not limited to, the amounts set forth on EXHIBIT
6.5.1. Promptly after the Effective Time, Acquirer will pay the amounts set
forth on EXHIBIT 6.5.2 to the parties listed on such exhibit.
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7. CONDITIONS TO OBLIGATIONS OF TARGET
Target's obligations hereunder are subject to the fulfillment or
satisfaction, on and as of the Closing, of each of the following conditions
(any one or more of which may be waived by Target, but only in a writing
signed by Target):
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Acquirer set forth in Section 3 shall be
true and accurate in every material respect on and as of the Closing with the
same force and effect as if they had been made at the Closing, and Target
shall receive a certificate to such effect executed by Acquirer's President
and Chief Financial Officer.
7.2 COVENANTS. Acquirer shall have performed and complied in all
material respects with all of its covenants contained in Section 5 on or
before the Closing, and Target shall receive a certificate to such effect
signed by Acquirer's President and Chief Financial Officer.
7.3 COMPLIANCE WITH LAW. There shall be no order, decree, or
ruling by any court or governmental agency or threat thereof, or any other
fact or circumstance, which would prohibit or render illegal the transactions
contemplated by this Agreement.
7.4 GOVERNMENT CONSENTS. There shall have been obtained at or
prior to the Closing Date such permits or authorizations, and there shall
have been taken such other action, as may be required to consummate the
Merger by any regulatory authority having jurisdiction over the parties and
the actions herein proposed to be taken.
7.5 OPINION OF ACQUIRER'S COUNSEL. Target shall have received
from counsel to Acquirer an opinion mutually acceptable to both counsel to
Acquirer and counsel to Target.
7.6 STOCKHOLDER APPROVAL. The principal terms of this Agreement
and the Agreement of Merger shall have been approved and adopted by Target
Stockholders, as required by applicable law and Target's Certificate of
Incorporation and Bylaws.
7.7 TAX-FREE REORGANIZATION. Each of Target and Acquirer shall
have received a written opinion from their respective counsel to the effect
that the Merger will constitute a reorganization within the meaning of
Section 368 of the Code, which opinions shall be substantially identical in
form and substance. In preparing the Target and the Acquirer tax opinions,
counsel may rely on (and to the extent reasonably required, the parties and
the Target Stockholders shall make) reasonable representations related
thereto.
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8. CONDITIONS TO OBLIGATIONS OF ACQUIRER
The obligations of Acquirer hereunder are subject to the
fulfillment or satisfaction on, and as of the Closing, of each of the
following conditions (any one or more of which may be waived by Acquirer, but
only in a writing signed by Acquirer):
8.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Target set forth in Section 2 shall be true
and accurate in every material respect on and as of the Closing with the same
force and effect as if they had been made at the Closing, and Acquirer shall
receive a certificate to such effect executed by Target's President and Chief
Financial Officer.
8.2 COVENANTS. Target shall have performed and complied in all
material respects with all of its covenants contained in Section 4 on or
before the Closing, and Acquirer shall receive a certificate to such effect
signed by Target's President and Chief Financial Officer.
8.3 ABSENCE OF MATERIAL ADVERSE CHANGE. There shall not have
been, in the reasonable judgment of the Board of Directors of Acquirer, any
material adverse change in the business or financial condition of Target.
8.4 COMPLIANCE WITH LAW. There shall be no order, decree, or
ruling by any court or governmental agency or threat thereof, or any other
fact or circumstance, which would prohibit or render illegal the transactions
contemplated by this Agreement.
8.5 GOVERNMENT CONSENTS. There shall have been obtained at or
prior to the Closing Date such permits or authorizations, and there shall
have been taken such other action, as may be required to consummate the
Merger by any regulatory authority having jurisdiction over the parties and
the actions herein proposed to be taken, including but not limited to
requirements under applicable federal and state securities laws.
8.6 OPINION OF TARGET'S COUNSEL. Acquirer shall have received
from counsel to Target an opinion mutually acceptable to both counsel to
Acquirer and counsel to Target.
8.7 DOCUMENTS. Acquirer shall have received duly executed copies
of all material third-party consents, approvals, assignments, waivers,
authorizations or other certificates contemplated by this Agreement or the
Acquirer Schedule of Exceptions or reasonably deemed necessary by Acquirer's
legal counsel to provide for the continuation in full force and effect of any
and all material contracts and leases of Target and for Acquirer to
consummate the transactions contemplated hereby in form and substance
reasonably satisfactory to Acquirer.
8.8 NO LITIGATION. No litigation or proceeding shall be
threatened or pending for the purpose or with the probable effect of
enjoining or preventing the consummation of any of the transactions
contemplated by this Agreement, or which could be reasonably expected to have
a material adverse effect on the present or future operations or financial
condition of Target.
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8.9 ACQUIRER SHAREHOLDER APPROVAL. The principal terms of this
Agreement and the Agreement of Merger shall have been approved and adopted by
shareholders of Acquirer, if required by applicable law and Acquirer's
Articles of Incorporation and Bylaws.
8.10 DISSENTING SHARES. The Dissenting Shares shall not constitute
more than five percent (5%) of the total number of shares of Target Stock
outstanding immediately prior to the Effective Time.
8.11 ESCROW. Acquirer shall have received an Escrow Agreement in
substantially the form of EXHIBIT 1.4 executed by Target and Michael Tanne,
as the Representative for all Target Stockholders, providing for the escrow
of the Escrow Shares on the terms and conditions of the Escrow Agreement.
8.12 NON-COMPETITION AGREEMENTS. Acquirer shall have received
executed copies of Non-Competition Agreements executed by Acquirer and each
of Michael Tanne, Stephen Kurtzman and Sandeep Nawathe in substantially the
form of EXHIBIT 8.12.
8.13 OFFER LETTERS. The Offer Letters in substantially the form of
EXHIBIT 8.13A shall have been executed and delivered to Acquirer by the
employees of Target listed on EXHIBIT 8.13B.
8.14 TERMINATION OF RIGHTS. Except as otherwise provided in
Section 10.3, any registration rights, rights of refusal, rights to any
liquidation preference, or redemption rights of any Target Stockholder shall
have been terminated or waived as of the Closing.
8.15 STOCKHOLDER REPRESENTATION LETTERS. Each Target Stockholder
shall have delivered to Acquirer a representation letter in accordance with
Section 4.12.
8.16 INVESTOR SUITABILITY QUESTIONNAIRES AND INVESTMENT
REPRESENTATION LETTERS. Each Target Stockholder shall have delivered to
Acquirer a questionnaire and a representation letter in accordance with
Section 4.13, respectively.
8.17 SECURITIES COMPLIANCE. The offer and sale of the Acquirer
Stock as contemplated hereby shall be exempt from the registration and
qualification requirements of all applicable federal and state securities
laws.
8.18 PURCHASER REPRESENTATIVE. If the appointment of a "purchaser
representative" is required pursuant to Section 4.14, Acquirer shall have
received prior to the Closing a letter executed by Michael Tanne (or any
other person acceptable to Acquirer) in his capacity as "purchaser
representative" in substantially the form of EXHIBIT 8.18.
8.19 TAX-FREE REORGANIZATION. Each of Target and Acquirer shall
have received a written opinion from their respective counsel to the effect
that the Merger will constitute a reorganization within the meaning of
Section 368 of the Code, which opinions shall be
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substantially identical in form and substance. In preparing the Target and
the Acquirer tax opinions, counsel may rely on (and to the extent reasonably
required, the parties and the Target Stockholders shall make) reasonable
representations related thereto.
8.20 FIRPTA. Acquirer, as agent for the stockholders of Target,
shall have received a properly executed Foreign Investment and Real Property
Tax Act of 1980 ("FIRPTA") Notification Letter from Target, in form and
substance satisfactory to Acquirer, which states that shares of Target Stock
do not constitute "United States real property interests" under Section
897(c) of the Code, for purposes of satisfying Acquirer's obligations under
Treasury Regulation Section 1.1445-2(c)(3).
8.21 TARGET STOCKHOLDER VOTE. Not less than seventy-five percent
(75%) of the outstanding shares of Target Stock entitled to vote on the
Merger shall have voted in favor of the Merger, and not more than ten percent
(10%) of the outstanding shares of Target Stock entitled to vote on the
Merger shall have voted against the Merger.
8.22 INCREASE IN AUTHORIZED SHARES OF ACQUIRER PREFERRED STOCK;
INCREASE IN OPTION POOL. An amendment to the Articles of Incorporation of
Acquirer, increasing the number of shares of Acquirer Preferred Stock in
order to have sufficient shares to issue in the Merger (as well as additional
shares for issuance in connection with outstanding warrants and other
commitments of Acquirer), shall have been approved and adopted by
shareholders of Acquirer, as required by applicable law and Acquirer's
Articles of Incorporation and Bylaws, and such amendment shall have been
filed with the Secretary of State of the State of California. In addition,
an amendment to Acquirer's 1997 Stock Plan, increasing the number of shares
of Acquirer Common Stock reserved thereunder in order to have sufficient
options to grant in connection with the Merger, shall have been approved and
adopted by shareholders of Acquirer, as required by applicable law and
Acquirer's Articles of Incorporation and Bylaws.
8.24 CONVERSION OF CONVERTIBLE PROMISSORY NOTES. All of the
convertible promissory notes listed in EXHIBIT 2.3.2 shall have been
converted to Target Preferred Stock prior to the Closing.
8.24 SATISFACTORY FORM OF LEGAL AND ACCOUNTING MATTERS. The form,
scope and substance of all legal and accounting matters contemplated hereby
and all closing documents and other papers delivered hereunder shall be
acceptable to Acquirer's counsel.
9. TERMINATION OF AGREEMENT
9.1 PRIOR TO CLOSING.
9.1.1 This Agreement may be terminated at any time prior to
the Closing by the mutual written consent of each of the parties hereto.
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9.1.2 Unless otherwise agreed by the parties hereto, this
Agreement will be terminated if all conditions to the Closing have not been
satisfied or waived on or before January 31, 1998, other than as a result of
a breach of this Agreement by the terminating party.
9.2 BREACH. Prior to the Closing, this Agreement may be
terminated and abandoned:
9.2.1 By Acquirer, if there has been a breach by Target of
any representation, warranty, covenant or agreement set forth in this
Agreement on the part of Target, or if any representation of Target will have
become untrue, in either case which has or can reasonably be expected to have
a material adverse effect on Target and which Target fails to cure within a
reasonable time not to exceed fourteen days after written notice thereof
(except that no cure period will be provided for a breach by Target which by
its nature cannot be cured).
9.2.2 By Target, if there has been a breach by Acquirer of
any representation, warranty, covenant or agreement set forth in this
Agreement on the part of Acquirer, or if any representation of Acquirer will
have become untrue, in either case which has or can reasonably be expected to
have a material adverse effect on Acquirer and which Acquirer fails to cure
within a reasonable time not to exceed fourteen days after written notice
thereof (except that no cure period will be provided for a breach by Acquirer
which by its nature cannot be cured).
Any termination of this Agreement under this Section 9.2 will
be effective by the delivery of notice of the terminating party to the other
party hereto.
9.3 NO LIABILITY. Any termination of this Agreement pursuant to
this Section 9 will be without further obligation or liability upon any party
in favor of the other party hereto other than the obligations provided in
Sections 10.2 and 11.16 and in any nondisclosure agreement between Target and
Acquirer, which will survive termination of this Agreement; provided,
however, that nothing herein will limit the obligation of Target and Acquirer
to use their best efforts to cause the Merger to be consummated, as set forth
in Sections 4.11 and 5.3 hereof, respectively.
10. SURVIVAL OF REPRESENTATIONS AND INDEMNIFICATION
10.1 SURVIVAL OF REPRESENTATIONS. All representations, warranties
and covenants of Acquirer contained in this Agreement will remain operative
and in full force and effect, regardless of any investigation made by or on
behalf of the parties to this Agreement, until the earlier of (i) the
termination of this Agreement in accordance with its terms, or (ii) if the
Closing occurs, then the termination of the Escrow Period. Unless otherwise
specified herein, all representations, warranties and covenants of Target
will remain operative and in full force and effect, regardless of any
investigation made by or on behalf of the parties to this Agreement, until
the earlier of (i) the termination of this Agreement in accordance with its
terms, or (ii) if the Closing occurs, then the termination of the Escrow
Period except for covenants that by their terms survive thereafter, which
will continue to survive in accordance with their terms.
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<PAGE>
10.2 AGREEMENT TO INDEMNIFY. Subject to the limitations set
forth in this Section 10, the Target Stockholders will indemnify and hold
harmless Acquirer and its officers, directors, agents and employees, and each
person, if any, who controls or may control Acquirer within the meaning of
the Securities Act (hereinafter referred to individually as an "INDEMNIFIED
PERSON" and collectively as "INDEMNIFIED PERSONS") from and against any and
all claims, demands, actions, causes of actions, losses, costs, damages,
liabilities and expenses including, without limitation, reasonable legal fees
(hereinafter referred to as "DAMAGES"):
(a) Arising out of any misrepresentation or breach of or
default in connection with any of the representations, warranties and
covenants given or made by Target in this Agreement or any certificate,
document or instrument delivered by or on behalf of Target pursuant hereto
(other than with respect to changes in the truth or accuracy of the
representations and warranties of Target under this Agreement after the date
hereof if Target has advised Acquirer of such changes in an update to Exhibit
2.0 delivered prior to the Closing and Acquirer has nonetheless proceeded
with the Closing); or
(b) Resulting from any failure of any Target Stockholders
to have good, valid and marketable title to the issued and outstanding Target
Stock held by such stockholders, free and clear of all liens, claims,
pledges, options, adverse claims, assessments or charges of any nature
whatsoever, or to have full right, capacity and authority to vote such Target
Stock in favor of the Merger and the other transactions contemplated by the
Agreement of Merger; or
(c) Resulting from any breach or violation of state
securities laws by Target in connection with the issuances of any securities
of Target.
10.3 ESCROW SHARES. All claims for indemnification made pursuant
to Section 10.2 shall be satisfied exclusively from shares of held in escrow
pursuant to the Escrow Agreement, other than claims based upon fraud,
intentional misconduct or breach of Target's representations in Section 2.3
of this Agreement, for which there will be no such limitation. The shares of
Target Stock held in escrow pursuant to the Escrow Agreement shall constitute
Acquiror's sole and exclusive remedy for breach of a representation,
warranty, indemnity, covenant or agreement of Target contained in this
Agreement or any agreement or instrument delivered by Target in connection
herewith, other than breaches based upon fraud, intentional misconduct or
based upon Target's representations in Section 2.3 of this Agreement
11. MISCELLANEOUS
11.1 GOVERNING LAW. The internal laws of the State of
California (irrespective of its choice of law principles) will govern the
validity of this Agreement, the construction of its terms, and the
interpretation and enforcement of the rights and duties of the parties hereto.
11.2 ASSIGNMENT; BINDING UPON SUCCESSORS AND ASSIGNS. Neither
party hereto may assign any of its rights or obligations hereunder without
the prior written consent of the
33
<PAGE>
other party hereto. This Agreement will be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.
11.3 SEVERABILITY. If any provision of this Agreement, or the
application thereof, will for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with
a valid and enforceable provision that will achieve, to the extent possible,
the economic, business and other purposes of the void or unenforceable
provision.
11.4 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which will be an original as regards any
party whose signature appears thereon and all of which together will
constitute one and the same instrument. This Agreement will become binding
when one or more counterparts hereof, individually or taken together, will
bear the signatures of both parties reflected hereon as signatories.
11.5 OTHER REMEDIES. Except as otherwise provided herein, any
and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby or by
law on such party, and the exercise of any one remedy will not preclude the
exercise of any other.
11.6 AMENDMENT AND WAIVERS. Any term or provision of this
Agreement may be amended, and the observance of any term of this Agreement
may be waived (either generally or in a particular instance and either
retroactively or prospectively) only by a writing signed by the party to be
bound thereby. The waiver by a party of any breach hereof or default in the
performance hereof will not be deemed to constitute a waiver of any other
default or any succeeding breach or default. The Agreement may be amended by
the parties hereto at any time before or after approval of the Target
Stockholders, but, after such approval, no amendment will be made which by
applicable law requires the further approval of the Target Stockholders
without obtaining such further approval.
11.7 NO WAIVER. The failure of any party to enforce any of the
provisions hereof will not be construed to be a waiver of the right of such
party thereafter to enforce such provisions.
11.8 EXPENSES. In the event that this Agreement is terminated
prior to the Closing, all costs, expenses and legal fees incurred in
connection with this Agreement and the transactions contemplated hereby will
be paid by: (i) in the case of breach of this Agreement by Target, by
Target, and (ii) in the case of breach of this Agreement by Acquirer, by
Acquirer. Otherwise, Acquirer will bear all costs, expenses and legal fees
incurred with respect to this Agreement and the transactions contemplated
hereby.
11.9 ATTORNEYS' FEES. Should suit be brought to enforce or
interpret any part of this Agreement, the prevailing party will be entitled
to recover, as an element of the costs of suit
34
<PAGE>
and not as damages, reasonable attorneys' fees to be fixed by the court
(including without limitation, costs, expenses and fees on any appeal). The
prevailing party will be entitled to recover its costs of suit, regardless of
whether such suit proceeds to final judgment.
11.10 NOTICES. Any notice or other communication required or
permitted to be given under this Agreement will be in writing, will be
delivered personally or by registered or certified mail, postage prepaid and
will be deemed given upon delivery, if delivered personally, or three days
after deposit in the mails, if mailed, to the following addresses:
(i) If to Acquirer:
IMGIS, Inc.
10101 North DeAnza Boulevard, Suite 210
Cupertino, CA 95041
Attention: Charles W. Berger
with a copy to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Attention: Gordon K. Davidson, Esq.
(ii) If to Target:
StarPoint Software, Inc.
10101 North DeAnza Boulevard, Suite 210
Cupertino, CA 95041
Attention: Michael Tanne
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Attention: Jeffrey D. Saper, Esq.
or to such other address as a party may have furnished to the other parties
in writing pursuant to this Section 11.10.
11.11 CONSTRUCTION OF AGREEMENT. This Agreement has been
negotiated by the respective parties hereto and their attorneys and the
language hereof will not be construed for or against either party. A
reference to a Section or an exhibit will mean a Section in, or exhibit to,
this Agreement unless otherwise explicitly set forth. The titles and
headings herein are for
35
<PAGE>
reference purposes only and will not in any manner limit the construction of
this Agreement which will be considered as a whole.
11.12 NO JOINT VENTURE. Nothing contained in this Agreement
will be deemed or construed as creating a joint venture or partnership
between any of the parties hereto. No party is by virtue of this Agreement
authorized as an agent, employee or legal representative of any other party.
No party will have the power to control the activities and operations of any
other and their status is, and at all times, will continue to be, that of
independent contractors with respect to each other. No party will have any
power or authority to bind or commit any other. No party will hold itself
out as having any authority or relationship in contravention of this Section.
11.13 FURTHER ASSURANCES. Each party agrees to cooperate fully
with the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by any other party to evidence and reflect the transactions
described herein and contemplated hereby and to carry into effect the intents
and purposes of this Agreement.
11.14 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS. No provisions
of this Agreement are intended, nor will be interpreted, to provide or create
any third party beneficiary rights or any other rights of any kind in any
client, customer, affiliate, stockholder, partner or any party hereto or any
other person or entity unless specifically provided otherwise herein, and,
except as so provided, all provisions hereof will be personal solely between
the parties to this Agreement.
11.15 PUBLIC ANNOUNCEMENT. Upon execution of this Agreement
Acquirer and Target will issue a press release approved by both parties
announcing the Merger. Thereafter, Acquirer may issue such press releases,
and make such other disclosures regarding the Merger, as it determines are
required under applicable securities laws or regulatory rules.
11.16 CONFIDENTIALITY. Target and Acquirer each recognize that
they have received and will receive confidential information concerning the
other during the course of the Merger negotiations and preparations.
Accordingly, Acquirer and Target each agrees (a) to use its respective best
efforts to prevent the unauthorized disclosure of any confidential
information concerning the other that was or is disclosed during the course
of such negotiations and preparations, and is clearly designated in writing
as confidential at the time of disclosure, and (b) to not make use of or
permit to be used any such confidential information other than for the
purpose of effectuating the Merger and related transactions. The obligations
of this section will not apply to information that (i) is or becomes part of
the public domain, (ii) is disclosed by the disclosing party to third parties
without restrictions on disclosure, (iii) is received by the receiving party
from a third party without breach of a nondisclosure obligation to the other
party or (iv) is required to be disclosed by law. If this Agreement is
terminated, all copies of documents containing confidential information shall
be returned by the receiving party to the disclosing party.
36
<PAGE>
11.17 ENTIRE AGREEMENT. This Agreement and the exhibits hereto
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersede all prior and
contemporaneous agreements or understandings, inducements or conditions,
express or implied, written or oral, between the parties with respect hereto
other than any nondisclosure agreement between Target and Acquirer. The
express terms hereof control and supersede any course of performance or usage
of the trade inconsistent with any of the terms hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
37
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
"ACQUIRER" "TARGET"
IMGIS, INC. STARPOINT SOFTWARE, INC.
By: By:
----------------------------- ---------------------------
Charles W. Berger Michael Tanne
Chairman and CEO President and CEO
SIGNATURE PAGE TO
AGREEMENT AND PLAN OF REORGANIZATION
38
<PAGE>
EXHIBITS TO
AGREEMENT AND PLAN OF REORGANIZATION
<TABLE>
<C> <S>
Exhibit A Agreement and Plan of Merger
Exhibit 1.1.1 Acquirer Amended and Restated Articles
Exhibit 1.1.2 Stockholders Subject to Repurchase Option
Exhibit 1.1.5 Promissory Note to Audrey MacLean
Exhibit 1.3.1 Target Option Holders
Exhibit 1.3.3 Target Option Holder Consent
Exhibit 1.4 Escrow Agreement
Exhibit 2.0 Target Schedule of Exceptions
Exhibit 2.3A Target Security Holders
Exhibit 2.3B Target Warrant Holders
Exhibit 2.8 Target Financial Statements
Exhibit 2.12 Target IP Rights Agreements
Exhibit 2.15.1 Target Employment Contracts
Exhibit 2.15.3 Target Benefit Plans
Exhibit 2.15.6 Target Benefit Arrangements
Exhibit 2.15.12 Target Employees, Officers and Consultants
Exhibit 3.0 Acquirer Schedule of Exceptions
Exhibit 3.3 Acquirer Security Holders
Exhibit 3.4 Acquirer Financial Statements
Exhibit 4.12 Stockholder Representation Letter
Exhibit 4.13A Investor Suitability Questionnaire
Exhibit 4.13B Investment Representation Letter
Exhibit 4.16 Non-Competition Agreement
Exhibit 6.4 Additional Options
Exhibit 6.5.1 Certain Liabilities
Exhibit 6.5.2 Cash Payment to Parties
Exhibit 8.13A Offer Letter
Exhibit 8.13B Employees Signing Offer Letter
Exhibit 8.18 Purchaser Representative Letter
</TABLE>
39
<PAGE>
Exhibit 2.2
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "MERGER AGREEMENT") is entered
into as of March __, 1999, by and between Imgis, Inc., a California corporation
("IMGIS"), and AdForce, Inc., a Delaware corporation ("ADFORCE"). Imgis and
AdForce are hereinafter sometimes collectively referred to as the "CONSTITUENT
CORPORATIONS."
R E C I T A L S
---------------
A. Imgis was incorporated on January 16, 1996. Its current
authorized capital stock consists of: (i) 25,000,000 shares of Common Stock,
no par value ("IMGIS COMMON STOCK"), of which 5,033,986 shares are issued and
outstanding; and (ii) 6,238,163 shares of Preferred Stock, no par value
("IMGIS PREFERRED STOCK"), of which 602,000 shares have been designated
Series A Preferred Stock, 1,100,000 shares have been designated Series B1
Preferred Stock, 1,725,000 shares have been designated Series C Preferred
Stock, 786,500 shares have been designated Series D Preferred Stock, 786,500
shares have been designated Series D1 Preferred Stock and 1,238,163 shares
have been designated Series E Preferred Stock. There are issued and
outstanding 600,457 shares of Series A Preferred Stock, 1,027,318 shares of
Series B1 Preferred Stock, 1,646,948 shares of Series C Preferred Stock,
730,503 shares of Series D Preferred Stock, no shares of Series D1 Preferred
Stock and 728,332 shares of Series E Preferred Stock.
B. AdForce was incorporated on August 20, 1998. Its authorized
capital stock consists of 1,000 shares of Common Stock, with a par value of
$0.001 per share ("ADFORCE COMMON STOCK"), of which 1,000 shares are issued
and outstanding.
C. The respective Boards of Directors of Imgis and AdForce deem
it advisable and to the advantage of each of the Constituent Corporations
that Imgis merge with and into AdForce upon the terms and subject to the
conditions set forth in this Merger Agreement for the purpose of effecting a
change of the state of incorporation of Imgis from California to Delaware.
D. The Boards of Directors of each of the Constituent
Corporations have approved this Merger Agreement.
NOW, THEREFORE, the parties do hereby adopt the plan of
reorganization set forth in this Merger Agreement and do hereby agree that
Imgis shall merge with and into AdForce on the following terms, conditions
and other provisions:
1. MERGER AND EFFECTIVE TIME. At the Effective Time (as defined
below), Imgis shall be merged with and into AdForce (the "MERGER"), and
AdForce shall be the surviving corporation of the Merger (the "SURVIVING
CORPORATION"). The Merger shall become effective upon the close of business
on the date when a duly executed copy of this Merger Agreement, along with
all required officers' certificates, is filed with the Secretary of State of
the State of
<PAGE>
California, or upon the close of business on the date when a duly executed
copy of this Merger Agreement, along with all required officers'
certificates, is filed with the Secretary of State of the State of Delaware,
whichever later occurs (the "EFFECTIVE TIME").
2. EFFECT OF MERGER. At the Effective Time, the separate corporate
existence of Imgis shall cease; the corporate identity, existence, powers,
rights and immunities of AdForce as the Surviving Corporation shall continue
unimpaired by the Merger; and AdForce shall succeed to and shall possess all the
assets, properties, rights, privileges, powers, franchises, immunities and
purposes, and be subject to all the debts, liabilities, obligations,
restrictions and duties of Imgis, all without further act or deed.
3. GOVERNING DOCUMENTS. At the Effective Time, (i) the Certificate
of Incorporation of AdForce in effect immediately prior to the Effective Time
shall be amended and restated by virtue of the Merger to read as set forth in
full in ATTACHMENT 1 hereto (the "FIRST RESTATED CERTIFICATE"), and (ii) the
Bylaws of AdForce in effect immediately prior to the Effective Time shall be
amended and restated by virtue of the Merger as approved by the Board of
Directors of AdForce.
4. DIRECTORS AND OFFICERS. At the Effective Time, the directors of
AdForce shall be and become the directors of the Surviving Corporation, and the
officers of AdForce shall be and become the officers (holding the same offices)
of the Surviving Corporation, and after the Effective Time shall serve in
accordance with the First Restated Certificate and Bylaws of the Surviving
Corporation.
5. CONVERSION OF SHARES OF IMGIS. At the Effective Time, by
virtue of the Merger and without any further action on the part of the
Constituent Corporations or their shareholders, (i) each share of Imgis
Common Stock issued and outstanding immediately prior thereto shall be
converted into one fully paid and nonassessable share of AdForce Common
Stock, (ii) each share of Imgis Series A Preferred Stock outstanding
immediately prior thereto shall be automatically changed and converted into
one fully paid and nonassessable, issued and outstanding share of AdForce
Series A Preferred Stock, (ii) each share of Imgis Series B1 Preferred Stock
outstanding immediately prior thereto shall be automatically changed and
converted into one fully paid and nonassessable, issued and outstanding share
of AdForce Series B Preferred Stock, (iii) each share of Imgis Series C
Preferred Stock outstanding immediately prior thereto shall be automatically
changed and converted into one fully paid and nonassessable, issued and
outstanding share of AdForce Series C Preferred Stock, (iv) each share of
Imgis Series D Preferred Stock outstanding immediately prior thereto shall be
automatically changed and converted into one fully paid and nonassessable,
issued and outstanding share of AdForce Series D Preferred Stock, and (v)
each share of Imgis Series E Preferred Stock outstanding immediately prior
thereto shall be automatically changed and converted into one fully paid and
nonassessable, issued and outstanding share of AdForce Series E Preferred
Stock. Shares of AdForce Common Stock and Preferred Stock issued in the
Merger upon conversion of shares of Imgis Common Stock or Preferred Stock,
respectively, shall, by virtue of the Merger, continue to be subject to the
same contractual restrictions on transfer, rights of repurchase, vesting and
other provisions, if any, to the same extent as were applicable immediately
prior to the Effective Time
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<PAGE>
to the shares of Imgis Common Stock or Preferred Stock so converted.
Continuous employment with Imgis will be credited to holders of AdForce Common
Stock for purposes of determining the vesting of shares of AdForce Common
Stock subject to exercise under a converted Imgis option at the Effective
Time.
6. CANCELLATION OF SHARES OF ADFORCE. At the Effective Time, by
virtue of the Merger and without any further action on the part of the
Constituent Corporations or their shareholders, all of the previously issued and
outstanding shares of AdForce Common Stock that were issued and outstanding
immediately prior to the Effective Time shall be automatically canceled and
returned to the status of authorized but unissued shares.
7. STOCK CERTIFICATES. At and after the Effective Time, all of the
outstanding certificates that, prior to that date, represented shares of Imgis
Common Stock shall be deemed for all purposes to evidence ownership of and to
represent the number of shares of AdForce Common Stock into which such shares of
Imgis Common Stock are converted as provided herein. At and after the Effective
Time, all of the outstanding certificates that, prior to that date, represented
shares of a series of Imgis Preferred Stock shall be deemed for all purposes to
evidence ownership of and to represent the number of shares of the series of
AdForce Preferred Stock into which such shares of Imgis Preferred Stock are
converted as provided herein. The registered owner on the books and records of
Imgis of any such outstanding stock certificate for Imgis Common Stock or Imgis
Preferred Stock shall, until such certificate is surrendered for transfer or
otherwise accounted for to AdForce or its transfer agent, be entitled to
exercise any voting and other rights with respect to, and to receive any
dividend and other distributions upon, the shares of AdForce Common Stock or
AdForce Preferred Stock evidenced by such outstanding certificate as provided
above.
8. ASSUMPTION OF OPTIONS AND WARRANTS. At the Effective Time, all
outstanding and unexercised portions of all options to purchase Imgis Common
Stock under the Imgis 1997 Stock Plan or under the StarPoint 1996 Stock Plan
(the "EXISTING PLANS"), and all other outstanding options to purchase Imgis
Common Stock, shall be assumed by AdForce and become options to purchase the
same number of shares of AdForce Common Stock at the same exercise price per
share but otherwise shall, to the extent permitted by law and otherwise
reasonably practicable, have the same term, exercisability, vesting schedule,
status as an "incentive stock option" under Section 422 of the Internal Revenue
Code of 1986, as amended (the "CODE"), if applicable, and all other material
terms and conditions (including but not limited to the terms and conditions
applicable to such options by virtue of the Existing Plans). Continuous
employment with Imgis will be credited to an optionee for purposes of
determining the vesting of the number of shares of AdForce Common Stock subject
to exercise under an assumed Imgis option at the Effective Time. At the
Effective Time, AdForce shall adopt and assume the Existing Plans.
Additionally, at the Effective Time, all outstanding and unexercised portions of
(i) all warrants to purchase or acquire Imgis Common Stock shall be assumed by
AdForce and become warrants to purchase or acquire the same number of shares of
AdForce Common Stock, (ii) all warrants to purchase or acquire Imgis Series A
Preferred Stock shall be assumed by AdForce and become warrants to purchase or
acquire the same number of shares of AdForce Series A Preferred Stock, (iii) all
warrants to purchase or acquire Imgis Series B1
-3-
<PAGE>
Preferred Stock shall be assumed by AdForce and become warrants to purchase
or acquire the same number of shares of AdForce Series B Preferred Stock,
(iv) all warrants to purchase or acquire Imgis Series C Preferred Stock shall
be assumed by AdForce and become warrants to purchase or acquire the same
number of shares of AdForce Series C Preferred Stock, (v) all warrants to
purchase or acquire Imgis Series D Preferred Stock shall be assumed by
AdForce and become warrants to purchase or acquire the same number of shares
of AdForce Series D Preferred Stock, (vi) all warrants to purchase or acquire
Imgis Series E Preferred Stock shall be assumed by AdForce and become
warrants to purchase or acquire the same number of shares of AdForce Series E
Preferred Stock, in each case at the same exercise price per share but
otherwise with the same term, exercisability, and all other material terms
and conditions.
9. FRACTIONAL SHARES. No fractional shares of AdForce Common Stock
or AdForce Preferred Stock will be issued in connection with the Merger.
10. EMPLOYEE BENEFIT PLANS. At the Effective Time, the obligations
of Imgis under or with respect to every plan, trust, program and benefit then in
effect or administered by Imgis for the benefit of the directors, officers and
employees of Imgis or any of its subsidiaries shall become the lawful
obligations of AdForce and shall be implemented and administered in the same
manner and without interruption until the same are amended or otherwise lawfully
altered or terminated. Effective at the Effective Time, AdForce hereby
expressly adopts and assumes all obligations of Imgis under such employee
benefit plans.
11. FURTHER ASSURANCES. From time to time, as and when required by
the Surviving Corporation or by its successors or assigns, there shall be
executed and delivered on behalf of Imgis such deeds, assignments and other
instruments, and there shall be taken or caused to be taken by it all such
further action, as shall be appropriate, advisable or necessary in order to
vest, perfect or confirm, of record or otherwise, in the Surviving Corporation
the title to and possession of all property, interests, assets, rights,
privileges, immunities, powers, franchises and authority of Imgis, and otherwise
to carry out the purposes of this Merger Agreement. The officers and directors
of the Surviving Corporation are fully authorized in the name of and on behalf
of Imgis, or otherwise, to take any and all such actions and to execute and
deliver any and all such deeds and other instruments as may be necessary or
appropriate to accomplish the foregoing.
12. CONDITION. The consummation of the Merger is subject to the
approval of this Merger Agreement and the Merger contemplated hereby by the
shareholders of Imgis and by the sole stockholder of AdForce, prior to or at the
Effective Time.
13. ABANDONMENT. At any time before the Effective Time, this Merger
Agreement may be terminated and the Merger abandoned by the Board of Directors
of Imgis or AdForce, notwithstanding approval of this Merger Agreement by the
shareholders of Imgis and the sole stockholder of AdForce.
14. AMENDMENT. At any time before the Effective Time, this Merger
Agreement may be amended, modified or supplemented by the Boards of Directors of
the Constituent Corporations, notwithstanding approval of this Merger Agreement
by the
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<PAGE>
shareholders of Imgis and the sole stockholder of AdForce; provided, however,
that any amendment made subsequent to the adoption of this Merger Agreement
by the shareholders of Imgis or the sole stockholder of AdForce shall not:
(i) alter or change the amount or kind of shares, securities, cash, property
and/or rights to be received in exchange for or upon conversion of any shares
of any class or series of Imgis; (ii) alter or change of any of the terms of
the Certificate of Incorporation of the Surviving Corporation to be effected
by the Merger; or (iii) alter or change any of the terms or conditions of
this Merger Agreement if such alteration or change would adversely affect the
holders of any shares of any class or series of Imgis or AdForce.
15. TAX-FREE REORGANIZATION. The Merger is intended to be a tax-free
plan of reorganization within the meaning of Section 368(a)(1)(F) of the Code.
16. GOVERNING LAW. This Merger Agreement shall be governed by and
construed under the internal laws of the State of California as applied to
agreements among California residents entered into and to be performed entirely
within California, without reference to the principles of conflicts of law or
choice of laws, except to the extent that the laws of the State of Delaware
would apply in matters relating to the internal affairs of AdForce and the
Merger.
17. COUNTERPARTS. In order to facilitate the filing and recording of
this Merger Agreement, it may be executed in any number of counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, this the parties hereto have caused this Merger
Agreement to be duly executed on the date and year first above written.
IMGIS, INC. ADFORCE, INC.
By: By:
------------------------------- -----------------------------
Charles W. Berger, Chairman Charles W. Berger, Chairman
By: By:
------------------------------- -----------------------------
Rex S. Jackson, Secretary Rex S. Jackson, Secretary
[Signature Page to Agreement and Plan of Merger]
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<PAGE>
ATTACHMENT 1
FIRST AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
<PAGE>
Exhibit 3.1
ATTACHMENT 1
FIRST AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ADFORCE, INC.
ARTICLE I
The name of the corporation is AdForce, Inc.
ARTICLE II
The address of the registered office of the corporation in the State of
Delaware is 15 East North Street, City of Dover, County of Kent. The name of
its registered agent at that address is Incorporating Services, Ltd.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
ARTICLE IV
(A) CLASSES OF STOCK. The total number of shares of all classes of
stock which the corporation has authority to issue is 45,451,663 shares,
consisting of two classes: 40,000,000 shares of Common Stock, $0.001 par value
per share, and 5,451,663 shares of Preferred Stock, $0.001 par value per share.
Of the 5,451,663 shares of Preferred Stock, par value $0.001, authorized to be
issued by the corporation, 602,000 shares are hereby designated Series A
Preferred Stock, 1,100,000 shares are hereby designated Series B Preferred
Stock, 1,725,000 shares are hereby designated Series C Preferred Stock, 786,500
shares are hereby designated Series D Preferred Stock and 1,238,163 shares are
hereby designated Series E Preferred Stock. The rights, preferences, privileges
and restrictions granted to and imposed upon the respective classes and series
of the corporation's capital stock are set forth below:
(B) RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS OF PREFERRED
STOCK. The rights, preferences, privileges and restrictions granted to and
imposed on the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock are as
set forth below.
1. DIVIDEND PROVISIONS. The holders of outstanding Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E
<PAGE>
Preferred Stock shall be entitled to receive in any fiscal year, when and as
declared by the Board of Directors, out of any assets at the time legally
available therefor, dividends in cash at the rate of $0.20, $0.20, $0.38,
$1.10 and $1.10 per share per annum, respectively (appropriately adjusted to
reflect any subsequent stock dividends, combinations, splits,
recapitalizations and the like with respect to the affected series of
Preferred Stock), before any cash dividend is paid on Common Stock. Such
dividend or distribution may be payable annually or otherwise as the Board of
Directors may from time to time determine. Dividends or distributions (other
than dividends payable solely in shares of Common Stock) may be declared and
paid upon shares of Common Stock in any fiscal year of the corporation only
if dividends shall have been paid on or declared and set apart upon all
outstanding shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock at such annual rate; and no dividends shall be paid to holders of
shares of Common Stock unless at the same time equivalent dividends in the
same amount per share of Common Stock issuable upon conversion thereof are
paid to holders of outstanding shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock in excess of such annual rate in any fiscal year.
No dividends shall be paid to holders of any series of Preferred Stock unless
at the same time equivalent dividends are paid to holders of all series of
Preferred Stock. The right to such dividends on outstanding shares of Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series
D Preferred Stock and Series E Preferred Stock shall not be cumulative and no
right shall accrue to holders of shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series
E Preferred Stock by reason of the fact that dividends on said shares are not
declared in any prior year, nor shall any undeclared or unpaid dividend bear
or accrue interest. The holders of the outstanding Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock can waive any dividend
preference that such holders may be entitled to receive under this Section 1
upon the affirmative vote or written consent of the holders of at least
seventy-five percent (75%) of the shares of Series A Preferred Stock, Series
B Preferred Stock and Series C Preferred Stock then outstanding, voting or
consenting as a single class on an as-if-converted basis. The holders of the
outstanding Series D Preferred Stock can waive any dividend preference that
such holders may be entitled to receive under this Section 1 upon the
affirmative vote or written consent of the holders of a majority of the
shares of Series D Preferred Stock then outstanding, voting or consenting as
a separate series. The holders of the outstanding Series E Preferred Stock
can waive any dividend preference that such holders may be entitled to
receive under this Section 1 upon the affirmative vote or written consent of
the holders of a majority of the shares of Series E Preferred Stock then
outstanding, voting or consenting as a separate series.
2. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or
winding up of this corporation, either voluntary or involuntary, subject to
the rights of any series of Preferred Stock that may from time to time come
into existence, the holders of Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of
the assets and funds of this corporation to the holders of Series A Preferred
Stock or Common Stock by reason of their ownership thereof, an amount per
share equal to (i) $2.51 for each outstanding share of Series B
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Preferred Stock (the "Original Series B Issue Price") (such price per share
to be appropriately adjusted to reflect any subsequent stock dividends,
combinations, splits, recapitalizations and the like with respect to the
Series B Preferred Stock) plus any declared but unpaid dividends on such
share, (ii) $4.73 for each outstanding share of Series C Preferred Stock (the
"Original Series C Issue Price") (such price per share to be appropriately
adjusted to reflect any subsequent stock dividends, combinations, splits,
recapitalizations and the like with respect to the Series C Preferred Stock)
plus any declared but unpaid dividends on such share, (iii) $13.73 for each
outstanding share of Series D Preferred Stock (the "Original Series D Issue
Price") (such price per share to be appropriately adjusted to reflect any
subsequent stock dividends, combinations, splits, recapitalizations and the
like with respect to the Series D Preferred Stock) plus any declared but
unpaid dividends on such share, and (iv) $13.73 for each outstanding share of
Series E Preferred Stock (the "Original Series E Issue Price") (such price
per share to be appropriately adjusted to reflect any subsequent stock
dividends, combinations, splits, recapitalizations and the like with respect
to the Series E Preferred Stock) plus any declared but unpaid dividends on
such share. If upon the occurrence of such event, the assets nd funds thus
distributed among the holders of the Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall
be insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then, subject to the rights of series of Preferred
Stock that may from time to time come into existence, the entire assets and
funds of this corporation legally available for distribution shall be
distributed ratably among the holders of the Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock in
proportion to the preferential amount each such holder is otherwise entitled
to receive.
(b) After the distributions required by subsection 2(a)
above have been paid, if assets and funds remain in the corporation that are
legally available for distribution, the holders of the Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock
shall receive from the remaining assets of the corporation available for
distribution to shareholders that portion of such assets equal to their pro rata
share of such assets based on the number of shares of Common Stock held by all
shareholders of the corporation, assuming the conversion to Common Stock of all
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock.
(c) After the distributions required by subsections 2(a)
and 2(b) above have been paid, if assets and funds remain in the corporation
that are legally available for distribution to shareholders, the Series A
Preferred Stock shall receive an amount per share equal to the sum of (i) $2.51
for each outstanding share of Series A Preferred Stock (the "Original Series A
Issue Price") and (ii) an amount equal to any declared but unpaid dividends on
such share. If upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Series A Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then the entire assets and funds of the corporation
legally available for distribution shall be distributed ratably among the
holders of the Series A Preferred Stock in proportion to the amount of such
stock owned by each such holder.
(d) Thereafter, if assets and funds remain in the
corporation that are legally available for distribution to shareholders, the
holders of Series A Preferred Stock and
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Common Stock shall receive all of the remaining assets of the corporation pro
rata based on the number of shares of Common Stock held by each such holder
(assuming conversion to Common Stock of all such Series A Preferred Stock).
(e) For purposes of this Section 2, (i) any acquisition
of this corporation by means of merger or other form of corporate reorganization
in which the shareholders of this corporation immediately before the closing of
such transaction do not, by virtue of shares issued in the transaction, own a
majority of the outstanding shares of the surviving corporation or (ii) a sale
of all or substantially all of the assets of this corporation shall, unless the
holders of (A) seventy-five percent (75%) of the shares of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock then outstanding,
voting or consenting in writing as a single class on an as-if-converted to
Common Stock basis, (B) a majority of the shares of Series D Preferred Stock
then outstanding, voting or consenting in writing as a separate series, and (C)
a majority of the shares of Series E Preferred Stock then outstanding, voting or
consenting in writing as a separate series, elect in writing otherwise, be
deemed to be treated as a liquidation, dissolution or winding up of this
corporation and shall entitle the holders of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock and Common Stock to receive at the closing cash, securities or
other property as specified in subsections 2(a), 2(b), 2(c) and 2(d) above.
(f) In any of such events, if the consideration received
by the corporation is other than cash, its value will be deemed its fair market
value. Any securities shall be valued as follows:
(i) Securities not subject to investment letter
or other similar restrictions on free marketability:
(A) If traded on a securities exchange or
the Nasdaq National Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange over the 30-day period ending
three (3) days prior to the closing;
(B) If actively traded over-the-counter
other than on the Nasdaq National Market, the value shall be deemed to be the
average of the closing bid prices over the 30-day period ending three (3) days
prior to the closing; and
(C) If there is no active public market,
the value shall be the fair market value thereof, as mutually determined by this
corporation and the holders of at least seventy-five percent (75%) of the voting
power of all then outstanding shares of Preferred Stock.
(ii) The method of valuation of securities
subject to investment letter or other restrictions on free marketability
(other than restrictions arising solely by virtue of a shareholder's status
as an affiliate or former affiliate) shall be to make an appropriate discount
from the market value as determined above in subsection 2(f)(i)(A), (B) or
(C) to reflect the approximate fair market value thereof, as mutually
determined by this corporation and the
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holders of at least a majority of the voting power of all then outstanding
shares of such Preferred Stock.
(g) In the event the requirements of subsection 2(e)
are not complied with, the corporation shall forthwith either:
(i) cause such closing to be postponed until such
time as the requirements of this Section 2 have been complied with, or
(ii) cancel such transaction, in which event the
rights, preferences, privileges, and restrictions of the holders of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock shall revert to and be the same as
such rights, preferences, privileges and restrictions existing immediately prior
to the date of the first notice referred to in subsection 2(h) hereof.
(h) The corporation shall give each holder of record
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock written notice
of such a subsection 2(e) transaction not later than twenty (20) days prior
to the shareholders' meeting called to approve such transaction, or twenty
(20) days prior to the closing of such transaction, whichever is earlier.
The first of such notices shall describe the material terms and conditions of
the impending transaction and the provisions of subsection 2(e), and the
corporation shall thereafter give such holders prompt notice of any material
changes and shall provide such other information to such shareholders
regarding such transactions as they may reasonably request. If, in
connection with a subsection 2(e) transaction, the holders of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock elect to convert their shares
into shares of Common Stock pursuant to subsection 3(a) below, such
conversion will be conditioned upon the closing of the subsection 2(e)
transaction, unless otherwise designated in writing by the holder of such
Preferred Stock, in which event the person(s) entitled to receive the Common
Stock issuable upon such conversion of the Preferred Stock shall not be
deemed to have converted such Preferred Stock until immediately prior to the
closing of such subsection 2(e) transaction. The transaction shall in no
event take place sooner than twenty (20) days after the corporation has given
the first notice provided for herein or sooner than ten (10) days after the
corporation has given notice of any material changes provided for herein;
provided, however, that such periods may be shortened upon the written
consent of the holders of a majority of the shares of Preferred Stock then
outstanding, voting or consenting as a single class on an as-if-converted to
Common Stock basis.
3. CONVERSION. The holders of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock shall have conversion rights as follows (the
"Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series A, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time after the date of issuance of such
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share at the office of this corporation or any transfer agent for such stock,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing the Original Series A Issue Price, the Original Series
B Issue Price, the Original Series C Issue Price, the Original Series D Issue
Price or the Original Series E Issue Price by the Conversion Price applicable
to such share, determined as hereafter provided, in effect on the date the
certificate is surrendered for conversion. The initial Conversion Price per
share for shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock shall be one-half of the Original Series A Issue Price, one-half of the
Original Series B Issue Price, one-half of the Original Series C Issue Price,
one-half of the Original Series D Issue Price and one-half of the Original
Series E Issue Price, respectively; provided, however, that the Conversion
Prices for Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall
be subject to adjustment as set forth in subsection 3(d).
(b) AUTOMATIC CONVERSION.
(i) Each share of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock shall automatically be
converted into shares of Common Stock at the Conversion Price at the time in
effect for such series of Preferred Stock immediately upon the earlier of (i)
this corporation's sale of its Common Stock pursuant to a registration statement
under the Securities Act of 1933, as amended, which results in aggregate gross
cash proceeds to this corporation in excess of $15,000,000 and the public
offering price of which is not less than $6.275 per share of Common Stock
(appropriately adjusted to reflect subsequent stock dividends, combinations,
splits, recapitalizations or the like) or (ii) the date specified by written
consent or agreement of the holders of at least seventy-five percent (75%) of
the shares of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock then outstanding, voting or consenting as a single class on an
as-if-converted basis.
(ii) Each share of Series D Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for such series of Preferred Stock immediately upon the
earlier of (i) this corporation's sale, in a firm commitment underwritten public
offering, of its Common Stock pursuant to a registration statement under the
Securities Act of 1933, as amended, which results in aggregate gross cash
proceeds to this corporation of $20,000,000 or greater and the public offering
price of which is not less than the Qualifying Price Per Share, or (ii) the date
specified by written consent or agreement of the holders of at least a majority
of the shares of Series D Preferred Stock then outstanding, voting or consenting
as a separate series. As used herein, the "Qualifying Price Per Share" shall
mean the quotient of $125,000,000 divided by the number of shares of the
corporation's Common Stock outstanding immediately prior to such sale, assuming
conversion of all Preferred Stock and other convertible securities then
outstanding and the exercise of all warrants, options and other rights then
outstanding to purchase Common Stock or other securities convertible into Common
Stock of this corporation.
(iii) Each share of Series E Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for such
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series of Preferred Stock immediately upon the earlier of (i) this
corporation's sale, in a firm commitment underwritten public offering, of its
Common Stock pursuant to a registration statement under the Securities Act of
1933, as amended, which results in aggregate net cash proceeds to this
corporation of $20,000,000 or greater and the public offering price of which
is not less than the Qualifying Price Per Share, or (ii) the date specified
by written consent or agreement of the holders of at least a majority of the
shares of Series E Preferred Stock then outstanding, voting or consenting as
a separate series.
(c) MECHANICS OF CONVERSION. Before any holder of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series E Preferred Stock shall be entitled to
convert the same into shares of Common Stock, such holder shall surrender the
certificate or certificates therefor, duly endorsed, at the office of this
corporation or of any transfer agent for the Preferred Stock, and shall give
written notice by mail, postage prepaid, to this corporation at its principal
corporate office, of the election to convert the same and shall state therein
the name or names in which the certificate or certificates for shares of Common
Stock are to be issued. This corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Preferred Stock,
or to the nominee or nominees of such holder, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the shares of
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date. If the conversion is in connection with an underwritten offer of
securities registered pursuant to the Securities Act of 1933, as amended, the
conversion will be conditioned upon the closing with the underwriter of the sale
of securities pursuant to such offering, unless otherwise designated in writing
by the holders of such Preferred Stock, in which event the person(s) entitled to
receive the Common Stock issuable upon such conversion of the Preferred Stock
shall not be deemed to have converted such Preferred Stock until immediately
prior to the closing of such sale of securities.
(d) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK.
The Conversion Price of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock
shall be subject to adjustment from time to time as follows:
(i) (A) If the corporation, at any time or
from time to time after the date that this Certificate of Incorporation is
filed with the Secretary of State of the State of Delaware (the "Filing
Date"), shall issue any Additional Stock (as defined below) without
consideration or for a consideration per Common Stock equivalent share less
than the Conversion Price for a given series in effect immediately prior to
the issuance of such Additional Stock, then, except as provided in subsection
3(d)(v) below, the Conversion Price for such series in effect immediately
prior to each such issuance shall forthwith be adjusted to a price determined
by multiplying such Conversion Price by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding immediately prior
to such issuance plus the number of shares of Common Stock that the aggregate
consideration received by the corporation
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for such issuance would purchase at such Conversion Price; and the
denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance plus the number of shares of
such Additional Stock. For purposes of this subsection 3(d), the number of
shares of Common Stock outstanding at a given time shall be deemed to be the
number of shares of Common Stock that are then issued and outstanding plus
the number of shares of Common Stock then issuable upon exercise of all then
outstanding warrants and options to purchase Common Stock or securities
convertible into Common Stock plus the number of shares of Common Stock then
issuable upon conversion of such convertible securities and all other
convertible securities then outstanding.
(B) No adjustment of the Conversion Price
for any series of Preferred Stock shall be made in an amount less than one cent
per share, provided that any adjustments which are not required to be made by
reason of this sentence shall be carried forward and shall be either taken into
account in any subsequent adjustment made prior to 3 years from the date of the
event giving rise to the adjustment being carried forward, or shall be made at
the end of 3 years from the date of the event giving rise to the adjustment
being carried forward. Except to the limited extent provided for in subsections
3(d)(i)(E)(3) and 3(d)(i)(E)(4), no adjustment of such Conversion Price pursuant
to this subsection 3(d)(i)(B) shall have the effect of increasing the Conversion
Price above the Conversion Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common
Stock for cash, the consideration shall be deemed to be the amount of cash paid
therefor before deducting any reasonable discounts, commissions or other
expenses allowed, paid or incurred by this corporation for any underwriting or
otherwise in connection with the issuance and sale thereof.
(D) In the case of the issuance of Common
Stock for a consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair value thereof as reasonably
determined by the Board of Directors in its good faith judgment irrespective of
any accounting treatment.
(E) In the case of the issuance, whether
before, on or after the Filing Date, of options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock or options to purchase or rights to subscribe for
such convertible or exchangeable securities (which are not excluded from the
definition of Additional Stock), the following provisions shall apply:
1. The aggregate maximum number
of shares of Common Stock deliverable upon exercise of such options to
purchase or rights to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in subsections
3(d)(i)(C) and 3(d)(i)(D)), if any, received by the corporation upon the
issuance of such options or rights plus the minimum purchase price provided
in such options or rights (without taking into account potential
anti-dilution adjustments) for the Common Stock covered thereby.
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2. The aggregate maximum number
of shares of Common Stock deliverable upon conversion of or in exchange for
any such convertible or exchangeable securities or upon the exercise of
options to purchase or rights to subscribe for such convertible or
exchangeable securities and subsequent conversion or exchange thereof shall
be deemed to have been issued at the time such securities were issued or such
options or rights were issued and for a consideration equal to the
consideration, if any, received by the corporation for any such securities
and related options or rights (excluding any cash received on account of
accrued interest or accrued dividends), plus the additional consideration, if
any, to be received by the corporation upon the conversion or exchange of
such securities or the exercise of any related options or rights (the
consideration in each case to be determined in the manner provided in
subsections 3(d)(i)(C) and 3(d)(i)(D)).
3. In the event of any change
in the number of shares of Common Stock deliverable or any increase in the
consideration payable to this corporation upon exercise of such options or
rights or upon conversion of or in exchange for such convertible or
exchangeable securities, including, but not limited to, a change resulting
from the antidilution provisions thereof, the Conversion Price of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock obtained with respect to the
adjustment that was made upon the issuance of such options, rights or
securities, and any subsequent adjustments based thereon, shall be recomputed
to reflect such change, but no further adjustment shall be made for the
actual issuance of Common Stock or any payment of such consideration upon the
exercise of any such options or rights or the conversion or exchange of such
securities.
4. Upon the expiration of any
such options or rights, the termination of any such rights to convert or
exchange or the expiration of any options or rights related to such
convertible or exchangeable securities, the Conversion Price of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock obtained with respect to the
adjustment which was made upon the issuance of such options, rights or
securities or options or rights related to such securities, and any
subsequent adjustments based thereon, shall be recomputed to reflect the
issuance of only the number of shares of Common Stock actually issued upon
the exercise of such options or rights, upon the conversion or exchange of
such securities or upon the exercise of the options or rights related to such
securities. Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the expiration of
any options or rights related to such convertible or exchangeable securities,
only the number of shares of Common Stock actually issued upon the exercise
of such options or rights, upon the conversion or exchange of such securities
or upon the exercise of the options or rights related to such securities
shall continue to be deemed to be issued.
5. The number of shares of
Common Stock deemed issued and the consideration deemed paid therefor
pursuant to subsections 3(d)(i)(E)(1) and 3(d)(i)(E)(2) shall be
appropriately adjusted to reflect any change, termination or expiration of
the type described in either subsection 3(d)(i)(E)(3) or 3(d)(i)(E)(4).
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(ii) "Additional Stock" shall mean any shares
of Common Stock issued (or deemed to have been issued pursuant to subsection
3(d)(i)(E)) by this corporation after the Filing Date other than shares of
Common Stock issued or issuable:
(A) pursuant to a transaction described in
subsection 3(d)(iii) hereof;
(B) to officers, directors, employees and
consultants of this corporation directly or pursuant to a stock option plan or
restricted stock plan approved by the Board of Directors of this corporation or
pursuant to the StarPoint Software, Inc. 1996 Stock Plan;
(C) upon conversion of the Preferred
Stock;
(D) pursuant to warrants issued to banks
or equipment lessors (provided, however, that this subsection 3(d)(ii)(D) shall
not be applicable to any calculation of a Conversion Price adjustment of the
Series D Preferred Stock or Series E Preferred Stock);
(E) in connection with business
combinations or corporate partnering agreements approved by the Board of
Directors, provided that at the time of any such issuance, the aggregate of
such issuance and similar issuances in the preceding twelve month period do
not exceed 2% of the then outstanding Common Stock of the corporation
(assuming full conversion and exercise of all convertible and exercisable
securities) (provided, however, that this subsection 3(d)(ii)(E) shall not be
applicable to any calculation of a Conversion Price adjustment of the Series
D Preferred Stock or Series E Preferred Stock); or
(F) in connection with the merger of
Imgis, Inc., a California corporation, with and into the corporation.
(iii) In the event the corporation should at any
time or from time to time after the Purchase Date fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common
Stock or the determination of holders of Common Stock entitled to receive a
dividend or other distribution to receive a distribution payable in
additional shares of Common Stock or other securities or rights convertible
into, or entitling the holder thereof to receive directly or indirectly,
additional shares of Common Stock (hereinafter referred to as "Common Stock
Equivalents") without payment of any consideration by such holder for the
additional shares of Common Stock or the Common Stock Equivalents (including
the additional shares of Common Stock issuable upon conversion or exercise
thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the
Conversion Price of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock shall be appropriately decreased so that the number of shares of Common
Stock issuable on conversion of each share of such series
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shall be increased in proportion to such increase of outstanding shares
determined in accordance with subsection 3(d)(i)(E).
(iv) If the number of shares of Common Stock
outstanding at any time after the Purchase Date is decreased by a combination
of the outstanding shares of Common Stock, then, following the record date of
such combination, the Conversion Price for Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock shall be appropriately increased so that the number
of shares of Common Stock issuable on conversion of each share of such series
shall be decreased in proportion to such decrease of outstanding shares.
(e) OTHER DISTRIBUTIONS. In the event this
corporation shall declare a distribution payable in securities of other
persons, evidences of indebtedness issued by this corporation or other
persons, assets (excluding cash dividends) or options or rights not referred
to in subsection 3(d)(iii), then, in each such case for the purpose of this
subsection 3(e), the holders of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of
Common Stock of the corporation into which their shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock are convertible as of the record date
fixed for the determination of the holders of Common Stock of the corporation
entitled to receive such distribution.
(f) RECAPITALIZATIONS. If at any time or from time
to time there shall be a recapitalization of the Common Stock (other than a
subdivision, combination or merger or sale of assets transaction provided for
elsewhere in this Section 3) provision shall be made so that the holders of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock shall thereafter be
entitled to receive upon conversion of the Preferred Stock the number of
shares of stock or other securities or property of the corporation or
otherwise, to which a holder of Common Stock deliverable upon conversion
would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 3 with respect to the rights of the holders of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock after the recapitalization to
the end that the provisions of this Section 3 (including adjustment of the
Conversion Price then in effect and the number of shares purchasable upon
conversion of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock) shall
be applicable after that event as nearly equivalent as may be practicable.
(g) NO IMPAIRMENT. This corporation will not, by
amendment of its Articles of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by this corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 3 and in the
taking of all such action as may be necessary or
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appropriate in order to protect the Conversion Rights of the holders of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock.
(h) NO FRACTIONAL SHARES AND CERTIFICATE AS TO
ADJUSTMENTS.
(i) No fractional shares shall be issued upon
conversion of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or Series E Preferred Stock and the
number of shares of Common Stock to be issued shall be rounded down to the
nearest whole share. Whether or not fractional shares are issuable upon such
conversion shall be determined on the basis of the total number of shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series E Preferred Stock the holder is at the time
converting into Common Stock and the number of shares of Common Stock issuable
upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or
readjustment of any Conversion Price of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series
E Preferred Stock pursuant to this Section 3, this corporation, at its
expense, shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock, respectively, a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. This corporation shall,
upon the written request at any time of any holder of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Series E Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (A) such adjustment and readjustment,
(B) the Conversion Price at the time in effect, and (C) the number of shares
of Common Stock and the amount, if any, of other property which at the time
would be received upon the conversion of a share of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock
or Series E Preferred Stock, respectively.
(i) NOTICES OF RECORD DATE. In the event of any
taking by this corporation of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a cash dividend) or other
distribution, any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to
receive any other right, this corporation shall mail to each holder of Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series
D Preferred Stock and Series E Preferred Stock at least 10 days prior to the
date specified therein, a notice specifying the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
the amount and character of such dividend, distribution or right.
(j) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. This
corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common
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Stock solely for the purpose of effecting the conversion of the shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the
conversion of all the then outstanding shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock
and Series E Preferred Stock, in addition to such other remedies as remedies
as shall be available to the holder of such Preferred Stock, this corporation
will take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purposes.
(k) NOTICES. Any notice required by the provisions
of this Section 3 to be given to the holders of shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock shall be deemed effectively given upon
personal delivery to the holder to be notified, or upon deposit with the
United States Post Office, or with a nationally recognized overnight courier
specifying next day delivery with written verification of receipt, postage
prepaid, and addressed to each holder of record at his address appearing on
the books of this corporation.
4. VOTING RIGHTS.
(a) The authorized number of directors of the
corporation shall be seven (7). At each election of directors of this
corporation, the holders of Series B Preferred Stock shall be entitled,
voting as a separate series, to elect two (2) directors of the corporation.
The holders of the outstanding Series C Preferred Stock shall be entitled,
voting as a separate series, to elect two (2) directors of the corporation.
For so long as AOL and its affiliates collectively hold at least 364,166
shares of Series E Preferred Stock (appropriately adjusted to reflect any
subsequent stock dividends, combinations, splits, recapitalizations and the
like with respect to the Series E Preferred Stock), the holders of the
outstanding Series E Preferred Stock, at their option, shall be entitled,
voting as a separate series, to elect one (1) director of the corporation.
The holders of outstanding Common Stock, and the holders of outstanding
Series D Preferred Stock, voting on an as-if converted to Common Stock basis,
shall be entitled, voting together as a class, to elect the remaining number
of directors of this corporation that are not elected by the holders of
Series B Preferred Stock, Series C Preferred Stock and Series E Preferred
Stock at each annual election of directors. In the case of any vacancy
(other than a vacancy caused by removal) in the office of a director
occurring among the directors elected by the holders of a class or series of
stock pursuant to this Section, the remaining directors so elected by that
class or series may by affirmative vote of a majority thereof (or the
remaining director so elected if there be but one, or if there are no such
directors remaining, by the affirmative vote of the holders of a majority of
the shares of that class or series), elect a successor or successors to hold
office for the unexpired term of the director or directors whose place or
places shall be vacant. Any director who shall have been elected by the
holders of a class or series of stock or by any directors so elected as
provided in the immediately preceding sentence
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hereof may be removed during the aforesaid term of office, either with or
without cause, by, and only by, the affirmative vote of the holders of the
shares of the class or series of stock entitled to elect such director or
directors, given either at a special meeting of such shareholders duly called
for that purpose or pursuant to a written consent of shareholders, and any
vacancy thereby created may be filled by the holders of that class or series
of stock represented at the meeting or pursuant to unanimous written consent.
(b) Except as explicitly provided for in Section 4(a)
above, the holder of each share of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock shall have the right to one vote for each share of Common Stock into which
such Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock or Series E Preferred Stock, respectively, could
then be converted (with any fractional share determined on an aggregate
conversion basis being rounded to the nearest whole share), and with respect to
such vote, such holder shall have full voting rights and powers equal to the
voting rights and powers of the holders of Common Stock, and shall be entitled,
notwithstanding any provision hereof, to notice of any shareholders' meeting in
accordance with the by-laws of this corporation, and shall be entitled to vote,
together with holders of Common Stock, with respect to any question upon which
holders of Common Stock have the right to vote.
5. PROTECTIVE PROVISIONS.
(a) So long as at least 625,000 shares of Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and/or
Series E Preferred Stock (appropriately adjusted to reflect any subsequent
stock dividends, combinations, splits, recapitalizations and the like with
respect to such series of Preferred Stock) remain outstanding, this
corporation shall not without first obtaining the approval (by vote or
written consent, as provided by law) of the holders of a majority of the
voting power of the then outstanding shares of Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock, voting together as a single class on an as-if-converted to Common
Stock basis:
(i) sell, convey, or otherwise dispose of or
encumber all or substantially all of its property or business or merge into
or consolidate with any other corporation (other than a wholly owned
subsidiary corporation) or effect any transaction or series of related
transactions in which more than 50% of the voting power of the corporation is
disposed of;
(ii) authorize the payment of dividends on or
the repurchase of Common Stock; provided, however, that this restriction
shall not apply to the repurchase of shares of Common Stock from employees,
officers, directors, consultants or other persons performing services for
this corporation or any subsidiary pursuant to agreements under which this
corporation has the option to repurchase such shares at cost or at cost upon
the occurrence of certain events, such as the termination of employment;
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<PAGE>
(iii) change the authorized number of directors
of the corporation; or
(iv) authorize the issuance of any stock, or
any other securities convertible into or exercisable or exchangeable for
equity securities, of the corporation to any person or group of affiliated
persons if, immediately following such issuance, such person or group of
affiliated persons would hold a greater Pro Rata Share (as defined below) of
the corporation's then outstanding Common Stock than would then be held
collectively by AOL and its affiliates. For purposes hereof, "Pro Rata
Share" means a fraction, the numerator of which is the number of shares of
Common Stock of the corporation issued and held, or issuable upon conversion
of Preferred Stock of the corporation then held, by the holder and the
denominator of which is the total number of shares of Common Stock of the
corporation then outstanding assuming full conversion and exercise of all
convertible or exercisable securities then outstanding.
(b) So long as at least 625,000 shares of Series B
Preferred Stock and/or Series C Preferred Stock (appropriately adjusted to
reflect any subsequent stock dividends, combinations, splits,
recapitalizations and the like with respect to such series of Preferred
Stock) remain outstanding, this corporation shall not without first obtaining
the approval (by vote or written consent, as provided by law) of the holders
of at least seventy-five percent (75%) of the voting power of the then
outstanding shares of Series B Preferred Stock and Series C Preferred Stock,
voting together as a single class on an as-if-converted to Common Stock basis:
(i) create any new class or series of stock or
any other securities convertible into equity securities of the corporation
(A) having a preference over, or being on a parity with, Series B Preferred
Stock or Series C Preferred Stock with respect to voting, dividends or
distributions upon liquidation, or (B) having rights similar to any of the
rights of Series B Preferred Stock or Series C Preferred Stock under this
Section 5;
(ii) amend, waive or repeal any provision of,
or add any provision to, these Articles of Incorporation if such action would
adversely alter or change the preferences, rights, privileges or powers of,
or the restrictions provided for the benefit of, Series B Preferred Stock or
Series C Preferred Stock;
(iii) increase or decrease (other than by
conversion) the authorized number of shares of Series B Preferred Stock or
Series C Preferred Stock; or
(iv) merge with or consolidate with any other
corporation where such merger would result in an adverse change in the
rights, preferences or privileges of Series B Preferred Stock or Series C
Preferred Stock that would otherwise require consent under subsection
5(b)(ii) above.
(c) So long as any shares of Series D Preferred Stock
remain outstanding, this corporation shall not, without first obtaining the
approval (by vote or written
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<PAGE>
consent, as provided by law) of the holders of a majority of the then
outstanding shares of Series D Preferred Stock, voting as a separate series:
(i) create any new class or series of stock or
any other securities convertible into or exercisable or exchangeable for
equity securities of the corporation (A) having a preference over Series D
Preferred Stock with respect to voting, dividends or distributions upon
liquidation, or (B) having rights similar to any of the rights of Series D
Preferred Stock under this Section 5;
(ii) amend, waive or repeal any provision of,
or add any provision to, these Articles of Incorporation if such action would
(A) adversely alter or change the preferences, rights, privileges or powers
of, or the restrictions provided for the benefit of, Series D Preferred
Stock, or (B) alter or change the provisions governing automatic conversion
of the Series D Preferred Stock set forth in subsection 3(b) above;
(iii) increase or decrease (other than by
conversion) the authorized number of shares of Series D Preferred Stock, or
authorize the issuance of any shares of Series D Preferred Stock, or any
other securities convertible into or exercisable or exchangeable for Series D
Preferred Stock, to any person who, as of the Filing Date, does not hold of
record any shares of Series D Preferred Stock; or
(iv) redeem or repurchase any of this
corporation's Common Stock or Preferred Stock, other than repurchases of
securities held by directors, employees or consultants of the corporation not
to exceed $100,000 per transaction and $400,000 in the aggregate, and other
than redemptions or repurchases at the original purchase price of such
securities.
(d) So long as any shares of Series E Preferred Stock
remain outstanding, this corporation shall not, without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of a
majority of the then outstanding shares of Series E Preferred Stock, voting
as a separate series:
(i) create any new class or series of stock,
or any other securities convertible into or exercisable or exchangeable for
equity securities, of the corporation (A) having a preference over Series E
Preferred Stock with respect to voting, dividends or distributions upon
liquidation, or (B) having rights similar to any of the rights of Series E
Preferred Stock under this Section 5;
(ii) amend, waive or repeal any provision of,
or add any provision to, these Articles of Incorporation if such action would
(A) adversely alter or change the preferences, rights, privileges or powers
of, or the restrictions provided for the benefit of, Series E Preferred
Stock, or (B) alter or change the provisions governing automatic conversion
of the Series E Preferred Stock set forth in subsection 3(b) above;
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<PAGE>
(iii) increase or decrease (other than by
conversion) the authorized number of shares of Series E Preferred Stock, or
authorize the issuance of any shares of Series E Preferred Stock, or any
other securities convertible into or exercisable or exchangeable for Series E
Preferred Stock, to any person other than AOL; or
(iv) redeem or repurchase any of this
corporation's Common Stock or Preferred Stock, other than repurchases of
securities held by directors, employees or consultants of the corporation not
to exceed $100,000 per transaction and $400,000 in the aggregate, and other
than redemptions or repurchases at the original purchase price of such
securities.
6. REDEMPTION. The Preferred Stock is not redeemable.
7. STATUS OF CONVERTED STOCK. In the event any shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series E Preferred Stock shall be converted
pursuant to Section 3 hereof, the shares so converted shall be canceled and
shall not be issuable by the corporation, and the Articles of Incorporation
of this corporation shall be appropriately amended to effect the
corresponding reduction in the corporation's authorized capital stock.
8. REPURCHASE OF SHARES. In connection with repurchases by
this corporation of its Common Stock pursuant to its agreements with certain
of the holders thereof providing for such repurchases in the event of the
termination of the status of such holder as an employee, director or
consultant to the corporation, each holder of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock
and Series E Preferred Stock shall be deemed to have consented to
distributions made by the corporation with respect to such repurchases.
(C) COMMON STOCK.
1. DIVIDEND RIGHTS. Subject to the prior rights of holders
of all classes of stock at the time outstanding having prior rights as to
dividends, the holders of the Common Stock shall be entitled to receive, when
and as declared by the Board of Directors, out of any assets of the
corporation legally available therefor, such dividends as may be declared
from time to time by the Board of Directors.
2. LIQUIDATION RIGHTS. Upon the liquidation, dissolution
or winding up of the corporation, the assets of the corporation shall be
distributed as provided in Article III(B)(2).
3. REDEMPTION. The Common Stock is not redeemable.
4. VOTING RIGHTS. The holder of each share of Common Stock
shall have the right to one vote, and shall be entitled to notice of any
shareholders meeting in accordance with the Bylaws of this corporation, and
shall be entitled to vote upon such matters and in such manner as may be
provided by law.
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<PAGE>
ARTICLE V
The Board of Directors of the corporation shall have the power to
adopt, amend or repeal the Bylaws of the corporation.
ARTICLE VI
For the management of the business and for the conduct of the affairs
of the corporation, and in further definition, limitation and regulation of
the powers of the corporation, of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided that:
(A) The conduct of the affairs of the corporation shall be managed
under the direction of its Board of Directors. The number of directors shall
be fixed from time to time exclusively by resolution of the Board of
Directors.
(B) Notwithstanding the foregoing provision of this Article VI,
each director shall hold office until such director's successor is elected
and qualified, or until such director's earlier death, resignation or
removal. No decrease in the authorized number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
(C) Subject to the rights of the holders of any series of Preferred
Stock, any vacancy occurring in the Board of Directors for any cause, and any
newly created directorship resulting from any increase in the authorized
number of directors, shall, unless (i) the Board of Directors determines by
resolution that any such vacancies or newly created directorships shall be
filled by the stockholders, or (ii) as otherwise provided by law, be filled
only by the affirmative vote of a majority of the directors then in office,
although less than a quorum, or by a sole remaining director, and not by the
stockholders. Any director elected in accordance with the preceding sentence
shall hold office for the remainder of the full term of the director for
which the vacancy was created or occurred.
(D) Subject to the rights of the holders of any series of Preferred
Stock, any director or the entire Board of Directors may be removed, only
with cause, by the holders of at least a majority of the shares then entitled
to vote at an election of directors.
(E) Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, following
the closing of the corporation's initial public offering pursuant to an
effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of Common Stock to the public (the
"INITIAL PUBLIC OFFERING"), the directors shall be divided, with respect to
the time for which they severally hold office, into three classes designated
as Class I, Class II and Class III, respectively. Directors shall be
assigned to each class in accordance with a resolution or resolutions adopted
by the Board of Directors, with the number of directors in each class to be
divided as equally as possible. The term of office of the Class I directors
shall expire at the corporation's first annual
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meeting of stockholders following the closing of the Initial Public Offering,
the term of office of the Class II directors shall expire at the
corporation's second annual meeting of stockholders following the closing of
the Initial Public Offering, and the term of office of the Class III
directors shall expire at the corporation's third annual meeting of
stockholders following the closing of the Initial Public Offering. At each
annual meeting of stockholders commencing with the first annual meeting of
stockholders following the closing of the Initial Public Offering, directors
elected to succeed those directors of the class whose terms then expire shall
be elected for a term of office to expire at the third succeeding annual
meeting of stockholders after their election.
(F) Election of directors need not be by written ballot unless the
Bylaws of the corporation shall so provide.
(G) Following the closing of the Initial Public Offering, no action
shall be taken by the stockholders of the corporation except at an annual or
special meeting of stockholders called in accordance with the Bylaws of the
corporation, and no action shall be taken by the stockholders by written
consent.
(H) Advance notice of stockholder nominations for the election of
directors of the corporation and of business to be brought by stockholders
before any meeting of stockholders of the corporation shall be given in the
manner provided in the Bylaws of the corporation. Business transacted at
special meetings of stockholders shall be confined to the purpose or purposes
stated in the notice of meeting.
ARTICLE VII
To the fullest extent permitted by law, no director of the corporation
shall be personally liable for monetary damages for breach of fiduciary duty
as a director. Without limiting the effect of the preceding sentence, if the
Delaware General Corporation Law is hereafter amended to authorize the
further elimination or limitation of the liability of a director, then the
liability of a director of the corporation shall be eliminated or limited to
the fullest extent permitted by the Delaware General Corporation Law, as so
amended.
Neither any amendment nor repeal of this Article VII, nor the adoption
of any provision of this Certificate of Incorporation inconsistent with this
Article VII, shall eliminate, reduce or otherwise adversely affect any
limitation on the personal liability of a director of the corporation
existing at the time of such amendment, repeal or adoption of such an
inconsistent provision.
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Exhibit 3.2
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ADFORCE, INC.
AdForce, Inc., a Delaware corporation, hereby certifies that the Second
Amended and Restated Certificate of Incorporation of the corporation attached
hereto as EXHIBIT "A", which is incorporated herein by this reference, has been
duly adopted by the corporation's Board of Directors and stockholders in
accordance with Sections 242 and 245 of the Delaware General Corporation Law,
with the approval of the corporation's stockholders having been given by written
consent without a meeting in accordance with Section 228 of the Delaware General
Corporation Law.
IN WITNESS WHEREOF, said corporation has caused this Second Amended and
Restated Certificate of Incorporation to be signed by its by duly authorized
officer.
Dated: , 1999
-----------
ADFORCE, INC.
------------------------------------
Charles W. Berger, Chairman
<PAGE>
EXHIBIT "A"
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ADFORCE, INC.
ARTICLE I
The name of the corporation is AdForce, Inc.
ARTICLE II
The address of the registered office of the corporation in the State of
Delaware is 15 East North Street, City of Dover, County of Kent. The name of
its registered agent at that address is Incorporating Services, Ltd.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
ARTICLE IV
The total number of shares of all classes of stock which the corporation
has authority to issue is One Hundred Five Million (105,000,000) shares,
consisting of two classes: One Hundred Million (100,000,000) shares of Common
Stock, $0.001 par value per share, and Five Million (5,000,000) shares of
Preferred Stock, $0.001 par value per share.
The Board of Directors is authorized, subject to any limitations
prescribed by the law of the State of Delaware, to provide for the issuance
of the shares of Preferred Stock in one or more series, and, by filing a
Certificate of Designation pursuant to the applicable law of the State of
Delaware, to establish from time to time the number of shares to be included
in each such series, to fix the designation, powers, preferences and rights
of the shares of each such series and any qualifications, limitations or
restrictions thereof, and to increase or decrease the number of shares of any
such series (but not below the number of shares of such series then
outstanding). The number of authorized shares of Preferred Stock may also be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the
stock of the corporation entitled to vote, unless a vote of any other holders
is required pursuant to a Certificate or Certificates establishing a series
of Preferred Stock.
Except as otherwise expressly provided in any Certificate of Designation
designating any series of Preferred Stock pursuant to the foregoing provisions
of this Article IV, any new series
<PAGE>
of Preferred Stock may be designated, fixed and determined as provided herein
by the Board of Directors without approval of the holders of Common Stock or
the holders of Preferred Stock, or any series thereof, and any such new
series may have powers, preferences and rights, including, without
limitation, voting rights, dividend rights, liquidation rights, redemption
rights and conversion rights, senior to, junior to or pari passu with the
rights of the Common Stock, the Preferred Stock, or any future class or
series of Preferred Stock or Common Stock.
ARTICLE V
The Board of Directors of the corporation shall have the power to adopt,
amend or repeal the Bylaws of the corporation.
ARTICLE VI
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
(A) The conduct of the affairs of the corporation shall be managed under
the direction of its Board of Directors. The number of directors shall be fixed
from time to time exclusively by resolution of the Board of Directors.
(B) Notwithstanding the foregoing provision of this Article VI, each
director shall hold office until such director's successor is elected and
qualified, or until such director's earlier death, resignation or removal. No
decrease in the authorized number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
(C) Subject to the rights of the holders of any series of Preferred Stock,
any vacancy occurring in the Board of Directors for any cause, and any newly
created directorship resulting from any increase in the authorized number of
directors, shall, unless (i) the Board of Directors determines by resolution
that any such vacancies or newly created directorships shall be filled by the
stockholders, or (ii) as otherwise provided by law, be filled only by the
affirmative vote of a majority of the directors then in office, although less
than a quorum, or by a sole remaining director, and not by the stockholders.
Any director elected in accordance with the preceding sentence shall hold office
for the remainder of the full term of the director for which the vacancy was
created or occurred.
(D) Subject to the rights of the holders of any series of Preferred Stock,
any director or the entire Board of Directors may be removed, only with cause,
by the holders of a majority of the shares then entitled to vote at an election
of directors.
(E) Subject to the rights of the holders of any series of Preferred Stock
to elect additional directors under specified circumstances, following the
closing of the corporation's
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<PAGE>
initial public offering pursuant to an effective registration statement under
the Securities Act of 1933, as amended, covering the offer and sale of Common
Stock to the public (the "INITIAL PUBLIC OFFERING"), the directors shall be
divided, with respect to the time for which they severally hold office, into
three classes designated as Class I, Class II and Class III, respectively.
Directors shall be assigned to each class in accordance with a resolution or
resolutions adopted by the Board of Directors, with the number of directors
in each class to be divided as equally as possible. The term of office of the
Class I directors shall expire at the corporation's first annual meeting of
stockholders following the closing of the Initial Public Offering, the term
of office of the Class II directors shall expire at the corporation's second
annual meeting of stockholders following the closing of the Initial Public
Offering, and the term of office of the Class III directors shall expire at
the corporation's third annual meeting of stockholders following the closing
of the Initial Public Offering. At each annual meeting of stockholders
commencing with the first annual meeting of stockholders following the
closing of the Initial Public Offering, directors elected to succeed those
directors of the class whose terms then expire shall be elected for a term of
office to expire at the third succeeding annual meeting of stockholders after
their election.
(F) Election of directors need not be by written ballot unless the Bylaws
of the corporation shall so provide.
(G) Following the closing of the Initial Public Offering, no action shall
be taken by the stockholders of the corporation except at an annual or special
meeting of stockholders called in accordance with the Bylaws of the corporation,
and no action shall be taken by the stockholders by written consent.
(H) Advance notice of stockholder nominations for the election of
directors of the corporation and of business to be brought by stockholders
before any meeting of stockholders of the corporation shall be given in the
manner provided in the Bylaws of the corporation. Business transacted at
special meetings of stockholders shall be confined to the purpose or purposes
stated in the notice of meeting.
ARTICLE VII
To the fullest extent permitted by law, no director of the corporation
shall be personally liable for monetary damages for breach of fiduciary duty as
a director. Without limiting the effect of the preceding sentence, if the
Delaware General Corporation Law is hereafter amended to authorize the further
elimination or limitation of the liability of a director, then the liability of
a director of the corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
Neither any amendment nor repeal of this Article VII, nor the adoption of
any provision of this Certificate of Incorporation inconsistent with this
Article VII, shall eliminate, reduce or otherwise adversely affect any
limitation on the personal liability of a director of the corporation existing
at the time of such amendment, repeal or adoption of such an inconsistent
provision.
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<PAGE>
Exhibit 3.3
RESTATED BYLAWS
OF
ADFORCE, INC.
(A DELAWARE CORPORATION)
As Adopted February 18, 1999
<PAGE>
RESTATED BYLAWS
OF
ADFORCE, INC.
a Delaware corporation
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE I - STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1: Annual Meetings . . . . . . . . . . . . . . . . . . . 1
Section 1.2: Special Meetings. . . . . . . . . . . . . . . . . . . 1
Section 1.3: Notice of Meetings. . . . . . . . . . . . . . . . . . 1
Section 1.4: Adjournments. . . . . . . . . . . . . . . . . . . . . 1
Section 1.5: Quorum. . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.6: Organization. . . . . . . . . . . . . . . . . . . . . 2
Section 1.7: Voting; Proxies . . . . . . . . . . . . . . . . . . . 2
Section 1.8: Fixing Date for Determination of Stockholders
of Record . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.9: List of Stockholders Entitled to Vote . . . . . . . . 3
Section 1.10: Action by Written Consent of Stockholders . . . . . .. 3
Section 1.11: Inspectors of Elections . . . . . . . . . . . . . . . 4
Section 1.12: Notice of Stockholder Business; Nominations . . . . . 5
ARTICLE II - BOARD OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . 7
Section 2.1: Number; Qualifications. . . . . . . . . . . . . . . . 7
Section 2.2: Election; Resignation; Removal; Vacancies . . . . . . 7
Section 2.3: Regular Meetings. . . . . . . . . . . . . . . . . . . 8
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<PAGE>
RESTATED BYLAWS
OF
ADFORCE, INC.
a Delaware corporation
TABLE OF CONTENTS (CONT'D)
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Section 2.4: Special Meetings. . . . . . . . . . . . . . . . . . . 8
Section 2.5: Telephonic Meetings Permitted . . . . . . . . . . . . 8
Section 2.6: Quorum; Vote Required for Action. . . . . . . . . . . 9
Section 2.7: Organization. . . . . . . . . . . . . . . . . . . . . 9
Section 2.8: Written Action by Directors . . . . . . . . . . . . . 9
Section 2.9: Powers. . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.10: Compensation of Directors . . . . . . . . . . . . . . 9
ARTICLE III - COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.1: Committees. . . . . . . . . . . . . . . . . . . . . . 9
Section 3.2: Committee Rules . . . . . . . . . . . . . . . . . . . 10
ARTICLE IV - OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.1: Generally . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.2: Chief Executive Officer . . . . . . . . . . . . . . . 10
Section 4.3: Chairperson of the Board. . . . . . . . . . . . . . . 11
Section 4.4: President . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.5: Vice President. . . . . . . . . . . . . . . . . . . . 11
Section 4.6: Chief Financial Officer . . . . . . . . . . . . . . . 11
Section 4.7: Treasurer . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.8: Secretary . . . . . . . . . . . . . . . . . . . . . . 12
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<PAGE>
RESTATED BYLAWS
OF
ADFORCE, INC.
a Delaware corporation
TABLE OF CONTENTS (CONT'D)
<CAPTION>
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Section 4.9: Delegation of Authority . . . . . . . . . . . . . . . 12
Section 4.10: Removal . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE V - STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.l: Certificates. . . . . . . . . . . . . . . . . . . . . 12
Section 5.2: Lost, Stolen or Destroyed Stock Certificates;
Issuance of New Certificate . . . . . . . . . . . . . 12
Section 5.3: Other Regulations . . . . . . . . . . . . . . . . . . 12
ARTICLE VI - INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . 13
Section 6.1: Indemnification of Officers and Directors . . . . . . 13
Section 6.2: Advance of Expenses . . . . . . . . . . . . . . . . . 13
Section 6.3: Non-Exclusivity of Rights . . . . . . . . . . . . . . 13
Section 6.4: Indemnification Contracts . . . . . . . . . . . . . . 14
Section 6.5: Effect of Amendment . . . . . . . . . . . . . . . . . 14
ARTICLE VII - NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 7.l: Notice. . . . . . . . . . . . . . . . . . . . . . . . 14
Section 7.2: Waiver of Notice. . . . . . . . . . . . . . . . . . . 14
ARTICLE VIII - INTERESTED DIRECTORS. . . . . . . . . . . . . . . . . . . . 15
Section 8.1: Interested Directors; Quorum. . . . . . . . . . . . . 15
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RESTATED BYLAWS
OF
ADFORCE, INC.
a Delaware corporation
TABLE OF CONTENTS (CONT'D)
<CAPTION>
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ARTICLE IX - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 9.1: Fiscal Year . . . . . . . . . . . . . . . . . . . . . 15
Section 9.2: Seal. . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 9.3: Form of Records . . . . . . . . . . . . . . . . . . . 15
Section 9.4: Reliance Upon Books and Records . . . . . . . . . . . 15
Section 9.5: Certificate of Incorporation Governs. . . . . . . . . 16
Section 9.6: Severability. . . . . . . . . . . . . . . . . . . . . 16
ARTICLE X - AMENDMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 10.1: Amendments. . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
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<PAGE>
RESTATED BYLAWS
OF
ADFORCE, INC.
(a Delaware corporation)
As Adopted February 18, 1999
ARTICLE I
STOCKHOLDERS
SECTION 1.1: ANNUAL MEETINGS. An annual meeting of stockholders
shall be held for the election of directors at such date, time and place,
either within or without the State of Delaware, as the Board of Directors
shall each year fix. Any other proper business may be transacted at the
annual meeting.
SECTION 1.2: SPECIAL MEETINGS. Special meetings of stockholders for
any purpose or purposes may be called at any time by the Board of Directors,
and shall be called upon the request of the Chairperson of the Board of
Directors, the Chief Executive Officer, the President or by a majority of the
members of the Board of Directors. Special meetings may not be called by any
other person or persons. If a special meeting of stockholders is called at
the request of any person or persons OTHER THAN by a majority of the members
of the Board of Directors, then such person or persons shall request such
meeting by delivering a written request to call such meeting to each member
of the Board of Directors, and the Board of Directors shall then determine
the time, date and place of such special meeting, which shall be held not
more than one hundred twenty (120) nor less than thirty-five (35) days after
the written request to call such special meeting was delivered to each member
of the Board of Directors.
SECTION 1.3: NOTICE OF MEETINGS. Written notice of all meetings of
stockholders shall be given stating the place, date and time of the meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called. Unless otherwise required by applicable law or the
Certificate of Incorporation of the Corporation, such notice shall be given
not less than ten (10) nor more than sixty (60) days before the date of the
meeting to each stockholder of record entitled to vote at such meeting.
SECTION 1.4: ADJOURNMENTS. Any meeting of stockholders may adjourn
from time to time to reconvene at the same or another place, and notice need
not be given of any such adjourned meeting if the time, date and place
thereof are announced at the meeting at which the adjournment is taken;
PROVIDED, HOWEVER, that if the adjournment is for more than thirty (30) days,
or if after the adjournment a new record date is fixed for the adjourned
meeting, then a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at
<PAGE>
the meeting. At the adjourned meeting the Corporation may transact any
business that might have been transacted at the original meeting.
SECTION 1.5: QUORUM. At each meeting of stockholders the holders of
a majority of the shares of stock entitled to vote at the meeting, present in
person or represented by proxy, shall constitute a quorum for the transaction
of business, except if otherwise required by applicable law. If a quorum
shall fail to attend any meeting, the chairperson of the meeting or the
holders of a majority of the shares entitled to vote who are present, in
person or by proxy, at the meeting may adjourn the meeting. Shares of the
Corporation's stock belonging to the Corporation (or to another corporation,
if a majority of the shares entitled to vote in the election of directors of
such other corporation are held, directly or indirectly, by the Corporation),
shall neither be entitled to vote nor be counted for quorum purposes;
PROVIDED, HOWEVER, that the foregoing shall not limit the right of the
Corporation or any other corporation to vote any shares of the Corporation's
stock held by it in a fiduciary capacity.
SECTION 1.6: ORGANIZATION. Meetings of stockholders shall be
presided over by such person as the Board of Directors may designate, or, in
the absence of such a person, the Chairperson of the Board of Directors, or,
in the absence of such person, the President of the Corporation, or, in the
absence of such person, such person as may be chosen by the holders of a
majority of the shares entitled to vote who are present, in person or by
proxy, at the meeting. Such person shall be chairperson of the meeting and,
subject to Section 1.11 hereof, shall determine the order of business and the
procedure at the meeting, including such regulation of the manner of voting
and the conduct of discussion as seems to him or her to be in order. The
Secretary of the Corporation shall act as secretary of the meeting, but in
such person's absence the chairperson of the meeting may appoint any person
to act as secretary of the meeting.
SECTION 1.7: VOTING; PROXIES. Unless otherwise provided by law or
the Certificate of Incorporation, and subject to the provisions of Section
1.8 of these Bylaws, each stockholder shall be entitled to one (1) vote for
each share of stock held by such stockholder. Each stockholder entitled to
vote at a meeting of stockholders, or to express consent or dissent to
corporate action in writing without a meeting, may authorize another person
or persons to act for such stockholder by proxy. Such a proxy may be
prepared, transmitted and delivered in any manner permitted by applicable
law. Voting at meetings of stockholders need not be by written ballot unless
such is demanded at the meeting before voting begins by a stockholder or
stockholders holding shares representing at least one percent (1%) of the
votes entitled to vote at such meeting, or by such stockholder's or
stockholders' proxy; PROVIDED, HOWEVER, that an election of directors shall
be by written ballot if demand is so made by any stockholder at the meeting
before voting begins. If a vote is to be taken by written ballot, then each
such ballot shall state the name of the stockholder or proxy voting and such
other information as the chairperson of the meeting deems appropriate.
Directors shall be elected by a plurality of the votes of the shares present
in person or represented by proxy at the meeting and entitled to vote on the
election of directors. Unless otherwise provided by applicable law, the
Certificate of Incorporation or these Bylaws, every matter other than the
election of directors shall be decided by the affirmative vote of the holders
of a majority of the shares of stock entitled to vote thereon
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that are present in person or represented by proxy at the meeting and are
voted for or against the matter.
SECTION 1.8: FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD.
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment
thereof, or to express consent to corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of
any change, conversion or exchange of stock or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date,
which shall not precede the date upon which the resolution fixing the record
date is adopted by the Board of Directors and which shall not be more than
sixty (60) nor less than ten (10) days before the date of such meeting, nor
more than sixty (60) days prior to any other action. If no record date is
fixed by the Board of Directors, then the record date shall be as provided by
applicable law. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; PROVIDED, HOWEVER, that the Board of Directors may fix a new
record date for the adjourned meeting.
SECTION 1.9: LIST OF STOCKHOLDERS ENTITLED TO VOTE. A complete list
of stockholders entitled to vote at any meeting of stockholders, arranged in
alphabetical order and showing the address of each stockholder and the number
of shares registered in the name of each stockholder, shall be open to the
examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior
to the meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting during the
whole time thereof and may be inspected by any stockholder who is present at
the meeting.
SECTION 1.10: ACTION BY WRITTEN CONSENT OF STOCKHOLDERS.
(a) PROCEDURE. Unless otherwise provided by the Certificate of
Incorporation, any action required or permitted to be taken at any annual or
special meeting of the stockholders may be taken without a meeting, without
prior notice and without a vote, if a consent or consents in writing, setting
forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Written stockholder consents shall bear
the date of signature of each stockholder who signs the consent and shall be
delivered to the Corporation by delivery to its registered office in the
State of Delaware, to its principal place of business or to any officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. No written consent shall be effective to take the action
set forth therein unless, within sixty (60) days of the earliest dated
consent delivered to the Corporation in the manner provided above, written
consents signed by a sufficient number of stockholders to take the action set
forth therein are delivered to the Corporation in the manner provided above.
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(b) NOTICE OF CONSENT. Prompt notice of the taking of corporate
action by stockholders without a meeting by less than unanimous written
consent of the stockholders shall be given to those stockholders who have not
consented thereto in writing and who, if the action had been taken at a
meeting, would have been entitled to notice of the meeting if the record date
for such meeting had been the date that written consents signed by a
sufficient number of holders to take the action were delivered to the
Corporation. In the case of a Certificate Action (as defined below), if the
Delaware General Corporation Law so requires, such notice shall be given
prior to filing of the certificate in question. If the action which is
consented to requires the filing of a certificate under the Delaware General
Corporation Law (a "CERTIFICATE ACTION"), then if the Delaware General
Corporation Law so requires, the certificate so filed shall state that
written stockholder consent has been given in accordance with Section 228 of
the Delaware General Corporation Law and that written notice of the taking of
corporate action by stockholders without a meeting as described herein has
been given as provided in such section.
SECTION 1.11: INSPECTORS OF ELECTIONS.
(a) APPLICABILITY. Unless otherwise provided in the Corporation's
Certificate of Incorporation or required by the Delaware General Corporation
Law, the following provisions of this Section 1.11 shall apply only if and
when the Corporation has a class of voting stock that is: (i) listed on a
national securities exchange; (ii) authorized for quotation on an automated
interdealer quotation system of a registered national securities association;
or (iii) held of record by more than 2,000 stockholders; in all other cases,
observance of the provisions of this Section 1.11 shall be optional, and at
the discretion of the Corporation.
(b) APPOINTMENT. The Corporation shall, in advance of any meeting
of stockholders, appoint one or more inspectors of election to act at the
meeting and make a written report thereof. The Corporation may designate one
or more persons as alternate inspectors to replace any inspector who fails to
act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting shall appoint one or more
inspectors to act at the meeting.
(c) INSPECTOR'S OATH. Each inspector of election, before entering
upon the discharge of his duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of such inspector's ability.
(d) DUTIES OF INSPECTORS. At a meeting of stockholders, the
inspectors of election shall (i) ascertain the number of shares outstanding
and the voting power of each share, (ii) determine the shares represented at
a meeting and the validity of proxies and ballots, (iii) count all votes and
ballots, (iv) determine and retain for a reasonable period of time a record
of the disposition of any challenges made to any determination by the
inspectors, and (v) certify their determination of the number of shares
represented at the meeting, and their count of all votes and ballots. The
inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of the duties of the inspectors.
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(e) OPENING AND CLOSING OF POLLS. The date and time of the opening
and the closing of the polls for each matter upon which the stockholders will
vote at a meeting shall be announced by the chairperson of the meeting. No
ballot, proxies or votes, nor any revocations thereof or changes thereto,
shall be accepted by the inspectors after the closing of the polls unless the
Court of Chancery upon application by a stockholder shall determine otherwise.
(f) DETERMINATIONS. In determining the validity and counting of
proxies and ballots, the inspectors shall be limited to an examination of the
proxies, any envelopes submitted with those proxies, any information provided
in connection with proxies in accordance with Section 212(c)(2) of the
Delaware General Corporation Law, ballots and the regular books and records
of the Corporation, except that the inspectors may consider other reliable
information for the limited purpose of reconciling proxies and ballots
submitted by or on behalf of banks, brokers, their nominees or similar
persons which represent more votes than the holder of a proxy is authorized
by the record owner to cast or more votes than the stockholder holds of
record. If the inspectors consider other reliable information for the
limited purpose permitted herein, the inspectors at the time they make their
certification of their determinations pursuant to this Section 1.11 shall
specify the precise information considered by them, including the person or
persons from whom they obtained the information, when the information was
obtained, the means by which the information was obtained and the basis for
the inspectors' belief that such information is accurate and reliable.
SECTION 1.12: NOTICE OF STOCKHOLDER BUSINESS; NOMINATIONS.
(a) ANNUAL MEETING OF STOCKHOLDERS.
(i) Nominations of persons for election to the Board of
Directors and the proposal of business to be considered by the stockholders
shall be made at an annual meeting of stockholders (A) pursuant to the
Corporation's notice of such meeting, (B) by or at the direction of the Board
of Directors or (C) by any stockholder of the Corporation who was a
stockholder of record at the time of giving of the notice provided for in
this Section 1.12, who is entitled to vote at such meeting and who complies
with the notice procedures set forth in this Section 1.12.
(ii) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (C) of
subparagraph (a)(i) of this Section 1.12, the stockholder must have given
timely notice thereof in writing to the Secretary of the Corporation and such
other business must otherwise be a proper matter for stockholder action. To
be timely, a stockholder's notice must be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the sixtieth (60th) day nor earlier than the close of business on
the ninetieth (90th) day prior to the first anniversary of the preceding
year's annual meeting (except in the case of the 1999 annual meeting, for
which such notice shall be timely if delivered in the same time period as if
such meeting were a special meeting governed by subparagraph (b) of this
Section 1.12); PROVIDED, HOWEVER, that in the event that the date of the
annual meeting is more than thirty (30) days before or more than sixty (60)
days after such anniversary date, notice by the stockholder to be timely must
be so delivered not earlier than the close of business on the ninetieth
(90th) day prior to such annual meeting and not later than the
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close of business on the later of the sixtieth (60th) day prior to such
annual meeting or the close of business on the tenth (10th) day following the
day on which public announcement of the date of such meeting is first made by
the Corporation. Such stockholder's notice shall set forth: (a) as to each
person whom the stockholder proposes to nominate for election or reelection
as a director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is
otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), including
such person's written consent to being named in the proxy statement as a
nominee and to serving as a director if elected; (b) as to any other business
that the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest
in such business of such stockholder and the beneficial owner, if any, on
whose behalf the proposal is made; and (c) as to the stockholder giving the
notice and the beneficial owner, if any, on whose behalf the nomination or
proposal is made (1) the name and address of such stockholder, as they appear
on the Corporation's books, and of such beneficial owner, and (2) the class
and number of shares of the Corporation that are owned beneficially and held
of record by such stockholder and such beneficial owner.
(iii) Notwithstanding anything in the second sentence of
subparagraph (a)(ii) of this Section 1.12 to the contrary, in the event that
the number of directors to be elected to the Board of Directors of the
Corporation is increased and there is no public announcement by the
Corporation naming all of the nominees for director or specifying the size of
the increased board of directors at least seventy (70) days prior to the
first anniversary of the preceding year's annual meeting (or, if the annual
meeting is held more than thirty (30) days before or sixty (60) days after
such anniversary date, at least seventy (70) days prior to such annual
meeting), a stockholder's notice required by this Section 1.12 shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary of the
Corporation at the principal executive office of the Corporation not later
than the close of business on the tenth (10th) day following the day on which
such public announcement is first made by the Corporation.
(b) SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the Corporation's notice of such meeting.
Nominations of persons for election to the Board of Directors may be made at
a special meeting of stockholders at which directors are to be elected
pursuant to the Corporation's notice of such meeting (i) by or at the
direction of the Board of Directors or (ii) provided that the Board of
Directors has determined that directors shall be elected at such meeting, by
any stockholder of the Corporation who is a stockholder of record at the time
of giving of notice of the special meeting, who shall be entitled to vote at
the meeting and who complies with the notice procedures set forth in this
Section 1.12. In the event the Corporation calls a special meeting of
stockholders for the purpose of electing one or more directors to the Board
of Directors, any such stockholder may nominate a person or persons (as the
case may be), for election to such position(s) as specified in the
Corporation's notice of meeting, if the stockholder's notice required by
subparagraph (a)(ii) of this Section 1.12 shall be delivered to the Secretary
of the Corporation at the principal executive offices of the Corporation
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<PAGE>
not earlier than the ninetieth (90th) day prior to such special meeting and
not later than the close of business on the later of the sixtieth (60th) day
prior to such special meeting or the tenth (10th) day following the day on
which public announcement is first made of the date of the special meeting
and of the nominees proposed by the Board of Directors to be elected at such
meeting.
(c) GENERAL.
(i) Only such persons who are nominated in accordance with
the procedures set forth in this Section 1.12 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section 1.12. Except as otherwise provided
by law or these Bylaws, the chairperson of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in this Section 1.12 and, if any
proposed nomination or business is not in compliance herewith, to declare
that such defective proposal or nomination shall be disregarded.
(ii) For purposes of this Section 1.12, the term "PUBLIC
ANNOUNCEMENT" shall mean disclosure in a press release reported by the Dow
Jones News Service, Associated Press or comparable national news service or
in a document publicly filed by the Corporation with the Securities and
Exchange Commission pursuant to section 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section
1.12, a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth herein. Nothing in this Section 1.12 shall be deemed to
affect any rights of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.1: NUMBER; QUALIFICATIONS. The Board of Directors shall
consist of one or more members. The initial number of directors shall be
seven (7), and thereafter shall be fixed from time to time by resolution of
the Board of Directors. No decrease in the authorized number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director. Directors need not be stockholders of the Corporation.
SECTION 2.2: ELECTION; RESIGNATION; REMOVAL; VACANCIES. Subject to
the rights of the holders of any series of Preferred Stock to elect
additional directors under specified circumstances, following the closing of
the corporation's initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
the offer and sale of Common Stock to the public (the "INITIAL PUBLIC
OFFERING"), the directors shall be divided, with respect to the time for
which they severally hold office, into three classes designated as Class I,
Class II and Class III, respectively. Directors shall be assigned to each
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class in accordance with a resolution or resolutions adopted by the Board of
Directors, with the number of directors in each class to be divided as
equally as possible. The term of office of the Class I directors shall
expire at the corporation's first annual meeting of stockholders following
the closing of the Initial Public Offering, the term of office of the Class
II directors shall expire at the corporation's second annual meeting of
stockholders following the closing of the Initial Public Offering, and the
term of office of the Class III directors shall expire at the corporation's
third annual meeting of stockholders following the closing of the Initial
Public Offering. At each annual meeting of stockholders commencing with the
first annual meeting of stockholders following the closing of the Initial
Public Offering, directors elected to succeed those directors of the class
whose terms then expire shall be elected for a term of office to expire at
the third succeeding annual meeting of stockholders after their election.
Prior to the closing of the Initial Public Offering, each director shall hold
office until the next annual meeting of stockholders and until such
director's successor is elected and qualified, or until such director's
earlier death, resignation or removal. Any director may resign at any time
upon written notice to the Corporation. Subject to the rights of the holders
of any series of Preferred Stock, any vacancy occurring in the Board of
Directors for any cause, and any newly created directorship resulting from
any increase in the authorized number of directors, shall, unless (i) the
Board of Directors determines by resolution that any such vacancies or newly
created directorships shall be filled by the stockholders, or (ii) as
otherwise provided by law, be filled only by the affirmative vote of a
majority of the directors then in office, although less than a quorum, or by
a sole remaining director, and not by the stockholders. Any director elected
in accordance with the preceding sentence shall hold office for the remainder
of the full term of the director for which the vacancy was created or
occurred. Subject to the rights of any holders of Preferred Stock, any
director or the entire Board of Directors may be removed, only with cause, by
the holders of a majority of the shares then entitled to vote at an election
of directors.
SECTION 2.3: REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held at such places, within or without the State of
Delaware, and at such times as the Board of Directors may from time to time
determine. Notice of regular meetings need not be given if the date, times
and places thereof are fixed by resolution of the Board of Directors.
SECTION 2.4: SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairperson of the Board of Directors, the
President or a majority of the members of the Board of Directors then in
office and may be held at any time, date or place, within or without the
State of Delaware, as the person or persons calling the meeting shall fix.
Notice of the time, date and place of such meeting shall be given, orally or
in writing, by the person or persons calling the meeting to all directors at
least four (4) days before the meeting if the notice is mailed, or at least
twenty-four (24) hours before the meeting if such notice is given by
telephone, hand delivery, telegram, telex, mailgram, facsimile or similar
communication method. Unless otherwise indicated in the notice, any and all
business may be transacted at a special meeting.
SECTION 2.5: TELEPHONIC MEETINGS PERMITTED. Members of the Board of
Directors, or any committee of the Board, may participate in a meeting of the
Board or such committee by means of conference telephone or similar
communications equipment by means of which all
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persons participating in the meeting can hear each other, and participation
in a meeting pursuant to conference telephone or similar communications
equipment shall constitute presence in person at such meeting.
SECTION 2.6: QUORUM; VOTE REQUIRED FOR ACTION. At all meetings of
the Board of Directors a majority of the total number of authorized directors
shall constitute a quorum for the transaction of business. Except as
otherwise provided herein or in the Certificate of Incorporation, or required
by law, the vote of a majority of the directors present at a meeting at which
a quorum is present shall be the act of the Board of Directors.
SECTION 2.7: ORGANIZATION. Meetings of the Board of Directors shall
be presided over by the Chairperson of the Board of Directors, or in such
person's absence by the President, or in such person's absence by a
chairperson chosen at the meeting. The Secretary shall act as secretary of
the meeting, but in such person's absence the chairperson of the meeting may
appoint any person to act as secretary of the meeting.
SECTION 2.8: WRITTEN ACTION BY DIRECTORS. Any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board
or such committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board or
committee, respectively.
SECTION 2.9: POWERS. The Board of Directors may, except as otherwise
required by law or the Certificate of Incorporation, exercise all such powers
and do all such acts and things as may be exercised or done by the
Corporation.
SECTION 2.10: COMPENSATION OF DIRECTORS. Directors, as such, may
receive, pursuant to a resolution of the Board of Directors, fees and other
compensation for their services as directors, including without limitation
their services as members of committees of the Board of Directors.
ARTICLE III
COMMITTEES
SECTION 3.1: COMMITTEES. The Board of Directors may designate one or
more committees, each committee to consist of one or more of the directors of
the Corporation. The Board of Directors may designate one or more directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of the committee, the member or members thereof
present at any meeting of such committee who are not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such
committee, to the extent provided in a resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation
and may authorize the seal of the Corporation to be
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affixed to all papers that may require it; but no such committee shall have
the power or authority in reference to the following matters: (i) approving
or adopting, or recommending to the stockholders, any action or matter
expressly required by the Delaware General Corporation Law to be submitted to
stockholders for approval or (ii) adopting, amending or repealing any bylaw
of the Corporation.
SECTION 3.2: COMMITTEE RULES. Unless the Board of Directors
otherwise provides, each committee designated by the Board of Directors may
make, alter and repeal rules for the conduct of its business. In the absence
of such rules each committee shall conduct its business in the same manner as
the Board of Directors conducts its business pursuant to Article II of these
Bylaws.
ARTICLE IV
OFFICERS
SECTION 4.1: GENERALLY. The officers of the Corporation shall
consist of a Chief Executive Officer and/or a President, one or more Vice
Presidents, a Secretary, a Treasurer and such other officers, including a
Chairperson of the Board of Directors and/or Chief Financial Officer, as may
from time to time be appointed by the Board of Directors. All officers shall
be elected by the Board of Directors; PROVIDED, HOWEVER, that the Board of
Directors may empower the Chief Executive Officer of the Corporation to
appoint officers other than the Chairperson of the Board, the Chief Executive
Officer, the President, the Chief Financial Officer or the Treasurer. Each
officer shall hold office until such person's successor is elected and
qualified or until such person's earlier resignation or removal. Any number
of offices may be held by the same person. Any officer may resign at any time
upon written notice to the Corporation. Any vacancy occurring in any office
of the Corporation by death, resignation, removal or otherwise may be filled
by the Board of Directors.
SECTION 4.2: CHIEF EXECUTIVE OFFICER. Subject to the control of the
Board of Directors and such supervisory powers, if any, as may be given by
the Board of Directors, the powers and duties of the Chief Executive Officer
of the Corporation are:
(a) To act as the general manager and, subject to the control of
the Board of Directors, to have general supervision, direction and control of
the business and affairs of the Corporation;
(b) To preside at all meetings of the stockholders;
(c) To call meetings of the stockholders to be held at such times
and, subject to the limitations prescribed by law or by these Bylaws, at such
places as he or she shall deem proper; and
(d) To affix the signature of the Corporation to all deeds,
conveyances, mortgages, guarantees, leases, obligations, bonds, certificates
and other papers and instruments in writing which have been authorized by the
Board of Directors or which, in the judgment of the Chief Executive Officer,
should be executed on behalf of the Corporation; to sign certificates for
shares
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of stock of the Corporation; and, subject to the direction of the Board of
Directors, to have general charge of the property of the Corporation and to
supervise and control all officers, agents and employees of the Corporation.
The President shall be the Chief Executive Officer of the Corporation unless
the Board of Directors shall designate another officer to be the Chief
Executive Officer. If there is no President, and the Board of Directors has
not designated any other officer to be the Chief Executive Officer, then the
Chairperson of the Board of Directors shall be the Chief Executive Officer.
SECTION 4.3: CHAIRPERSON OF THE BOARD. The Chairperson of the Board
of Directors shall have the power to preside at all meetings of the Board of
Directors and shall have such other powers and duties as provided in these
Bylaws and as the Board of Directors may from time to time prescribe.
SECTION 4.4: PRESIDENT. The President shall be the Chief Executive
Officer of the Corporation unless the Board of Directors shall have
designated another officer as the Chief Executive Officer of the Corporation.
Subject to the provisions of these Bylaws and to the direction of the Board
of Directors, and subject to the supervisory powers of the Chief Executive
Officer (if the Chief Executive Officer is an officer other than the
President), and subject to such supervisory powers and authority as may be
given by the Board of Directors to the Chairperson of the Board of Directors,
and/or to any other officer, the President shall have the responsibility for
the general management the control of the business and affairs of the
Corporation and the general supervision and direction of all of the officers,
employees and agents of the Corporation (other than the Chief Executive
Officer, if the Chief Executive Officer is an officer other than the
President) and shall perform all duties and have all powers that are commonly
incident to the office of President or that are delegated to the President by
the Board of Directors.
SECTION 4.5: VICE PRESIDENT. Each Vice President shall have all such
powers and duties as are commonly incident to the office of Vice President,
or that are delegated to him or her by the Board of Directors or the Chief
Executive Officer. A Vice President may be designated by the Board to
perform the duties and exercise the powers of the Chief Executive Officer in
the event of the Chief Executive Officer's absence or disability.
SECTION 4.6: CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall be the Treasurer of the Corporation unless the Board of Directors shall
have designated another officer as the Treasurer of the Corporation. Subject
to the direction of the Board of Directors and the Chief Executive Officer,
the Chief Financial Officer shall perform all duties and have all powers that
are commonly incident to the office of Chief Financial Officer.
SECTION 4.7: TREASURER. The Treasurer shall have custody of all
monies and securities of the Corporation. The Treasurer shall make such
disbursements of the funds of the Corporation as are authorized and shall
render from time to time an account of all such transactions. The Treasurer
shall also perform such other duties and have such other powers as are
commonly
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incident to the office of Treasurer, or as the Board of Directors or the
Chief Executive Officer may from time to time prescribe.
SECTION 4.8: SECRETARY. The Secretary shall issue or cause to be
issued all authorized notices for, and shall keep, or cause to be kept,
minutes of all meetings of the stockholders and the Board of Directors. The
Secretary shall have charge of the corporate minute books and similar records
and shall perform such other duties and have such other powers as are
commonly incident to the office of Secretary, or as the Board of Directors or
the Chief Executive Officer may from time to time prescribe.
SECTION 4.9: DELEGATION OF AUTHORITY. The Board of Directors may
from time to time delegate the powers or duties of any officer to any other
officers or agents, notwithstanding any provision hereof.
SECTION 4.10: REMOVAL. Any officer of the Corporation shall serve at
the pleasure of the Board of Directors and may be removed at any time, with
or without cause, by the Board of Directors. Such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
Corporation.
ARTICLE V
STOCK
SECTION 5.1: CERTIFICATES. Every holder of stock shall be entitled
to have a certificate signed by or in the name of the Corporation by the
Chairperson or Vice-Chairperson of the Board of Directors, or the President
or a Vice President, and by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary, of the Corporation, certifying the
number of shares owned by such stockholder in the Corporation. Any or all of
the signatures on the certificate may be a facsimile.
SECTION 5.2: LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE
OF NEW CERTIFICATES. The Corporation may issue a new certificate of stock in
the place of any certificate previously issued by it, alleged to have been
lost, stolen or destroyed, and the Corporation may require the owner of the
lost, stolen or destroyed certificate, or such owner's legal representative,
to agree to indemnify the Corporation and/or to give the Corporation a bond
sufficient to indemnify it, against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or
the issuance of such new certificate.
SECTION 5.3: OTHER REGULATIONS. The issue, transfer, conversion and
registration of stock certificates shall be governed by such other
regulations as the Board of Directors may establish.
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ARTICLE VI
INDEMNIFICATION
SECTION 6.1 INDEMNIFICATION OF OFFICERS AND DIRECTORS. Each person
who was or is made a party to, or is threatened to be made a party to, or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "PROCEEDING"), by reason of the fact that
such person (or a person of whom such person is the legal representative), is
or was a director or officer of the Corporation or a Reincorporated
Predecessor (as defined below) or is or was serving at the request of the
Corporation or a Reincorporated Predecessor (as defined below) as a director
or officer of another corporation, or of a partnership, joint venture, trust
or other enterprise, including service with respect to employee benefit
plans, shall be indemnified and held harmless by the Corporation to the
fullest extent permitted by the Delaware General Corporation Law, against all
expenses, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes and penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in connection
therewith, provided such person acted in good faith and in a manner which the
person reasonably believed to be in or not opposed to the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe the person's conduct was unlawful. Such
indemnification shall continue as to a person who has ceased to be a director
or officer and shall inure to the benefit of such person's heirs, executors
and administrators. Notwithstanding the foregoing, the Corporation shall
indemnify any such person seeking indemnity in connection with a Proceeding
(or part thereof) initiated by such person only if such Proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation. As
used herein, the term "REINCORPORATED PREDECESSOR" means a corporation that
is merged with and into the Corporation in a statutory merger where (a) the
Corporation is the surviving corporation of such merger; (b) the primary
purpose of such merger is to change the corporate domicile of the
Reincorporated Predecessor to Delaware.
SECTION 6.2: ADVANCE OF EXPENSES. The Corporation shall pay all
expenses (including attorneys' fees) incurred by such a director or officer
in defending any such Proceeding as they are incurred in advance of its final
disposition; PROVIDED, HOWEVER, that if the Delaware General Corporation Law
then so requires, the payment of such expenses incurred by such a director or
officer in advance of the final disposition of such Proceeding shall be made
only upon delivery to the Corporation of an undertaking, by or on behalf of
such director or officer, to repay all amounts so advanced if it should be
determined ultimately that such director or officer is not entitled to be
indemnified under this Article VI or otherwise; and PROVIDED, FURTHER, that
the Corporation shall not be required to advance any expenses to a person
against whom the Corporation directly brings a claim, in a Proceeding,
alleging that such person has breached such person's duty of loyalty to the
Corporation, committed an act or omission not in good faith or that involves
intentional misconduct or a knowing violation of law, or derived an improper
personal benefit from a transaction.
SECTION 6.3: NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any
person in this Article VI shall not be exclusive of any other right that such
person may have or hereafter
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acquire under any statute, provision of the Certificate of Incorporation,
Bylaw, agreement, vote or consent of stockholders or disinterested directors,
or otherwise. Additionally, nothing in this Article VI shall limit the
ability of the Corporation, in its discretion, to indemnify or advance
expenses to persons whom the Corporation is not obligated to indemnify or
advance expenses pursuant to this Article VI.
SECTION 6.4: INDEMNIFICATION CONTRACTS. The Board of Directors is
authorized to cause the Corporation to enter into indemnification contracts
with any director, officer, employee or agent of the Corporation, or any
person serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise, including employee benefit plans, providing
indemnification rights to such person. Such rights may be greater than those
provided in this Article VI.
SECTION 6.5: EFFECT OF AMENDMENT. Any amendment, repeal or
modification of any provision of this Article VI shall be prospective only,
and shall not adversely affect any right or protection conferred on a person
pursuant to this Article VI and existing at the time of such amendment,
repeal or modification.
ARTICLE VII
NOTICES
SECTION 7.1: NOTICE. Except as otherwise specifically provided
herein or required by law, all notices required to be given pursuant to these
Bylaws shall be in writing and may in every instance be effectively given by
hand delivery (including use of a delivery service), by depositing such
notice in the mail, postage prepaid, or by sending such notice by prepaid
telegram, telex, overnight express courier, mailgram or facsimile. Any such
notice shall be addressed to the person to whom notice is to be given at such
person's address as it appears on the records of the Corporation. The notice
shall be deemed given (i) in the case of hand delivery, when received by the
person to whom notice is to be given or by any person accepting such notice
on behalf of such person, (ii) in the case of delivery by mail, upon deposit
in the mail, (iii) in the case of delivery by overnight express courier, when
dispatched, and (iv) in the case of delivery via telegram, telex, mailgram or
facsimile, when dispatched.
SECTION 7.2: WAIVER OF NOTICE. Whenever notice is required to be
given under any provision of these Bylaws, a written waiver of notice, signed
by the person entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting at the
beginning of the meeting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors or members of a committee of directors need be
specified in any written waiver of notice.
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ARTICLE VIII
INTERESTED DIRECTORS
SECTION 8.1: INTERESTED DIRECTORS; QUORUM. No contract or
transaction between the Corporation and one or more of its directors or
officers, or between the Corporation and any other corporation, partnership,
association or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be
void or voidable solely for this reason, or solely because the director or
officer is present at or participates in the meeting of the Board of
Directors or committee thereof that authorizes the contract or transaction,
or solely because his, her or their votes are counted for such purpose, if:
(i) the material facts as to his, her or their relationship or interest and
as to the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board of Directors or committee in good
faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; (ii) the material facts as to his, her or
their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the
Corporation as of the time it is authorized, approved or ratified by the
Board of Directors, a committee thereof, or the stockholders. Interested
directors may be counted in determining the presence of a quorum at a meeting
of the Board of Directors or of a committee which authorizes the contract or
transaction.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1: FISCAL YEAR. The fiscal year of the Corporation shall
be determined by resolution of the Board of Directors.
SECTION 9.2: SEAL. The Board of Directors may provide for a
corporate seal, which shall have the name of the Corporation inscribed
thereon and shall otherwise be in such form as may be approved from time to
time by the Board of Directors.
SECTION 9.3: FORM OF RECORDS. Any records maintained by the
Corporation in the regular course of its business, including its stock
ledger, books of account and minute books, may be kept on, or be in the form
of, magnetic tape, diskettes, photographs, microphotographs or any other
information storage device, provided that the records so kept can be
converted into clearly legible form within a reasonable time. The
Corporation shall so convert any records so kept upon the request of any
person entitled to inspect the same.
SECTION 9.4: RELIANCE UPON BOOKS AND RECORDS. A member of the Board
of Directors, or a member of any committee designated by the Board of
Directors shall, in the performance of such person's duties, be fully
protected in relying in good faith upon records of the Corporation and upon
such information, opinions, reports or statements presented to the
Corporation by any
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of the Corporation's officers or employees, or committees of the Board of
Directors, or by any other person as to matters the member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
SECTION 9.5: CERTIFICATE OF INCORPORATION GOVERNS. In the event of
any conflict between the provisions of the Corporation's Certificate of
Incorporation and Bylaws, the provisions of the Certificate of Incorporation
shall govern.
SECTION 9.6: SEVERABILITY. If any provision of these Bylaws shall be
held to be invalid, illegal, unenforceable or in conflict with the provisions
of the Corporation's Certificate of Incorporation, then such provision shall
nonetheless be enforced to the maximum extent possible consistent with such
holding and the remaining provisions of these Bylaws (including without
limitation, all portions of any section of these Bylaws containing any such
provision held to be invalid, illegal, unenforceable or in conflict with the
Certificate of Incorporation, that are not themselves invalid, illegal,
unenforceable or in conflict with the Certificate of Incorporation) shall
remain in full force and effect.
ARTICLE X
AMENDMENT
SECTION 10.1: AMENDMENTS. Stockholders of the Corporation holding a
majority of the Corporation's outstanding voting stock then entitled to vote
at an election of directors shall have the power to adopt, amend or repeal
Bylaws. To the extent provided in the Corporation's Certificate of
Incorporation, the Board of Directors of the Corporation shall also have the
power to adopt, amend or repeal Bylaws of the Corporation.
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CERTIFICATION OF RESTATED BYLAWS
OF
ADFORCE, INC.
(A DELAWARE CORPORATION)
KNOW ALL BY THESE PRESENTS:
I, Rex S. Jackson, certify that I am Secretary of AdForce, Inc., a
Delaware corporation (the "COMPANY"), that I am duly authorized to make and
deliver this certification, that the attached Bylaws are a true and correct
copy of the Restated Bylaws of the Company in effect as of the date of this
certificate.
Dated: March __, 1999
______________________________
Rex S. Jackson, Secretary
<PAGE>
Exhibit 4.2
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (this
"Agreement") is made as of the 15th day of July, 1998, by and between Imgis,
Inc., a California corporation (the "Company"), and certain shareholders of the
Company listed on SCHEDULE A hereto, each of which is herein referred to as an
"Investor."
RECITALS
WHEREAS, certain of the Investors (the "Existing Investors") hold shares of the
Company's Series A Preferred Stock and/or shares of Common Stock issued upon
conversion thereof (such shares held by the Existing Investors are referred to
herein as the "Series A Preferred Stock"), shares of the Company's Series B1
Preferred Stock and/or shares of Common Stock issued upon conversion thereof
(such shares held by the Existing Investors are referred to herein as the
"Series B1 Preferred Stock"), shares of the Company's Series C Preferred Stock
and/or shares of Common Stock issued upon conversion thereof (such shares held
by the Existing Investors are referred to herein as the "Series C Preferred
Stock") or shares of the Company's Series D Preferred Stock and/or shares of
Common Stock issued upon conversion thereof (such shares held by the Existing
Investors are referred to herein as the "Series D Preferred Stock") and possess
registration rights, information rights, rights of first offer and other rights
pursuant to an Amended and Restated Investors' Rights Agreement dated as of
April 27, 1998, between the Company and such Investors (the "Prior Agreement");
and
WHEREAS, the Existing Investors are holders of at least a majority of
the outstanding "Registrable Securities" of the Company (as defined in the Prior
Agreement), and desire to terminate the Prior Agreement and to accept the rights
created pursuant hereto in lieu of the rights granted to them under the Prior
Agreement; and
WHEREAS, certain of the Investors (the "Series E Investors") are
parties to the Series E Preferred Stock Purchase Agreement of even date herewith
between the Company and the Series E Investors (the "Purchase Agreement"),
certain of the Company's and such Investors' obligations under which are
conditioned upon the execution and delivery of this Agreement by such Investors;
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the Company and the Existing Investors hereby agree that the
Prior Agreement shall be superseded and replaced in its entirety by this
Agreement, and the parties hereto further agree as follows:
<PAGE>
1. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
1.1 DEFINITIONS. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as
amended.
(b) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the SEC which permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC.
(c) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.13 hereof.
(d) The term "1934 Act" means the Securities Exchange Act
of 1934, as amended.
(e) The term "register", "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Act, and the declaration or
ordering of effectiveness of such registration statement or document.
(f) The term "Registrable Securities" means (i) the Common
Stock issuable or issued upon conversion of the Series A Preferred Stock, the
Series B1 Preferred Stock, the Series C Preferred Stock, the Series D Preferred
Stock, the Company's Series D1 Preferred Stock (the "Series D1 Preferred Stock")
or the Company's Series E Preferred Stock (the "Series E Preferred Stock"), (ii)
any Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of
the shares referenced in (i) above, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which his rights
under this Section 1 are not assigned.
(g) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities.
(h) The term "SEC" means the Securities and Exchange
Commission.
(i) The term "Series D Holders" means the holders of (i)
Common Stock issued upon conversion of the Series D Preferred Stock or Series D1
Preferred
2
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Stock or (ii) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of the shares referenced in (i) above, excluding in all cases,
however, any Registrable Securities sold by a person in a transaction in which
his rights under this Section 1 are not assigned.
(j) The term "Series E Holders" means the holders of (i)
Common Stock issued upon conversion of the Series E Preferred Stock or (ii) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of
the shares referenced in (i) above, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which his rights
under this Section 1 are not assigned.
1.2 REQUEST FOR REGISTRATION.
(a) If the Company shall receive at any time after the
earlier of (i) July 2, 2000, or (ii) six (6) months after the effective date of
the first registration statement for a public offering of securities of the
Company (other than a registration statement relating either to the sale of
securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or a SEC Rule 145 transaction), a written request from
the Holders of at least (w) 30% of the voting power of the outstanding Series B1
Preferred Stock, (x) 30% of the voting power of the outstanding Series C
Preferred Stock, (y) a majority of the voting power of the outstanding Series D
Preferred Stock and Series D1 Preferred Stock or (z) a majority of the voting
power of the outstanding Series E Preferred Stock (in each case including Common
Stock issued upon conversion thereof, and so long as the anticipated aggregate
offering price, net of underwriting discounts and commissions, would exceed
$7,500,000; provided, however, that such dollar limitation shall not apply in
the case of a written request from the Series D Holders or Series E Holders),
then the Company shall:
(i) within ten (10) days of the receipt thereof, give
written notice of such request to all Holders; and
(ii) effect as soon as practicable, and in any event
within 60 days of the receipt of such request, the registration under the Act of
all Registrable Securities which the Holders request to be registered, subject
to the limitations of subsection 1.2(b), within twenty (20) days of the mailing
of such notice by the Company in accordance with Section 3.5 of this Agreement.
(b) If the Holders initiating the registration request
hereunder ("Initiating Holders") intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so advise the
Company as a part of their request made pursuant to subsection 1.2(a) and the
Company shall include such information in the written notice referred to in
subsection 1.2(a). The underwriter will be a nationally recognized
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underwriter selected by the Company and shall be reasonably acceptable to a
majority in interest of the Initiating Holders. In such event, the right of
any Holder to include his Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company as provided in subsection 1.4(e)) enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of this Section 1.2, if the
underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Initiating Holders shall so advise all Holders of Registrable Securities which
would otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Holders thereof, including the Initiating Holders, in
proportion (as nearly as practicable) to the amount of Registrable Securities
of the Company owned by each Holder; provided, however, that the number of
shares of Registrable Securities to be included in such underwriting shall not
be reduced unless all other securities are first entirely excluded from the
underwriting; and provided further, however, that in the event that the Series
D Holders or Series E Holders are the Initiating Holders, the number of shares
of Registrable Securities held by the Series D Holders or Series E Holders, as
applicable, to be included in such underwriting shall not be reduced unless all
other Registrable Securities are first entirely excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this Section
1.2, a certificate signed by the Chief Executive Officer of the Company stating
that in the good faith judgment of the Board of Directors of the Company, it
would be seriously detrimental to the Company and its shareholders for such
registration statement to be filed and it is therefore essential to defer the
filing of such registration statement, the Company shall have the right to defer
taking action with respect to such filing for a period of not more than 120 days
after receipt of the request of the Initiating Holders (or 60 days after receipt
of the request of the Initiating Holders in the event that the Series D Holders
or Series E Holders are participating in such offering); provided, however, that
the Company may not utilize this right more than once in any twelve-month
period.
(d) The Company shall not be obligated to effect more than
an aggregate of two registrations pursuant to Sections 1.2(a)(w) and 1.2(a)(x),
more than one registration pursuant to Section 1.2(a)(y), and more than one
registration pursuant to Section 1.2(a)(z), provided that such registrations
have been declared or ordered effective. In addition, the Company shall not be
obligated to effect, or to take any action to effect, any registration pursuant
to this Section 1.2:
(i) During the period starting with the date sixty
(60) days prior to the Company's good faith estimate of the date of filing of
any registration subject to
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Section 1.3 hereof (provided that the Company has selected and engaged an
underwriter and otherwise commenced active efforts to prepare for such filing),
and ending, in any case, on a date one hundred eighty (180) days after the
effective date of, a registration subject to Section 1.3 hereof; provided that
the Company is actively employing in good faith all reasonable efforts to cause
such registration statement to become effective; or
(ii) If the Initiating Holders propose to dispose of
shares of Registrable Securities that may be immediately registered on Form S-3
pursuant to a request made pursuant to Section 1.12 below.
1.3 COMPANY REGISTRATION. If (but without any obligation to do
so) the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock or other securities under the Act in connection with the public offering
of such securities solely for cash (other than a registration relating solely to
employee benefit plans on Form S-1 or Form S-8 or similar forms that may be
promulgated in the future, or a registration relating solely to a merger,
exchange offer or similar transaction of the type described in Commission Rule
145(a) on Form S-4 or similar forms that may be promulgated in the future), the
Company shall, at such time, promptly give each Holder written notice of such
registration. Upon the written request of each Holder given within twenty (20)
days after mailing of such notice by the Company in accordance with Section 3.5,
the Company shall, subject to the provisions of Section 1.8, cause to be
registered under the Act all of the Registrable Securities that each such Holder
has requested to be registered.
1.4 OBLIGATIONS OF THE COMPANY. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for a period of up to one hundred twenty
(120) days from the effective date of such registration statement or until the
distribution contemplated in the Registration Statement has been completed;
provided, however, that (i) such 120-day period shall be extended for a period
of time equal to the period the Holder refrains from selling any securities
included in such registration at the request of an underwriter of Common Stock
(or other securities) of the Company; and (ii) in the case of any registration
of Registrable Securities on Form S-3 which are intended to be offered on a
continuous or delayed basis, such 120-day period shall be extended, if
necessary, to keep the registration statement effective until all such
Registrable Securities are sold, provided that Rule 415, or any successor rule
under the Act, permits an offering on a continuous or delayed basis, and
provided further that applicable rules under the Act governing the obligation to
file a post-effective amendment permit, in lieu of filing a post-effective
amendment which (I) includes any prospectus required by Section 10(a)(3) of the
Act or (II) reflects facts or events representing a material or fundamental
change in the information set forth in the registration statement, the
incorporation
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by reference of information required to be included in (I) and (II) above to be
contained in periodic reports filed pursuant to Section 13 or 15(d) of the 1934
Act in the registration statement.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders; provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Act.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereunder and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration.
(i) Furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to this Section 1, on the date
that such Registrable Securities
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are delivered to the underwriters for sale in connection with a registration
pursuant to this Section 1, if such securities are being sold through
underwriters, or, if such securities are not being sold through underwriters,
on the date that the registration statement with respect to such securities
becomes effective, (i) an opinion, dated such date, of the counsel representing
the Company for the purposes of such registration, in form and substance as is
customarily given to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders requesting registration of
Registrable Securities and (ii) a letter dated such date, from the independent
certified public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to underwriters
in an underwritten public offering, addressed to the underwriters, if any, and
to the Holders requesting registration of Registrable Securities.
1.5 FURNISH INFORMATION. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Section 1
with respect to the Registrable Securities of any selling Holder that such
Holder shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be reasonably required to effect the registration of
such Holder's Registrable Securities.
1.6 EXPENSES OF DEMAND REGISTRATION. All expenses (other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2) incurred in
connection with registrations, filings and qualifications of Registrable
Securities pursuant to Section 1.2 shall be borne by the Company, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company
(including fees and disbursements of counsel for the Company in its capacity as
counsel to the selling Holders hereunder; if Company counsel does not make
itself available for this purpose, the Company will pay the reasonable fees and
disbursements of one counsel for the selling Holders) and the reasonable fees
and disbursements of one counsel for the selling Holders; provided, however,
that the Company shall not be required to pay for any expenses of any
registration proceeding begun pursuant to Section 1.2 if the registration
request is subsequently withdrawn at the request of the Holders of a majority of
the Registrable Securities to be registered (in which case all Initiating
Holders shall bear such expenses), unless the Initiating Holders agree to
forfeit their right to one demand registration pursuant to Section 1.2; provided
further, however, that if at the time of such withdrawal, the Initiating Holders
have learned of a material adverse change in the condition, business, or
prospects of the Company from that known to the Initiating Holders at the time
of their request and have withdrawn the request with reasonable promptness
following disclosure by the Company of such material adverse change, then the
Initiating Holders shall not be required to pay any of such expenses and shall
retain their rights pursuant to Section 1.2; and provided further, however, that
notwithstanding the foregoing, such expenses of the Series D Holders and Series
E Holders shall be borne by the Company in the event that the Company deferred
such registration pursuant to Section 1.2(c), and the Series D Holders and
Series E Holders shall retain their rights pursuant to Section 1.2.
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1.7 EXPENSES OF COMPANY REGISTRATION. The Company shall bear
and pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as provided
in Section 1.13), including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto and the fees and disbursements of counsel for the Company (including
fees and disbursements of counsel for the Company in its capacity as counsel to
the selling Holders hereunder; if Company counsel does not make itself available
for this purpose, the Company will pay the reasonable fees and disbursements of
one counsel for the selling Holders), but excluding underwriting discounts and
commissions relating to Registrable Securities.
1.8 UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the
underwriting, which terms shall be customary for similar transactions, as agreed
upon between the Company and the underwriters selected by it (or by other
persons entitled to select the underwriters), and then only in such quantity as
the underwriters determine in their sole discretion will not, jeopardize the
success of the offering by the Company. If the total amount of securities,
including Registrable Securities, requested by shareholders to be included in
such offering exceeds the amount of securities sold other than by the Company
that the underwriters determine in their sole discretion is compatible with the
success of the offering, then the Company shall be required to include in the
offering only that number of such securities, including Registrable Securities,
which the underwriters determine in their sole discretion will not jeopardize
the success of the offering (the securities so included to be apportioned pro
rata among the selling shareholders according to the total amount of securities
entitled to be included therein owned by each selling Shareholder or in such
other proportions as shall mutually be agreed to by such selling shareholders)
but in no event shall (i) the amount of securities of the selling Holders
included in the offering be reduced below thirty percent 30% of the total amount
of securities included in such offering, provided, however, that the Registrable
Securities held by 360 Capital Partners, L.P. ("360 Capital") and any transferee
acquiring at least 317,216 shares of Series C Preferred Stock (or the Common
Stock issuable upon the conversion thereof) from 360 Capital, and the
Registrable Securities held by each of America Online, Inc. ("AOL"), Attractor
Ventures L.L.C., Hummer Winblad Venture Partners II, L.P. and 21st Century
Internet Fund, L.P., and their affiliates, shall not be excluded unless all
other shareholders' securities have been entirely excluded from such offering;
provided further, however, if such offering is the initial public offering of
the Company's securities, all of the selling shareholders may be excluded if the
underwriters make the determination described above and no other shareholder's
securities are included, or (ii) notwithstanding (i) above, any shares being
sold by a shareholder exercising a demand registration right similar to that
granted in Section 1.2 be excluded from such offering. For purposes of the
preceding parenthetical concerning apportionment, for any selling shareholder
which is a holder of Registrable Securities and which is a partnership or
corporation, the partners, retired partners and shareholders of such holder, or
the estates and family members of any such partners and retired partners and any
trusts for the benefit of any of the foregoing persons shall be deemed to be a
single "selling
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shareholder", and any pro-rata reduction with respect to such "selling
shareholder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling shareholder", as defined in this sentence.
1.9 DELAY OF REGISTRATION. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect
to the interpretation or implementation of this Section 1.
1.10 INDEMNIFICATION. In the event any Registrable Securities
are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, any underwriter (as defined in the
Act) for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Act or the 1934 Act, against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii)
the omission or alleged omission to state therein a material fact required to
be stated therein, or necessary to make the statements therein not
misleading, or (iii) any violation or alleged violation by the Company of the
Act, the 1934 Act, any state securities law or any rule or regulation
promulgated under the Act, or the 1934 Act or any state securities law; and
the Company will pay to each such Holder, underwriter or controlling person,
as incurred, any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement
contained in this subsection 1.10(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any
such case for any such loss, claim, damage, liability, or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly
for use in connection with such registration by any such Holder, underwriter
or controlling person.
(b) To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of
its officers who has signed the registration statement, each person, if any,
who controls the Company within the meaning of the Act, any underwriter, any
other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any
losses, claims, damages, or liabilities (joint or several) to which any of
the foregoing persons may become subject, under the Act, or the 1934 Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon
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any Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such
registration; and each such Holder will pay, as incurred, any legal or other
expenses reasonably incurred by any person intended to be indemnified
pursuant to this subsection 1.10(b), in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement contained in this subsection 1.10(b)
shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the
consent of the Holder, which consent shall not be unreasonably withheld;
provided, that, in no event shall any indemnity under this subsection 1.10(b)
exceed the net proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under
this Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 1.10,
deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in,
and, to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
indemnified party (together with all other indemnified parties which may be
represented without conflict by one counsel) shall have the right to retain
one separate counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to
actual or potential differing interests between such indemnified party and
any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable time
of the commencement of any such action, if prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 1.10, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section
1.10.
(d) If the indemnification provided for in this Section
1.10 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage, or
expense referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such loss,
liability, claim, damage, or expense in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of
the indemnified party on the other in connection with the statements or
omissions that resulted in such loss, liability, claim, damage, or expense as
well as any other relevant equitable considerations. The relative fault of
the indemnifying party and of the indemnified party shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates
to information supplied by the indemnifying party or by the indemnified party
and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
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(e) Notwithstanding the foregoing, to the extent that
the provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten
public offering are in conflict with the foregoing provisions, the provisions
in the underwriting agreement shall control.
(f) The obligations of the Company and Holders under
this Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.11 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a
view to making available to the Holders the benefits of Rule 144 promulgated
under the Act and any other rule or regulation of the SEC that may at any
time permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times after ninety
(90) days after the effective date of the first registration statement filed
by the Company for the offering of its securities to the general public;
(b) take such action, including the voluntary
registration of its Common Stock under Section 12 of the 1934 Act, as is
necessary to enable the Holders to utilize Form S-3 for the sale of their
Registrable Securities, such action to be taken as soon as practicable after
the end of the fiscal year in which the first registration statement filed by
the Company for the offering of its securities to the general public is
declared effective;
(c) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns
any Registrable Securities, forthwith upon request (i) a written statement by
the Company that it has complied with the reporting requirements of SEC Rule
144 (at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at
any time after it has become subject to such reporting requirements), or that
it qualifies as a registrant whose securities may be resold pursuant to Form
S-3 (at any time after it so qualifies), (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as may be
reasonably requested in availing any Holder of any rule or regulation of the
SEC which permits the selling of any such securities without registration or
pursuant to such form.
1.12 FORM S-3 REGISTRATION. In case the Company shall receive
from any Holder of the then outstanding Series B1 Preferred Stock (or Common
Stock issuable upon conversion thereof), the then outstanding Series C
Preferred Stock (or Common Stock issuable upon conversion thereof), the then
outstanding Series D Preferred Stock and Series D1 Preferred
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Stock (or Common Stock issuable upon conversion thereof) or the then
outstanding Series E Preferred Stock (or Common Stock issuable upon
conversion thereof) a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder
or Holders, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other
Holders; and
(b) as soon as practicable, effect such registration and
all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written
request given within 15 days after receipt of such written notice from the
Company; provided, however, that the Company shall not be obligated to effect
any such registration, qualification or compliance, pursuant to this Section
1.12: (1) if Form S-3 is not available for such offering by the Holders; (2)
if the Holders, together with the holders of any other securities of the
Company entitled to inclusion in such registration, propose to sell
Registrable Securities and such other securities (if any) at an aggregate
price to the public (net of any underwriters' discounts or commissions) of
less than $1,000,000; provided further, however, that in the case of a
request by the Series E Holders, the Company shall not be obligated to effect
any such registration, qualification or compliance, pursuant to this Section
1.12: (1) if Form S-3 is not available for such offering by the Series E
Holders; (2) if the Series E Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose
to sell Registrable Securities and such other securities (if any) at an
aggregate gross price to the public of less than $3,000,000, or (3) the
Company has effected two registrations during the prior twelve month period
pursuant to this Section 1.12 in which the Series E Holders participated and
such registrations have been declared or ordered effective.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt
of the request or requests of the Holders. All expenses incurred in
connection with a registration requested pursuant to Section 1.12, including
(without limitation) all registration, filing, qualification, printer's and
accounting fees and the reasonable fees and disbursements of counsel for the
selling Holder or Holders and counsel for the Company, shall be borne by the
Company. Registrations effected pursuant to this Section 1.12 shall not be
counted as demands for registration or registrations effected pursuant to
Sections 1.2 or 1.3, respectively.
1.13 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause
the Company to register Registrable Securities pursuant to this Section 1 may
be assigned (but only with all related obligations) by a Holder to a
transferee or assignee of such securities, provided: (a) the Company is,
within a reasonable time after such transfer, furnished with written notice
of
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the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned; and (b) such
transferee or assignee agrees in writing to be bound by and subject to the
terms and conditions of this Agreement, including without limitation the
provisions of Section 1.15 below. For the purposes of determining the number
of shares of Registrable Securities held by a transferee or assignee, the
holdings of transferees and assignees of a partnership who are partners or
retired partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) shall be aggregated
together and with the partnership; provided that all assignees and
transferees who would not qualify individually for assignment of registration
rights shall have a single attorney-in-fact for the purpose of exercising any
rights, receiving notices or taking any action under this Section 1.
1.14 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of a majority of the outstanding Registrable
Securities, enter into any agreement with any holder or prospective holder of
any securities of the Company which would allow such holder or prospective
holder (a) to include such securities in any registration filed under Section
1.2 hereof, unless under the terms of such agreement, such holder or
prospective holder may include such securities in any such registration only
to the extent that the inclusion of his securities will not reduce the amount
of the Registrable Securities of the Holders which is included, (b) to make a
demand registration which could result in such registration statement being
declared effective prior to the earlier of either of the dates set forth in
subsection 1.2(a) or within one hundred twenty (120) days of the effective
date of any registration effected pursuant to Section 1.2, or (c) to include
such securities in any registration pursuant to Section 1.3 that would result
in the exclusion of Registrable Securities held by 360 Capital or any
transferee acquiring at least 317,216 shares of Series C Preferred Stock (or
the Common Stock issuable upon the conversion thereof) from 360 Capital or of
Registrable Securities held by AOL, Attractor Ventures L.L.C., Hummer Winblad
Venture Partners II, L.P. or 21st Century Internet Fund, L.P. or their
affiliates.
1.15 "MARKET STAND-OFF" AGREEMENT. Each Investor hereby
agrees that, during the period of duration (not to exceed 180 days) specified
by the Company and an underwriter of common stock or other securities of the
Company, following the effective date of a registration statement of the
Company filed under the Act, it shall not, to the extent requested by the
Company and such underwriter, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of (other than to donees
who agree to be similarly bound) any securities of the Company held by it at
any time during such period except common stock included in such registration
or common stock purchased in the public market following such registration;
provided, however, that:
(a) such agreement shall be applicable only to the first
such registration statement of the Company which covers common stock (or
other securities) to be sold on its behalf to the public in an underwritten
offering; and
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(b) all officers and directors of the Company and all
other persons with registration rights (whether or not pursuant to this
Agreement) enter into similar agreements; and
(c) such market stand-off time period shall not exceed
180 days.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
Notwithstanding the foregoing, the obligations described in this
Section 1.15 shall not apply to a registration relating solely to employee
benefit plans on Form S-1 or Form S-8 or similar forms which may be
promulgated in the future, or a registration relating solely to a Commission
Rule 145 transaction on Form S-4 or similar forms which may be promulgated in
the future.
1.16 TERMINATION OF REGISTRATION RIGHTS.
(a) No Holder shall be entitled to exercise any right
provided for in this Section 1 after five (5) years following the
consummation of the sale of securities pursuant to a bona fide, firmly
underwritten public offering of shares of Common Stock, registered under the
Act pursuant to a registration statement, at an offering price of at least
$13.73 per share (appropriately adjusted for any stock split, dividend,
combination or other recapitalization) and in which aggregate net proceeds to
the Company total at least $20,000,000.
(b) In addition, the right of any Holder to request
registration or inclusion in any registration pursuant to Section 1.3 shall
terminate on the closing of the first Company-initiated registered public
offering of Common Stock of the Company if all shares of Registrable
Securities held or entitled to be held upon conversion by such Holder may
immediately be sold under Rule 144 during any 90-day period.
1.17 AMENDMENTS AND WAIVERS. Any term contained in Section 1
of this Agreement may be amended and the observance of any term in Section 1
of this Agreement may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written consent of
the Company and the holders of a majority of the Registrable Securities then
outstanding; provided, however, that if a particular holder's rights are
adversely affected in a manner different from those of other holders, then
any such amendment or waiver requires the written consent of the Company and
seventy-five percent (75%) of the Registrable Securities then outstanding;
provided further, however, that if the rights of a holder of Series D
Preferred Stock or Series D1 Preferred Stock (or the Common Stock issued upon
conversion thereof) are affected in any way, then any such amendment or
waiver requires the separate written consent of a majority of the then
outstanding Series D Preferred Stock and Series D1 Preferred Stock (or the
Common Stock issued upon conversion thereof), consenting on
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an as-converted basis; provided further, however, that if the rights of a
holder of Series E Preferred Stock (or the Common Stock issued upon
conversion thereof) are affected in any way, then any such amendment or
waiver requires the separate written consent of a majority of the then
outstanding Series E Preferred Stock (or the Common Stock issued upon
conversion thereof), consenting on an as-converted basis. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any Registrable Securities then outstanding, each future holder of
all such Registrable Securities, and the Company.
2. COVENANTS OF THE COMPANY.
2.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall
deliver to 360 Capital so long as 360 Capital holds at least 158,563 shares
of Series C Preferred Stock (or Common Stock issuable upon the conversion
thereof) and to any transferee acquiring at least 317,216 shares of Series C
Preferred Stock, Series D Preferred Stock, Series D1 Preferred Stock or
Series E Preferred Stock (or Common Stock issuable upon the conversion
thereof) from 360 Capital, and each of AOL, Attractor Ventures L.L.C., Hummer
Winblad Venture Partners II, L.P., 21st Century Internet Fund, L.P., and IBL
Corporation:
(a) as soon as practicable, but in any event within
ninety (90) days after the end of each fiscal year of the Company, an income
statement for such fiscal year, a balance sheet of the Company and statement
of shareholder's equity as of the end of such year, and a statement of cash
flows for such year, such year-end financial reports to be in reasonable
detail, prepared in accordance with generally accepted accounting principles
("gaap"), and audited and certified by independent public accountants of
nationally recognized standing selected by the Company;
(b) within thirty (30) days of the end of each month, an
unaudited income statement and statement of cash flows and balance sheet for
and as of the end of such month, in reasonable detail;
(c) as soon as practicable, but in any event within
forty-five (45) days after the end of each of the first three (3) quarters of
each fiscal year of the Company, an unaudited profit or loss statement,
statement of cash flows for such fiscal quarter and an unaudited balance
sheet and a statement of shareholder's equity as of the end of such fiscal
quarter.
(d) as soon as practicable, but in any event thirty (30)
days prior to the end of each fiscal year, a budget and business plan for the
next fiscal year, prepared on a monthly basis, including balance sheets and
statements of cash flows for such months and, as soon as prepared, any other
budgets or revised budgets prepared by the Company;
(e) with respect to the financial statements called for
in subsections (b) and (c) of this Section 2.1, an instrument executed by the
Chief Financial Officer or President of the Company and certifying that such
financials were prepared in accordance with
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gaap consistently applied with prior practice for earlier periods (with the
exception of footnotes that may be required by gaap) and fairly present the
financial condition of the Company and its results of operation for the
period specified, subject to year-end audit adjustment; and
(f) such other information relating to the financial
condition, business, prospects or corporate affairs of the Company as the
Investor or any assignee of the Investor may from time to time request,
provided, however, that the Company shall not be obligated under this
subsection (f) or any other subsection of Section 2.1 to provide information
which it deems in good faith to be a trade secret or similar confidential
information; and the right to receive financial statements provided in this
Section 2.1 may not be assigned or transferred, except that (i) such right is
assignable by each Holder to any wholly owned subsidiary or parent of, or to
any corporation or entity that is, within the meaning of the Act,
controlling, controlled by or under common control with, any such Holder and
(ii) such right is assignable to a party acquiring at least 317,126 shares of
Series C Preferred Stock (or the Common Stock issuable upon the conversion
thereof) from 360 Capital.
2.2 INSPECTION. The Company shall permit each Investor, at
such Investor's expense, to visit and inspect the Company's properties, to
examine its books of account and records and to discuss the Company's
affairs, finances and accounts with its officers, all at such reasonable
times as may be requested by the Investor; provided, however, that the
Company shall not be obligated pursuant to this Section 2.2 to provide access
to any information which it reasonably considers to be a trade secret or
similar confidential information. 360 Capital, a holder of Series C Preferred
Stock of the Company, shall be entitled to receive inspection rights so long
as 360 Capital holds at least 158,563 shares of Series C Preferred Stock as
shall any person acquiring at least 317,126 shares of Series C Preferred
Stock (or the Common Stock issuable upon the conversion thereof) from 360
Capital.
2.3 RIGHT OF FIRST OFFER. Subject to the terms and
conditions specified in this Section 2.3, the Company hereby grants to each
Major Investor (as hereinafter defined) a right of first offer with respect
to future sales by the Company of its Shares (as hereinafter defined). For
purposes of this Section 2.3, a Major Investor shall mean the Holders of
Series B1 Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series D1 Preferred Stock, Series E Preferred Stock, or Common Stock
issued upon conversion thereof. For purposes of this Section 2.3, a Major
Investor includes any general partners and affiliates of an Investor. 360
Capital shall be entitled to a right of first offer so long as 360 Capital
holds at least 158,563 shares of Series C Preferred Stock. A Major Investor
shall be entitled to apportion the right of first offer hereby granted it
among itself and its partners and affiliates in such proportions as it deems
appropriate.
Each time the Company proposes to offer any shares of, or any
securities convertible into or exercisable or exchangeable for any shares of,
any class of its capital stock ("Shares"), the Company shall first make an
offering of such Shares to each Major Investor in accordance with the
following provisions:
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(a) The Company shall deliver a notice by certified mail
("Notice") to the Major Investors stating (i) its bona fide intention to
offer such Shares, (ii) the number of such Shares to be offered, and (iii)
the price and terms, if any, upon which it proposes to offer such Shares.
(b) Within 20 calendar days after receipt of the Notice,
the Major Investor may elect to purchase or obtain, at the price and on the
terms specified in the Notice, up to that portion of such Shares which equals
the proportion that the number of shares of Common Stock issued and held, or
issuable upon conversion of the Preferred Stock then held, by such Major
Investor bears to the total number of shares of Common Stock of the Company
then outstanding, assuming in the denominator the conversion of all Preferred
Stock and other convertible securities then outstanding and the exercise of
all warrants, options and other rights then outstanding to purchase Common
Stock or other securities convertible into Common Stock (the "Pro Rata Share
of the Company's Outstanding Equity Securities"); provided, however, that in
the event that the consummation of the sale of the Shares as described in the
Notice would result in any person or group of affiliated persons holding,
immediately following such issuance, a greater Pro Rata Share of the
Company's Outstanding Equity Securities than would then be held collectively
by AOL and its affiliates, if AOL and its affiliates had, immediately prior
to such issuance, held at least 546,249 shares (appropriately adjusted to
reflect any subsequent stock dividends, combinations, splits,
recapitalizations and the like) of Series E Preferred Stock or the equivalent
number of shares of Common Stock issued upon conversion thereof, or any
equivalent combination of shares of Series E Preferred Stock and Common Stock
issued upon conversion thereof, but excluding any shares of Series E
Preferred Stock issued upon the exercise of any warrant or any shares of
Common Stock issued upon conversion thereof, then AOL and its affiliates may
elect to purchase or obtain, at the price and on the terms specified in the
Notice, up to the minimum number of Shares which would result in AOL and its
affiliates holding collectively, immediately following the issuance of the
Shares, the largest Pro Rata Share of the Company's Outstanding Equity
Securities (the "AOL Right of First Offer") and, if necessary, the Pro Rata
Share of the Company's Outstanding Equity Securities of each other Major
Investor shall be reduced proportionately. The Company shall promptly, in
writing, inform each Major Investor which purchases all the shares available
to it ("Fully-Exercising Investor") of any other Major Investor's failure to
do likewise. During the ten-day period commencing after receipt of such
information, each Fully-Exercising Investor shall be entitled to obtain that
portion of the Shares not subscribed for by the Major Investors which is
equal to the proportion that the number of shares of Common Stock issued and
held, or issuable upon conversion of Preferred Stock then held, by such
Fully-Exercising Investor bears to the total number of shares of Common Stock
issued and held, or issuable upon conversion of Preferred Stock then held, by
all Fully-Exercising Investors who wish to purchase some of the unsubscribed
shares (the "Gobble-Up Right"); provided, however, that in the event that the
exercise of the Gobble-Up Right results in any person or group of affiliated
persons holding, immediately following such issuance, a greater Pro Rata
Share of the Company's Outstanding Equity Securities than would then be held
collectively by AOL and its affiliates, AOL and its affiliates may elect to
purchase or obtain, at the price and on the terms specified in the Notice, up
to the minimum number of Shares which
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would result in AOL and its affiliates holding collectively, immediately
following the issuance of the Shares, the largest Pro Rata Share of the
Company's Outstanding Equity Securities.
(c) If all Shares which Major Investors are entitled to
obtain pursuant to Section 2.3(b) are not elected to be obtained as provided
in Section 2.3(b) hereof, the Company may, during the 30-day period following
the expiration of the period provided in Section 2.3(b) hereof, offer the
remaining unsubscribed portion of such Shares to any person or persons at a
price not less than, and upon terms no more favorable to the offeree than,
those specified in the Notice. If the Company does not enter into an
agreement for the sale of such Shares within such period, or if such
agreement is not consummated within 30 days of the execution thereof, the
right provided hereunder shall be deemed to be revived and such Shares shall
not be offered unless first reoffered to the Major Investors in accordance
herewith.
(d) The right of first offer in this Section 2.3 shall
not be applicable (i) to the issuance or sale of not to exceed a total of
4,509,960 shares (appropriately adjusted to reflect any subsequent stock
dividends, combinations, splits, recapitalizations and the like) of Common
Stock (or options therefor) to consultants, non employees, directors and
employees for the primary purpose of soliciting or retaining their
employment, (ii) after consummation of a bona fide, firm commitment
underwritten public offering of shares of Common Stock, registered under the
Act pursuant to a registration statement, which results in aggregate net cash
proceeds to the Company of $20,000,000 or greater and the public offering
price of which is not less than the Qualifying Price Per Share (as used
herein, the "Qualifying Price Per Share" shall mean the quotient of
$125,000,000 divided by the number of shares of the Company's Common Stock
outstanding immediately prior to the consummation of such offering, assuming
full conversion and exercise of all convertible and exercisable securities
then outstanding) (a "Qualified IPO"), (iii) the issuance of securities
pursuant to the conversion or exercise of convertible or exercisable
securities, (iv) the issuance of securities in connection with a bona fide
business acquisition by the Company, whether by merger, consolidation, sale
of assets, sale or exchange of stock or otherwise, (v) with respect to Major
Investors other than the Series D Investors and their affiliates and the
Series E Investors and their affiliates, the issuance of stock, warrants or
other securities or rights to persons or entities with which the Company has
business relationships provided such issuances are for other than primarily
equity financing purposes and provided that at the time of any such issuance,
the aggregate of such issuance and similar issuances in the preceding twelve
month period do not exceed 2% of the then outstanding Common Stock of the
Company (assuming full conversion and exercise of all convertible and
exercisable securities then outstanding), (vi) the issuance of Series E
Preferred Stock pursuant to the terms of the Purchase Agreement, (vii) with
respect to Major Investors other than the Series D Investors and their
affiliates in the limited circumstances described in Section 2.3(e) below,
the issuance of securities in a Qualified IPO or (ix) with respect to Major
Investors other than the Series E Investors and their affiliates, the
issuance of securities in connection with the AOL Right of First Offer.
(e) The right of first offer held by the Series D
Investors and their affiliates to purchase shares of Common Stock in a
Qualified IPO shall be limited to a
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number of shares of Common Stock equal to the lesser of (i) 25% of the number
of shares of Common Stock issued or issuable upon conversion of Series D
Preferred Stock and held by such Investors immediately prior to the
consummation of the Qualified IPO and (ii) 3% of the number of shares of
Common Stock offered and sold by the Company in a Qualified IPO (exclusive of
any shares offered and sold pursuant to any underwriter's over-allotment
option); provided, however, that the underwriter of such offering, if any,
shall be entitled to reduce this right of first offer to the extent deemed
necessary in the underwriter's reasonable judgment (x) to the success of the
offering for reasons set forth in writing no less than two weeks prior to the
anticipated effective date of the registration statement covering such
offering, or (y) to comply with the rules or regulations of the Securities
and Exchange Commission, the National Association of Securities Dealers,
Inc., the Nasdaq Stock Market, Inc., or other regulatory body for reasons set
forth in writing no less than one day prior to the anticipated effective date
of the registration statement covering such offering. For purposes of this
Section 2.3(e), the provisions of Section 2.3(a), (b) and (c) apply in the
following manner: (i) as to Section 2.3(a), the Notice shall be delivered by
facsimile transmission to the Series D Investors no less than one day prior
to the anticipated effective date of the registration statement covering such
offering and shall state (A) the Company's bona fide intention to offer such
Shares in a Qualified IPO, (B) the number of such Shares to be offered in
such Qualified IPO, and (C) the Price Range and the Terms upon which it
proposes to offer such Shares; (ii) as to Section 2.3(b), the Series D
Investors shall, within 24 hours after receipt of the Notice, irrevocably
elect to exercise the Shares to which they are entitled in this Section
2.3(e), or forfeit such right; and (iii) as to Section 2.3(c), if the Company
does not consummate the sale of the Shares in such Qualified IPO within 30
days of the Notice within the Price Range and according to the Terms, the
right provided hereunder shall be deemed revived as to all of the Series D
Investors. For purposes hereof, the term "Price Range" shall mean a good
faith estimate range of the proposed initial offering price of such Shares,
the lower end of which shall be no less than 70% of the higher end, and the
term "Terms" shall mean a draft of the proposed underwriting agreement to be
entered into between the Company and the underwriting of such offering, if
any.
(f) The right of first offer set forth in this Section
2.3 may not be assigned or transferred, except that (i) such right is
assignable by each Holder to any wholly owned subsidiary or parent of, or to
any corporation or entity that is, within the meaning of the Act,
controlling, controlled by or under common control with, any such Holder,
(ii) such right (other than the right described in Section 2.3(e)) is
assignable between and among any of the Holders, (iii) such right is
assignable to a party, other than an assignee under clause (i) or (ii) above,
acquiring at least 317,126 shares of Series C Preferred Stock (or Common
Stock issuable upon the conversion thereof) from 360 Capital, (iv) such right
(other than the right described in Section 2.3(e)) is assignable to a party,
other than an assignee under clause (i) or (ii) above, acquiring at least
53,857 shares of Series D Preferred Stock or Series D1 Preferred Stock (or
Common Stock issuable upon the conversion thereof) from the Series D
Investors, and (v) such right (other than the AOL Right of First Offer) is
assignable to a party, other than an assignee under clause (i) or (ii) above,
acquiring at least 127,459 shares of Series E Preferred Stock (or Common
Stock issuable upon the conversion thereof) from the Series E Investors.
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2.4 OBSERVER RIGHTS. As long as IBL Corporation owns not
less than 150,000 shares of Series A Preferred Stock (or an equivalent amount
of Common Stock issued upon conversion thereof), the Company shall invite a
representative of IBL Corporation to attend all meetings of its Board of
Directors, at its own expense, in a nonvoting observer capacity. As long as
360 Capital owns not less than 200,000 shares of Series C Preferred Stock (or
an equivalent amount of Common Stock issued upon conversion thereof), the
Company shall invite a representative of 360 Capital who is either a
Metromail employee or an individual designated by 360 Capital who is
reasonably acceptable to the Board of Directors to attend all meetings of its
Board of Directors, at its own expense, in a nonvoting observer capacity.
For so long as AOL and its affiliates collectively hold at least 364,166
shares of Series E Preferred Stock (appropriately adjusted for any stock
split, dividend, combination or other recapitalization) or the equivalent
number of shares of Common Stock issued upon conversion thereof, or any
equivalent combination of shares of Series E Preferred Stock and Common Stock
issued upon conversion thereof, and do not have a representative on the
Company's Board of Directors, the Company shall invite a representative
designated by AOL to attend all meetings of its Board of Directors, at its
own expense, in a nonvoting observer capacity (the "AOL Observer"). The
Company shall provide such representatives with the same financial and other
information that is provided to the members of the Board of Directors in
connection with any meetings of the Board of Directors of the Company,
subject to the limitations set forth in this Section 2.4. As a condition of
the rights granted in this Section, each of IBL Corporation and 360 Capital
agree to hold in confidence and trust and to act in a fiduciary manner with
respect to all information provided in connection with any meetings of the
Board of Directors of the Company, and AOL and each representative of IBL
Corporation, 360 Capital and AOL shall agree to sign a customary
nondisclosure agreement to hold in confidence any information provided in
connection with any meetings of the Board of Directors of the Company; and,
provided further, that the Company reserves the right to withhold any
information and to exclude a representative from any meeting or portion
thereof if access to such information or attendance at such meeting could
adversely affect the attorney-client privilege between the Company and its
counsel. If any information is so withheld from the representative of AOL,
the Company shall notify such representative of the general subject matter of
such information. The Company shall pay the reasonable expenses for a
representative of 360 Capital, Hummer-Winblad Venture Partners II, L.P., 21st
Century Internet Fund, L.P., Convergence Ventures I, L.P. and AOL to attend
meetings of the Board of Directors of the Company that are held more than
fifty miles from San Francisco International Airport.
2.5 TRANSACTIONS WITH AFFILIATES. The Company shall not,
without the approval of a majority of the disinterested members of the
Company's Board of Directors, engage in any loans, leases, contracts or other
similar transactions (including, but not by way of limitation, the payment of
dividends or the repurchase of securities) with Charles Berger, Chad
Steelberg, Ryan Steelberg, Dirk Wray, members of their immediate family or
entities controlled by them. For purposes of this Section 2.5, "immediate
family" shall be deemed to include parents, children, siblings and spouse.
2.6 SALE OF PRODUCT LINE OR TECHNOLOGY. The Company shall
not, without the approval of the holders of a majority of the voting power of
the Series B1 Preferred
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Stock, Series C Preferred Stock, Series D Preferred Stock, Series D1
Preferred Stock and Series E Preferred Stock, voting together as a single
class, sell, convey, or otherwise dispose of a material product line or sell
or grant an exclusive license of technology material to the Company's
business as presently conducted or as proposed to be conducted.
2.7 FUTURE ISSUANCES OF PREFERRED STOCK. The Company shall
not, without the approval of 360 Capital: (i) sell any shares of Series C
Preferred Stock to existing Series A Preferred Stock holders or Series B1
Preferred Stock holders beyond the number of shares sold to date or (ii)
issue any additional shares of Series A Preferred Stock or Series B1
Preferred Stock.
2.8 ACQUISITION RIGHT OF FIRST OFFER.
(a) Prior to the Company entering into a binding
agreement with respect to an Acquisition Transaction (as hereinafter defined)
with an Identified Competitor (as hereinafter defined), the Company shall
provide written notice to AOL stating (i) that the Company is interested in
entering into such an agreement with an Identified Competitor, without naming
the Identified Competitor, and (ii) the price and principal terms of the
Acquisition Transaction (the "Acquisition Notice").
(b) For purposes of this Section 2.8, an "Acquisition
Transaction" shall mean the issuance by the Company of any equity securities
of the Company that would give an Identified Competitor the right to control
more than fifty percent (50%) of the voting power of the Company, the merger,
consolidation or similar corporate transaction with or into an Identified
Competitor as a result of which the voting securities of the Company
outstanding immediately prior to consummation of such transaction are
converted into cash or securities possessing less than fifty percent (50%) of
the voting power of the surviving entity, or the sale to an Identified
Competitor of all or substantially all of the assets of the Company, and an
"Identified Competitor" shall mean one of the ten (10) persons identified on
Exhibit A hereto; provided, however, that AOL shall modify Exhibit A on the
first anniversary of this Agreement so that Exhibit A identifies only five
(5) persons (and such five (5) persons need not have been included among the
ten (10) persons originally identified on Exhibit A); provided further, that
on each successive anniversary of this Agreement, AOL shall be entitled to
modify Exhibit A to substitute one new person for a person identified on
Exhibit A and/or add one new person to Exhibit A; provided further, that if
at any time any person identified on Exhibit A ceases to exist or otherwise
ceases to engage in the business with which it competes with AOL as of the
time that such person is first identified on Exhibit A, whether as a result
of sale, merger, liquidation or otherwise, or is merged into or acquired by
another person identified on Exhibit A, then AOL shall be entitled to
substitute a new person in place of such person on Exhibit A; and provided
further, that an "Identified Competitor" shall include any affiliate of any
person on Exhibit A that accounts on a consolidated basis with such person
identified on Exhibit A and shall include any successor of any person on
Exhibit A and any affiliate of such successor that accounts on a consolidated
basis with such successor. For purposes of this Section 2.8(b), "person"
shall mean any corporation, partnership or other business entity or any group
of such entities that are under
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common control.
(c) AOL shall have ten (10) business days following its
receipt of the Acquisition Notice to notify the Company in writing that AOL
intends to match the price and terms of the Acquisition Transaction described
in the Acquisition Notice.
(i) If AOL elects to notify the Company that AOL
intends to match the price and terms of the Acquisition Transaction described
in the Acquisition Notice, the Company and AOL will enter into good faith
negotiations with respect to an Acquisition Transaction for a period of up to
sixty (60) days following the date of AOL's election, and if the Company and
AOL do not execute a binding agreement to enter into an Acquisition
Transaction by the end of such sixty (60) day period, the Company will be
free for a period of ninety (90) days from the end of such sixty (60) day
period to enter into an Acquisition Transaction with any Identified
Competitor on terms no more favorable to such Identified Competitor than
those offered to AOL.
(ii) If AOL does not elect to notify the Company
that AOL intends to match the price and terms of the Acquisition Transaction
described in the Acquisition Notice within the ten (10) business day period
described in this Section 2.8(c), the Company will be free for a period of
ninety (90) days from the end of such ten (10) business day period to enter
into an Acquisition Transaction with an Identified Competitor on terms no
more favorable to such Identified Competitor than those offered to AOL.
(f) Provided that the Company has not breached its
obligations under this Section 2.8, AOL agrees that, prior to a Qualified
IPO, AOL and its affiliates will not exercise any dissenter's or appraisal
rights with respect to any shares of Series E Preferred Stock or any shares
of Common Stock into which the Series E Preferred Stock is converted that are
provided by the laws of the jurisdiction in which the Company is incorporated
in connection with a merger, consolidation or similar corporate transaction
of the Company into another person for consideration with an aggregate fair
market value of more than $150 million that would qualify for pooling of
interests accounting treatment, where: (i) such other person is an
Identified Competitor; or (ii) if such other person is not an Identified
Competitor, where the Company has provided at least fifteen (15) business
days' notice to AOL prior to the date that the Company signs a binding
agreement to enter into such transaction with such other person (provided
that the disclosure to the Company's Board of Directors of such transaction,
at a meeting at which the AOL Observer is present, shall be deemed to be
effective notice for such purposes) and has afforded AOL the opportunity to
propose a competing offer, provided that the procedures followed by the
Company with respect to the solicitation of a competing AOL offer do not
place AOL in a position that is less favorable than the position of such
other person. The foregoing waiver shall terminate and be of no further
force and effect in the event that (i) any holder of shares of any series of
the Company's Preferred Stock that are issued after the date of this
Agreement does not agree to be bound by the terms of this waiver (excluding
the terms to the extent that they relate specifically to an Identified
Competitor and the right of first offer with respect to an Acquisition
Transaction provided for in this Section 2.8), or (ii) if, under that certain
Amended and Restated Voting Agreement dated of even date herewith by and
among the
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Company, certain holders of the Company's Preferred Stock listed on Schedule
A thereto and certain holders of the Company's Common Stock listed on
Schedule B thereto (the "Voting Agreement"), AOL requests that a Major
Investor (as defined in the Voting Agreement) waive its dissenter's or
appraisal rights, and such waiver is subsequently held to be unenforceable
under applicable law.
2.9 TERMINATION OF CERTAIN COVENANTS. The covenants set
forth in this Section 2, other than those pertaining to the AOL Observer in
Section 2.4, shall terminate and be of no further force or effect upon a
Qualified IPO.
3. MISCELLANEOUS.
3.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective successors and assigns of the parties
(including transferee of any shares of Registrable Securities). Nothing in
this Agreement, express or implied, is intended to confer upon any party
other than the parties hereto or their respective successors and assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
3.2 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
3.3 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
3.4 TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 NOTICES. Unless otherwise provided, any notice required
or permitted under this Agreement shall be given in writing and shall be
deemed effectively given upon personal delivery to the party to be notified,
upon deposit with the United States Post Office, by registered or certified
mail, or with a nationally recognized overnight courier specifying next day
delivery with written verification of receipt, postage prepaid and addressed
to the party to be notified at the address indicated for such party on the
signature page hereof, or at such other address as such party may designate
by ten (10) days' advance written notice to the other parties, or upon
facsimile transmission with printed verification of transmission to the party
to be notified at the facsimile number indicated for such party on the
signature page hereof, or at such other facsimile number as such party may
designate by ten (10) days' advance written notice to the other parties.
23
<PAGE>
3.6 EXPENSES. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the prevailing party
shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.
3.7 AMENDMENTS AND WAIVERS. Any term contained in Section 2
or Section 3 of this Agreement may be amended and the observance of any term
in Section 2 or Section 3 of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the holders of seventy-five
percent (75%) of the voting power of the then outstanding Registrable
Securities; provided, however, that any amendment or waiver affecting the
Series D Preferred Stock or Series D1 Preferred Stock in a different manner
than the other series of the Company's Preferred Stock may be waived only
with the separate written consent of the holders of a majority of the voting
power of the then outstanding shares of Series D Preferred Stock and Series
D1 Preferred Stock (or Common Stock issued upon conversion thereof),
consenting on an as-if converted to Common Stock basis; provided further,
however, that any amendment or waiver affecting the Series E Preferred Stock
in a different manner than the other series of the Company's Preferred Stock
may be waived only with the separate written consent of the holders of a
majority of the voting power of the then outstanding shares of Series E
Preferred Stock (or Common Stock issued upon conversion thereof), consenting
on an as-if converted to Common Stock basis. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each holder
of any Registrable Securities then outstanding, each future holder of all
such Registrable Securities, and the Company.
3.8 STANDSTILL PROVISION. No Existing Investor (excluding
the Series D Investors and the Series E Investors) or any entity affiliated
with such Investor shall acquire beneficial ownership of any additional
shares of the Company's capital stock from any party after the date of this
Agreement without the consent of the Board of Directors of the Company if
such acquisition would result in such Investor acquiring beneficial ownership
of forty-percent (40%) or more of the then outstanding capital stock of the
Company; provided, however, that the foregoing restriction shall not apply in
the event that such Investor has offered to purchase all of the then
outstanding capital stock of the Company on the same terms.
3.9 SEVERABILITY. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement shall
be interpreted as if such provision were so excluded and shall be enforceable
in accordance with its terms.
3.10 AGGREGATION OF STOCK. Unless otherwise provided herein,
all shares of Registrable Securities held or acquired by affiliated entities
or persons shall be aggregated together for the purpose of determining the
availability of any rights under this Agreement.
24
<PAGE>
3.11 ENTIRE AGREEMENT. This Agreement (including the Exhibits
hereto) constitutes the full and entire understanding and agreement between
the parties with regard to the subjects hereof and thereof.
25
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
IMGIS, INC.
By: /s/ Charles W. Berger
------------------------------------------
Charles W. Berger
Chief Executive Officer
Address: 10101 North DeAnza Blvd., Suite 210
Cupertino, CA 95014
INVESTORS:
----------
WASHINGTON HOLDINGS, L.P.
By: /s/ Dirk Wray
------------------------------------------
Title: Partner
---------------------------------------
Address: 30551 Hilltop Way
San Juan Capistrano, CA 92675
IBL CORPORATION
By: /s/ Pinak Maitra
------------------------------------------
Title: Vice President
---------------------------------------
Address: c/o Hunter Capital Group, L.L.C.
Attn: Larry Griffin
136 Heber Avenue, Suite 304
Park City, UT 84060
IRS PARTNERS #15, LP
By: /s/ ILLEGIBLE
------------------------------------------
Title: Officer
---------------------------------------
Address: 345 S. Figueroa, Suite 303
Los Angeles, CA 90071
COLLIN MADDIN
By: /s/ Collin Maddin
------------------------------------------
Address: 8787 Shoreham Dr., #308
West Hollywood, CA 90069
<PAGE>
360 CAPITAL PARTNERS, L.P.
By: /s/ ILLEGIBLE
------------------------------------------
Title: President
---------------------------------------
Address: 360 East 22nd Street
Lombard, IL 60148
HUMMER WINBLAD
VENTURE PARTNERS II, L.P.
By: /s/ Mark Gorenberg
------------------------------------------
Title: Partner
---------------------------------------
Address: 2 South Park, 2nd Floor
San Francisco, CA 94107
HUMMER WINBLAD
TECHNOLOGY FUND, L.P.
By: /s/ Mark Gorenberg
------------------------------------------
Title: Partner
---------------------------------------
Address: 2 South Park, 2nd Floor
San Francisco, CA 94107
HUMMER WINBLAD
TECHNOLOGY FUND II-A, L.P.
By: /s/ Mark Gorenberg
------------------------------------------
Title: Partner
---------------------------------------
Address: 2 South Park, 2nd Floor
San Francisco, CA 94107
<PAGE>
ATTRACTOR LP
By: Attractor Ventures LLC, its General Partner
By: /s/ Harvey Allison
----------------------------------------------
Harvey Allison, Managing Member
Address: 1110 Burlingame Ave., Suite 211
Burlingame, CA 94010
ATTRACTOR DEARBORN PARTNERS LP
By: Attractor Ventures LLC, its General Partner
By: /s/ Harvey Allison
----------------------------------------------
Harvey Allison, Managing Member
Address: 1110 Burlingame Ave., Suite 211
Burlingame, CA 94010
ATTRACTOR INSTITUTIONAL LP
By: Attractor Ventures LLC, its General Partner
By: /s/ Harvey Allison
----------------------------------------------
Harvey Allison, Managing Member
Address: 1110 Burlingame Ave., Suite 211
Burlingame, CA 94010
MORGAN ADAMS, INC.
By: /s/ ILLEGIBLE
----------------------------------------------
Title: President & CFO
Address: 1545 Wilshire Blvd, Suite 700
Los Angeles, CA 90017
<PAGE>
21st CENTURY INTERNET FUND, L.P.
By: /s/ Neil Weintraut
----------------------------------------------
Title: Member
-------------------------------------------
Address: 2 South Park, 2nd Floor
San Francisco, CA 94107
YIP FAMILY TRUST
By: /s/ ILLEGIBLE
----------------------------------------------
Title: ILLEGIBLE
-------------------------------------------
Address: 18 Bridgeport Road
Newport Beach, CA 92657-1012
MAJILL CORPORATION
By: /s/ Hubert Secretan
----------------------------------------------
Title: Director/President
-------------------------------------------
Address: c/o #2 Rue Charles Bonnet
Geneva, Switzerland
F&W INVESTMENTS
By: /s/ ILLEGIBLE
----------------------------------------------
Address: Two Palo Alto Square
Palo Alto, CA 94306
H&Q IMGIS INVESTORS LP
By: /s/ Jackie Berterretche
----------------------------------------------
Title: Attorney-in-Fact
-------------------------------------------
Address: 1 Bush Street, Suite 1500
San Francisco, CA 94104
HAMBRECHT & QUIST CALIFORNIA
By: /s/ Jackie Berterretche
----------------------------------------------
Title: Attorney-in-Fact
-------------------------------------------
Address: 1 Bush Street, Suite 1500
San Francisco, CA 94104
<PAGE>
TAHMOUSH FAMILY TRUST
By: /s/ Carol H. Tahmoush
----------------------------------------------
Address: 28 Coventry
Newport Beach, CA 92660
LAGUNA PACIFIC PROFESSIONAL SALES &
MARKETING, INC.
By:
----------------------------------------------
Address: 4100 Birch Street, Suite 100
Newport Beach, CA 92660
LANDVIEW LIMITED
By:
----------------------------------------------
Title:
----------------------------------------------
Address: c/o Pettman Smith
79 Knightsbridge
London SWIX 7RB
ENGLAND
By:
----------------------------------------------
Ross Bott
Address: 152 Poplar Street
Half Moon Bay, CA 94019
<PAGE>
CONVERGENCE VENTURES I, L.P.
By: /s/ Eric Di Benedetto
----------------------------------------------
Title: General Partner
--------------------------------------------
Address: 3000 Sand Hill Road
Building 2, Suite 235
Menlo Park, CA 94025
CONVERGENCE ENTREPRENEURS I, L.P.
By: /s/ Eric Di Benedetto
----------------------------------------------
Title: General Partner
--------------------------------------------
Address: 3000 Sand Hill Road
Building 2, Suite 235
Menlo Park, CA 94025
COMDISCO, INC.
By: /s/ James P. Labe
----------------------------------------------
Title: President
--------------------------------------------
Address: 3000 Sand Hill Road
Building 1, Suite 155
Menlo Park, CA 94025
ROBERT CUEVAS
By: /s/ Robert Cuevas
----------------------------------------------
Robert Cuevas
Address: 4100 Birch Street, Suite 100
Newport Beach, CA
DEL MAR PARTNERS
By: /s/ Anthony M. Capozza
----------------------------------------------
Title: Managing Member
G & H Partners
By: /s/ Steven M. Spurlock
----------------------------------------------
Steven M. Spurlock
Address: 155 Constitution Drive
Menlo Park, CA 94025
<PAGE>
AMERICA ONLINE, INC.
By: /s/ David M. Colburn
----------------------------------------------
David M. Colburn
Senior Vice President, Business Affairs
Address: 22000 AOL Way
Dulles, VA 20166
<PAGE>
SCHEDULE A
EXISTING INVESTORS
360 Capital Partners, L.P.
21st Century Internet Fund, L.P.
Attractor LP
Attractor Dearborn Partners LP
Attractor Institutional LP
Ross Bott
Comdisco, Inc.
Convergence Ventures I, L.P.
Convergence Entrepreneurs I, L.P.
Robert Cuevas
Del Mar Partners, LP
F & W Investments 1997
G & H Partners
Hambrecht & Quist California
H & Q Imgis Investors LP
Hummer Winblad Technology Fund II-A L.P.
Hummer Winblad Technology Fund II L.P.
Hummer Winblad Venture Partners II L.P.
IBL Corporation (is also a Series D investor)
IRS Partners #15, LP
Landview Limited
Marcia Lou Hobbs Living Trust dated 8/27/96
Collin Madden
<PAGE>
Mcjill Corporation
Morgan Adams, Inc.
Michael Oschmann
Querry Family Trust
Tahmoush Family Trust
Washington Holdings, L.P.
YIP Family Trust
SERIES E INVESTORS
------------------
America Online, Inc.
<PAGE>
EXHIBIT A
1. Yahoo
2. Microsoft
3. CNet
4. DoubleClick
5. 24 X 7 Media
6. CMG Information Services
7. Netscape
8. Disney
9. AT&T
10. AdSmart
<PAGE>
Exhibit 4.3
AMENDED AND RESTATED VOTING AGREEMENT
THIS AMENDED AND RESTATED VOTING AGREEMENT (the "Agreement") is
made as of the 15th day of July, 1998, by and among Imgis, Inc., a California
corporation (the "Company"), certain holders of the Company's Preferred Stock
identified on Schedule A hereto (the "Investors"), and certain holders of the
Company's Common Stock identified on Schedule B hereto (the "Common Holders").
WHEREAS, certain of the Investors (the "Existing Investors") hold
shares of the Company's Series A Preferred Stock and/or shares of Common
Stock issued upon conversion thereof ("Series A Preferred Stock"), shares of
the Company's Series B1 Preferred Stock and/or shares of Common Stock issued
upon conversion thereof ("Series B1 Preferred Stock") or shares of the
Company's Series C Preferred Stock and/or shares of Common Stock issued upon
conversion thereof ("Series C Preferred Stock") and are parties to that
Voting Agreement dated July 2, 1997, as amended, by and among the Company and
the Existing Investors ("Prior Agreement"); and
WHEREAS, the Company, along with the Investors and the Common
Holders who together represent a majority of the shares of Preferred Stock
held by all parties to the Prior Agreement and a majority of the shares of
Common Stock held by all parties to the Prior Agreement, desire to terminate
the Prior Agreement and to accept the rights created pursuant hereto in lieu
of the rights granted to them under the Prior Agreement; and
WHEREAS, certain of the Investors are acquiring Series E Preferred
Stock ("Series E Preferred Stock") pursuant to a Series E Preferred Stock
Purchase Agreement (the "Purchase Agreement") of even date herewith; and
WHEREAS, in order to induce such Investors to consummate their
purchase of Series E Preferred Stock of the Company, the parties have agreed
to enter into this Agreement upon the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the mutual promises and
covenants set forth herein, the parties hereto hereby agree that the Prior
Agreement shall be superseded and replaced in its entirety by this Agreement,
and further agree as follows:
1. AGREEMENT TO VOTE. Each Investor hereby agrees to hold all of
the shares of the Company's Preferred Stock registered in its name (and any
securities of the Company issued with respect to, upon conversion of, or in
exchange or substitution for the Preferred Stock, and any other voting
securities of the Company subsequently acquired by such Investor)
(hereinafter collectively referred to as the "Investor Shares") subject to,
and to vote the Investor Shares in accordance with, the provisions of this
Agreement. Each Common Holder, as a holder of Common Stock of the Company,
hereby agrees on behalf of himself or herself to hold all of such shares of
Common Stock and any other securities of the Company acquired by him or her
in the future (and any securities of the Company issued with respect to, upon
conversion of, or in exchange or substitution for such securities) (the
"Common Holder Shares") subject to, and to
<PAGE>
vote the Common Holder Shares in accordance with, the provisions of this
Agreement.
2. BOARD SIZE. The Investor Shares and Common Holder Shares
shall be voted (or the holders thereof shall consent pursuant to an action by
written consent of the Company's shareholders) to ensure that the size of the
Company's Board of Directors shall be set and remain at seven (7) directors;
provided, however, that such Board size may be increased or decreased
pursuant to an amendment of this Agreement in accordance with Section 9
hereof.
3. ELECTION OF DIRECTORS. On all matters relating to the
election of directors of the Company, the Investor Shares and Common Holder
Shares shall be voted (or the holders thereof shall consent pursuant to an
action by written consent of the Company's shareholders) so as to elect as
members of the Company's Board of Directors:
(a) The Chief Executive Officer of the Company; unless there
is no duly elected and qualified Chief Executive Officer of the Company, then
one (1) individual designated by a majority of the shares of Common Stock
held by the Common Holders;
(b) One (1) individual designated by a majority of the shares
of Common Stock held by the Common Holders;
(c) Two (2) individuals designated by the holders of a
majority of the shares of Series B1 Preferred Stock then outstanding;
(d) One (1) individual designated by Metromail Corporation
("Metromail") who is a current Metromail employee or one (1) individual who
is reasonably acceptable to a majority of the Company's directors and is
designated by Metromail or by a party acquiring at least 317,126 shares of
Series C Preferred Stock (or Common Stock issuable upon the conversion
thereof) from 360 Capital Partners, L.P.;
(e) One (1) individual designated by Convergence Ventures I,
L.P.; and
(f) One (1) individual designated by America Online, Inc.
("AOL"), for so long as AOL and its affiliates collectively hold at least
364,166 shares of Series E Preferred Stock (appropriately adjusted for any
stock split, dividend, combination or other recapitalization) or the
equivalent number of shares of Common Stock issued upon conversion thereof,
or any equivalent combination of shares of Series E Preferred Stock and
Common Stock issued upon conversion thereof, and provided that AOL has opted
to elect an AOL designee as a member of the Company's Board of Directors.
The Company agrees that it will take all actions that are necessary and
within its power in order to give effect to the provisions of this Section
3(f).
4. REMOVAL. Any director of the Company may be removed from the
Company's Board of Directors in the manner allowed by law and the Company's
Amended and Restated Articles of Incorporation (the "Articles") and Bylaws,
but with respect to a director designated pursuant to subsections 3(b)
through 3(f) above, only upon the vote or written consent
2
<PAGE>
of the shareholders entitled to designate such director.
5. WAIVER OF DISSENTER'S RIGHTS. Each Major Investor identified
on Schedule C hereto (each a "Major Investor") agrees that, if so requested
by AOL, such Major Investor and its affiliates, prior to a Qualified IPO (as
defined below), will not exercise any dissenter's or appraisal rights with
respect to any Investor Shares or any Common Holder Shares held by such Major
Investor or its affiliates that are provided by the laws of the jurisdiction
in which the Company is incorporated in connection with a merger,
consolidation or similar corporate transaction of the Company into another
person for consideration with an aggregate fair market value of more than
$150 million that would qualify for pooling of interests accounting
treatment, where the Company has provided at least fifteen (15) business
days' notice to such holder prior to the date that the Company signs a
binding agreement to enter into such transaction with such other person
(provided that the disclosure to the Company's Board of Directors of such
transaction, at a meeting at which any designee of such Major Investor is
present either as an observer or as a member of the Company's Board of
Directors, shall be deemed to be effective notice for such purposes) and has
afforded such holder the opportunity to propose a competing offer, provided
that the procedures followed by the Company with respect to the solicitation
of a competing offer by such Major Investor do not place such holder in a
position that is less favorable than the position of such other person. The
foregoing waiver shall terminate and be of no further force and effect in the
event of the termination of the waiver of AOL provided for in Section 2.8(f)
of the Amended and Restated Investors' Rights Agreement dated as of even date
herewith by and among the Company, AOL and certain shareholders of the
Company listed on Schedule A thereto.
6. ADDITIONAL AGREEMENT. The Investor Shares and Common Holder
Shares shall be voted in opposition to any proposal (and the holders thereof
shall oppose such a proposal pursuant to an action by written consent of the
Company's shareholders) to authorize the issuance of any additional shares of
the Company's Preferred Stock, including an increase in the authorized number
of shares of any then existing series of Preferred Stock or of the Company's
Common Stock, such that would cause the Investors and the Common Holders to
hold less than a majority of the shares of the Company's Preferred Stock and
Common Stock, unless the holders of such newly authorized shares agree to
become parties to this Agreement by execution of a counterpart signature page
hereto.
7. SUCCESSORS IN INTEREST.
(a) Prior to a Qualified IPO (as defined below) and
notwithstanding anything to the contrary in Section 8 hereof, the provisions
of this Agreement shall be binding upon the successors in interest to any of
the Investor Shares or Common Holder Shares. Prior to a Qualified IPO and
notwithstanding anything to the contrary in Section 8 hereof, the Company
shall not permit the transfer of any of the Investor Shares or Common Holder
Shares on its books or issue new certificates representing any of the
Investor Shares or Common Holder Shares unless and until the person(s) to
whom such shares are to be transferred shall have executed a written
agreement, substantially in the form of this Agreement, pursuant to which
such person becomes a party to this Agreement, and agrees to be bound by all
the provisions hereof as if such person was a party hereunder. In or
following a Qualified IPO, the provisions of this Agreement
3
<PAGE>
shall not be binding upon the successors in interest to any of the Investor
Shares or Common Holder Shares.
(b) Each certificate representing any of the Investor Shares
or Common Holder Shares shall bear a legend reading as follows:
THE SHARES EVIDENCED HEREBY ARE SUBJECT TO AN AMENDED AND RESTATED
VOTING AGREEMENT DATED AS OF JULY __, 1998 (A COPY OF WHICH MAY BE OBTAINED
WITHOUT CHARGE FROM THE ISSUER), AND BY ACCEPTING ANY INTEREST IN SUCH
SHARES THE PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO AGREE TO AND
SHALL BECOME BOUND BY ALL THE PROVISIONS OF SUCH AMENDED AND RESTATED
VOTING AGREEMENT.
8. TERMINATION. This Agreement shall terminate in its entirety
and be of no further force or effect upon the earlier of:
(a) the date the Company consummates a firm commitment
underwritten public offering of its Common Stock under the Securities Act of
1933, as amended, the public offering price of which is not less than $13.73
per share (as adjusted for subsequent stock splits, stock dividends,
recapitalizations and the like) and in which aggregate net proceeds to the
Company total at least $20,000,000 (a "Qualified IPO"); provided, however,
that this Section 8(a) shall have no effect on the right of AOL to elect a
director pursuant to Section 3(f) hereof;
(b) the date upon which the Company first becomes subject to
the periodic reporting requirements of Section 12(g) or 15(d) of the
Securities Exchange Act of 1934, as amended; provided, however, that this
Section 8(b) shall have no effect on the right of AOL to elect a director
pursuant to Section 3(f) hereof; or
(c) July __, 2008.
9. AMENDMENTS AND WAIVERS. Any term hereof may be amended and
the observance of any term hereof may be waived (either generally or in a
particular instance and either retroactively or prospectively) only with the
written consent of (a) the Company, (b) the holders of a majority of the then
outstanding shares of Series B1 Preferred Stock and Series A Preferred Stock,
voting together as a single class, (c) the holders of a majority of the then
outstanding shares of Series C Preferred Stock, voting as a separate series,
(d) the holders of a majority of the then outstanding shares of Series E
Preferred Stock, voting as a separate series, and (e) the parties hereto or
their assigns holding not less than a majority of the shares of Common Stock
then held by all parties hereto. Any amendment or waiver so effected shall
be binding upon the Company, all parties hereto, any assignee of any such
party, and any other shareholder of the Company subject to the terms of this
Agreement.
10. STOCK SPLITS, STOCK DIVIDENDS, ETC. In the event of any stock
split, stock dividend, recapitalization, reorganization, or the like, any
securities issued with respect to the
4
<PAGE>
Investor Shares or the Common Holder Shares shall become "Investor Shares" or
"Common Holder Shares" for purposes of this Agreement and shall be endorsed
with the legend set forth in Section 7(b) hereof.
11. ENFORCEABILITY/SEVERABILITY. The parties hereto agree that
each provision of this Agreement shall be interpreted in such a manner as to
be effective and valid under applicable law. If any provision of this
Agreement shall nevertheless be held to be prohibited by or invalid under
applicable law, (a) such provision shall be effective only to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement, and (b) the parties
shall, to the extent permissible by applicable law, amend this Agreement, or
enter into a voting trust agreement under which the Common Holder Shares and
the Investor Shares shall be transferred to the voting trust created thereby,
so as to make effective and enforceable the intent of this Agreement.
12. GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
13. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
14. SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided in this Agreement, the provisions hereof shall inure to the benefit
of, and be binding upon, the successors and assigns of the parties hereto.
15. REMEDIES. Each holder of Investor Shares or Common Holder
Shares will be entitled to enforce its rights under this Agreement
specifically, to recover damages by reason of any breach of any provision
hereof, and to exercise all other rights existing in its favor. Each holder
of Investor Shares or Common Holder Shares agrees and acknowledges that money
damages may not be an adequate remedy for any breach of the provisions of
this Agreement and that each holder may, in its sole discretion, apply for
specific performance and injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
IMGIS, INC.
By: /s/ Charles W. Berger
-----------------------------------------
Charles W. Berger
Chief Executive Officer
Address: 10101 N. De Anza Blvd., Suite 210
Cupertino, CA 95014
COMMON HOLDERS:
/s/ Charles W. Berger
--------------------------------------------
Charles W. Berger
Address: 10101 N. De Anza Blvd., Suite 210
Cupertino, CA 95014
/s/ Chad Steelberg
--------------------------------------------
Chad Steelberg
Address: 611 Anton Boulevard, Suite 400
Costa Mesa, CA 92612
/s/ Ryan Steelberg
--------------------------------------------
Ryan Steelberg
Address: 611 Anton Boulevard, Suite 400
Costa Mesa, CA 92612
WASHINGTON HOLDINGS, L.P.
By: /s/ Dirk Wray
-----------------------------------------
Title: General Partner
-------------------------------------
<PAGE>
Address: 30551 Hilltop Way
San Juan Capistrano, CA 92675
<PAGE>
INVESTORS:
360 CAPITAL PARTNERS, L.P.
By: /s/ ILLEGIBLE
-----------------------------------------
Title: President
--------------------------------------
Address: 360 East 22nd Street
Lombard, IL 60148
HUMMER WINBLAD
VENTURE PARTNERS II, L.P.
By: /s/ Mark Gorenberg
----------------------------------------
Title: Partner
-------------------------------------
Address: 2 South Park, 2nd Floor
San Francisco, CA 94107
HUMMER WINBLAD
TECHNOLOGY FUND II, L.P.
By: /s/ Mark Gorenberg
----------------------------------------
Title: Partner
-------------------------------------
Address: 2 South Park, 2nd Floor
San Francisco, CA 94107
<PAGE>
HUMMER WINBLAD
TECHNOLOGY FUND II-A, L.P.
By: /s/ Mark Gorenberg
----------------------------------------------
Title: Partner
------------------------------------------
Address: 2 South Park, 2nd Floor
San Francisco, CA 94107
21st CENTURY INTERNET FUND, L.P.
By: /s/ J. Neil Weintraut
----------------------------------------------
Title: Member
------------------------------------------
Address: 2 South Park, 2nd Floor
San Francisco, CA 94107
WASHINGTON HOLDINGS, L.P.
By: /s/ Dirk Wray
----------------------------------------------
Title: Partner
------------------------------------------
Address: 30551 Hilltop Way
San Juan Capistrano, CA 92675
IBL CORPORATION
By: /s/ Pinak Maitra
----------------------------------------------
Title: Vice President
------------------------------------------
Address: c/o Hunter Capital Group, L.L.C.
Attn: Larry Griffin
<PAGE>
136 Heber Avenue, Suite 304
Park City, UT 84060
<PAGE>
CONVERGENCE VENTURES I, L.P.
By: /s/ Eric Di Benedetto
----------------------------------------------
Title: General Partner
------------------------------------------
Address: 3000 Sand Hill Road
Building 2, Suite 235
Menlo Park, CA 94025
CONVERGENCE ENTREPRENEURS I, L.P.
By: /s/ Eric Di Benedetto
----------------------------------------------
Title: General Partner
------------------------------------------
Address: 3000 Sand Hill Road
Building 2, Suite 235
Menlo Park, CA 94025
COMDISCO, INC.
By: /s/ James P. Labe
----------------------------------------------
Title: President
------------------------------------------
Address: 3000 Sand Hill Road
Building 1, Suite 155
Menlo Park, CA 94025
By: /s/ Nicholaus Khabbaz
----------------------------------------------
Nicholaus Khabbaz
Address: 176 Federal Street
Boston, MA 02110
<PAGE>
By: /s/ Ross Bott
----------------------------------------------
Ross Bott
Address: 152 Poplar Street
Half Moon Bay, CA 94019
<PAGE>
ATTRACTOR LP
By: Attractor Ventures LLC, its General Partner
By: /s/ Harvey Allison
----------------------------------------------
Harvey Allison, Managing Member
Address: 1110 Burlingame Ave., Suite 211
Burlingame, CA 94010
ATTRACTOR DEARBORN PARTNERS LP
By: Attractor Ventures LLC, its General Partner
By: /s/ Harvey Allison
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Harvey Allison, Managing Member
Address: 1110 Burlingame Ave., Suite 211
Burlingame, CA 94010
ATTRACTOR INSTITUTIONAL LP
By: Attractor Ventures LLC, its General Partner
By: /s/ Harvey Allison
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Harvey Allison, Managing Member
Address: 1110 Burlingame Ave., Suite 211
Burlingame, CA 94010
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AMERICA ONLINE, INC.
By: /s/ David M. Colburn
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David M. Colburn
Senior Vice President, Business Affairs
Address: 22000 AOL Way
Dulles, VA 20166
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SCHEDULE A
INVESTORS
Hummer Winblad
Venture Partners II, L.P.
Hummer Winblad
Technology Fund, L.P.
Hummer Winblad
Technology II-A, L.P.
21st Century
Internet Fund, L.P.
360 Capital Partners, L.P.
Landview Limited
Ross Bott
IBL Corporation
Convergence Ventures I, L.P.
Convergence Entrepreneurs I, L.P.
Comdisco, Inc.
America Online, Inc.
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SCHEDULE B
COMMON HOLDERS
Washington Holdings, L.P.
Chad Steelberg
Ryan Steelberg
Charles W. Berger
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SCHEDULE C
MAJOR INVESTORS
Hummer Winblad
Venture Partners II, L.P.
Hummer Winblad
Technology Fund, L.P.
Hummer Winblad
Technology II-A, L.P.
21st Century
Internet Fund, L.P.
360 Capital Partners, L.P.
IBL Corporation
Convergence Ventures I, L.P.
Convergence Entrepreneurs I, L.P.
Attractor LP
Attractor Dearborn Partners LP
Attractor Institutional LP
Washington Holdings, L.P.
Charles W. Berger
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Exhibit 10.2
STARPOINT SOFTWARE, INC.
1996 STOCK PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are to attract
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of the grant. Stock
Purchase Rights may also be granted under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees as shall
be administering the Plan in accordance with Section 4 hereof.
(b) "APPLICABLE LAWS" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws
of any foreign country or jurisdiction where Options or Stock Purchase Rights
are granted under the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a committee of Directors appointed by the Board
in accordance with Section 4 hereof.
(f) "COMMON STOCK" means the Common Stock of the Company.
(g) "COMPANY" means StarPoint Software, Inc., a Delaware corporation.
(h) "CONSULTANT" means any person who is engaged by the Company or
any Parent or Subsidiary to render consulting or advisory services and is
compensated for such services.
(i) "DIRECTOR" means a member of the Board of Directors of the
Company.
(j) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any
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successor. For purposes of Incentive Stock Options, no such leave may exceed
ninety days, unless reemployment upon expiration of such leave is guaranteed by
statute or contract. If reemployment upon expiration of a leave of absence
approved by the Company is not so guaranteed, on the 181st day of such leave any
Incentive Stock Option held by the Optionee shall cease to be treated as an
Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory
Stock Option. Neither service as a Director nor payment of a director's fee by
the Company shall be sufficient to constitute "employment" by the Company.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(l) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system
for the last market trading day prior to the time of determination reported in
THE WALL STREET JOURNAL or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(m) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
(n) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(o) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(p) "OPTION" means a stock option granted pursuant to the Plan.
(q) "OPTION AGREEMENT" means an agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
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(r) "OPTION EXCHANGE PROGRAM" means a program whereby outstanding
Options are exchanged for Options with a lower exercise price.
(s) "OPTIONED STOCK" means the Common Stock subject to an Option or a
Stock Purchase Right.
(t) "OPTIONEE" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.
(u) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(v) "PLAN" means this 1996 Stock Plan.
(w) "RESTRICTED STOCK" means shares of Common Stock acquired pursuant
to a grant of a Stock Purchase Right under Section 11 below.
(x) "SECTION 16(b)" means Section 16(b) of the Securities Exchange
Act of 1934, as amended.
(y) "SERVICE PROVIDER" means an Employee, Director or Consultant.
(z) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 12 below.
(aa) "STOCK PURCHASE RIGHT" means a right to purchase Common Stock
pursuant to Section 11 below.
(bb) "SUBSIDIARY" means a "subsidiary corporation," whether now or
hereafter existing as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 12 of
the Plan, the maximum aggregate number of Shares which may be subject to option
and sold under the Plan is 741,000 Shares. The Shares may be authorized but
unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated). However, Shares that have actually been issued under the Plan,
upon exercise of either an Option or Stock Purchase Right, shall not be returned
to the Plan and shall not become available for future distribution under the
Plan, except that if Shares of Restricted Stock are repurchased by the Company
at their original purchase price, such Shares shall become available for future
grant under the Plan.
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4. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Board or a Committee
appointed by the Board, which Committee shall be constituted to comply with
Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan and, in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities, the
Administrator shall have the authority in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may from time to time be granted hereunder;
(iii) to determine the number of Shares to be covered by each
such award granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, of any Option or
Stock Purchase Right granted hereunder. Such terms and conditions include, but
are not limited to, the exercise price, the time or times when Options or Stock
Purchase Rights may be exercised (which may be based on performance criteria),
any vesting acceleration or waiver of forfeiture restrictions, and any
restriction or limitation regarding any Option or Stock Purchase Right or the
Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(vi) to determine whether and under what circumstances an Option
may be settled in cash under subsection 9(f) instead of Common Stock;
(vii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option has declined since the date the Option was granted;
(viii) to initiate an Option Exchange Program;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to allow Optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon exercise
of an Option or Stock Purchase Right that number of Shares having a Fair Market
Value equal to the amount required to be withheld. The Fair Market Value of the
Shares to be withheld shall be determined on the date that the amount of tax to
be withheld is to be determined. All elections by Optionees to have Shares
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withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable; and
(xi) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees.
5. ELIGIBILITY.
(a) Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
(b) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(c) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon any Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall it interfere in
any way with his or her right or the Company's right to terminate such
relationship at any time, with or without cause.
6. TERM OF PLAN. The Plan shall become effective upon its adoption by
the Board. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 14 of the Plan.
7. TERM OF OPTION. The term of each Option shall be stated in the Option
Agreement; provided, however, that the term shall be no more than ten (10) years
from the date of grant thereof. In the case of an Incentive Stock Option
granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant or such shorter term as may be provided
in the Option Agreement.
8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued upon
exercise of an Option shall be such price as is determined by the Administrator,
but shall be subject to the following:
(i) In the case of an Incentive Stock Option
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(A) granted to an Employee who, at the time of grant of
such Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
exercise price shall be no less than 110% of the Fair Market Value per Share on
the date of grant.
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a Service Provider who, at the time of grant
of such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the exercise price shall be no less than 110% of the Fair Market Value per Share
on the date of the grant.
(B) granted to any other Service Provider, the per Share
exercise price shall be no less than 85% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted
with a per Share exercise price other than as required above pursuant to a
merger or other corporate transaction.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) consideration received by the Company
under a cashless exercise program implemented by the Company in connection with
the Plan, or (6) any combination of the foregoing methods of payment. In making
its determination as to the type of consideration to accept, the Administrator
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. EXERCISE OF 0PTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable according to the terms hereof at such
times and under such conditions as determined by the Administrator and set forth
in the Option Agreement, but in no case at a rate of less than 20% per year over
five (5) years from the date the Option is granted. Unless the Administrator
provides otherwise, vesting of Options granted hereunder shall be tolled during
any unpaid leave of absence. An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to
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exercise the Option, and (ii) full payment for the Shares with respect to which
the Option is exercised. Full payment may consist of any consideration and
method of payment authorized by the Administrator and permitted by the Option
Agreement and the Plan. Shares issued upon exercise of an Option shall be
issued in the name of the Optionee or, if requested by the Optionee, in the name
of the Optionee and his or her spouse. Until the Shares are issued (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company), no right to vote or receive dividends
or any other rights as a shareholder shall exist with respect to the Shares,
notwithstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such Shares promptly after the Option is exercised. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Shares are issued, except as provided in Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. If an
Optionee ceases to be a Service Provider, such Optionee may exercise his or her
Option within such period of time as is specified in the Option Agreement (of at
least thirty (30) days) to the extent that the Option is vested on the date of
termination (but in no event later than the expiration of the term of the Option
as set forth in the Option Agreement). To the extent that the Optionee is not
entitled to exercise the Option on the date of such termination, or if the
Optionee does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(c) DISABILITY OF OPTIONEE. If an Optionee ceases to be a Service
Provider as a result of Optionee's disability, the Optionee may within twelve
(12) months from the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise an Option to the extent otherwise entitled to exercise it
at the date of such termination. If such disability is not a "disability" as
such term is defined in Section 22(e)(3) of the Code, in the case of an
Incentive Stock Option such Incentive Stock Option shall automatically cease to
be treated as an Incentive Stock Option and shall be treated for tax purposes as
a Nonstatutory Stock Option on the day three months and one day following such
termination. To the extent that the Optionee is not entitled to exercise the
Option on the date of termination, or if the Optionee does not exercise such
Option to the extent so entitled within the time specified herein, the Option
shall terminate, and the Shares covered by such Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. If an Optionee dies while a Service
Provider, the Option may be exercised at any time within twelve (12) months
following the date of death (but in no event later than the expiration of the
term of such Option as set forth in the Notice of Grant) to the extent vested
on the date of death. If, at the time of death, the Optionee is not vested as
to the entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. The Option may be exercised by the executor
or administrator of the Optionee's estate or, if none, by the person(s)
entitled to exercise the Option under the Optionee's will or the laws of
descent or
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distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) BUYOUT PROVISIONS. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
10. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Options and
Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
11. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically of the terms, conditions and restrictions
related to the offer, including the number of Shares that such person shall be
entitled to purchase, the price to be paid, and the time within which such
person must accept such offer. The terms of the offer shall comply in all
respects with Section 260.140.42 of Title 10 of the California Code of
Regulations. The offer shall be accepted by execution of a Restricted Stock
purchase agreement in the form determined by the Administrator.
(b) REPURCHASE OPTION. Unless the Administrator determines
otherwise, the Restricted Stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine, but in no case at a rate of less than 20% per year
over five years from the date of purchase.
(c) OTHER PROVISIONS. The Restricted Stock purchase agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have rights equivalent to those of a shareholder
and shall be a shareholder when his or her purchase is entered upon the records
of the duly authorized transfer agent of the Company. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the Stock Purchase Right is exercised, except as provided in Section 12 of
the Plan.
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12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by
the shareholders of the Company, the number of shares of Common Stock covered
by each outstanding Option or Stock Purchase Right, and the number of shares
of Common Stock which have been authorized for issuance under the Plan but as
to which no Options or Stock Purchase Rights have yet been granted or which
have been returned to the Plan upon cancellation or expiration of an Option
or Stock Purchase Right, as well as the price per share of Common Stock
covered by each such outstanding Option or Stock Purchase Right, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company. The conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of
stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock
subject to an Option or Stock Purchase Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify the
Optionee at least fifteen (15) days prior to such proposed action. To the
extent it has not been previously exercised, the Option or Stock Purchase Right
shall terminate immediately prior to the consummation of such proposed action.
(c) MERGER OR ASSET SALE. In the event of a merger of the Company with or
into another corporation, or the sale of substantially all of the assets of the
Company, each outstanding Option and Stock Purchase Right shall be assumed or an
equivalent option or right substituted by the successor corporation or a Parent
or Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the Option or Stock Purchase
Right, the Optionee shall fully vest in and have the right to exercise the
Option or Stock Purchase flight as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or exercisable. If an
Option or Stock Purchase Right becomes fully vested and exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully exercisable for a period of
fifteen (15) days from the date of such notice and the Option or Stock Purchase
Right shall terminate upon the expiration of such period. For the purposes of
this paragraph, the Option or Stock Purchase Right shall be considered assumed
if. following the merger or sale of assets, the option or right confers the
right to purchase or receive, for each Share of Optioned Stock subject to the
Option or Stock Purchase Right immediately prior to the merger or sale of
assets, the consideration (whether stock, cash, or other securities or property)
received in the merger or sale of assets by holders of Common Stock for each
Share held on the effective date of the transaction (and if holders were offered
a choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may,
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with the consent of the successor corporation, provide for the consideration to
be received upon the exercise of the Option or Stock Purchase Right, for each
Share of Optioned Stock subject to the Option or Stock Purchase Right, to be
solely common stock of the successor corporation or its Parent equal in fair
market value to the per share consideration received by holders of Common Stock
in the merger or sale of assets.
13. TIME OF GRANTING, OPTIONS AND STOCK PURCHASE RIGHTS. The date of grant
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting, such Option or Stock
Purchase Right, or such other date as is determined by the Administrator.
Notice of the determination shall be given to each Employee or Consultant to
whom an Option or Stock Purchase Right is so granted within a reasonable time
after the date of such grant.
14. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) SHAREHOLDER APPROVAL. The Board shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed othewise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
15. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of an
Option, the Administrator may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are
being purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.
16. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any
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liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
17. RESERVATION OF SHARES. The Company, during the term of this Plan,
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the degree and manner
required under Applicable Laws.
19. INFORMATION TO OPTIONEES AND PURCHASERS. The Company shall provide to
each Optionee and to each individual who acquires Shares pursuant to the Plan,
not less frequently than annually during the period such Optionee or purchaser
has one or more Options or Stock Purchase Rights outstanding, and, in the case
of an individual who acquires Shares pursuant to the Plan, during the period
such individual owns such Shares, copies of annual financial statements. The
Company shall not be required to provide such statements to key employees whose
duties in connection with the Company assure their access to equivalent
information.
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Exhibit 10.3
THE OPTION GRANTED PURSUANT TO THIS AGREEMENT AND THE SHARES ISSUABLE UPON THE
EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED.
IMGIS, INC. 1997 STOCK PLAN:
STOCK OPTION AGREEMENT
SECTION 1. GRANT OF OPTION.
(a) OPTION. On the terms and conditions set forth in the Notice of Stock
Option Grant and this Agreement, the Company grants to the Optionee on the Date
of Grant the option to purchase at the Exercise Price the number of Shares set
forth in the Notice of Stock Option Grant. The Exercise Price is agreed to be at
least 100% of the Fair Market Value per Share on the Date of Grant (110% of Fair
Market Value if Section 3(b) of the Plan applies). This option is intended to be
an ISO or a Nonstatutory Option, as provided in the Notice of Stock Option
Grant.
(b) STOCK PLAN AND DEFINED TERMS. This option is granted pursuant to the
Plan, a copy of which the Optionee acknowledges having received. The provisions
of the Plan are incorporated into this Agreement by this reference. Capitalized
terms are defined in Section 14 of this Agreement.
SECTION 2. RIGHT TO EXERCISE.
(a) EXERCISABILITY. Subject to Subsections (b) and (c) below and the other
conditions set forth in this Agreement, all or part of this option may be
exercised prior to its expiration at the time or times set forth in the Notice
of Stock Option Grant. Shares purchased by exercising this option may be subject
to the Right of Repurchase under Section 7.
(b) $100,000 LIMITATION. If this Option is designated as an ISO in the
Notice of Stock Option Grant, then the Optionee's right to exercise this option
shall be deferred to the extent (and only to the extent) that this option
otherwise would not be treated as an ISO by reason of the $100,000 annual
limitation under Section 422(d) of the Code, except that:
(i) The Optionee's right to exercise this option shall not be deferred
with respect to that portion of the Shares subject to this option whose
Fair Market Value as of the Date of Grant exceeds $500,000; and
(ii) The Optionee's right to exercise this option shall no longer be
deferred in the event that (A) a Change in Control occurs, (B) this option
is not assumed
<PAGE>
by the surviving corporation or its parent and (C) the surviving
corporation or its parent does not substitute its own option for this
option.
(c) SHAREHOLDER APPROVAL. Any other provision of this Agreement
notwithstanding,
no portion of this option shall be exercisable at any time prior to the approval
of the Plan by the Company's shareholders.
SECTION 3. NO TRANSFER OR ASSIGNMENT OF OPTION.
Except as otherwise provided in this Agreement, this option and the rights
and privileges conferred hereby shall not be sold, pledged or otherwise
transferred (whether by operation of law or otherwise) and shall not be subject
to sale under execution, attachment, levy or similar process.
SECTION 4. EXERCISE PROCEDURES.
(a) NOTICE OF EXERCISE. The Optionee or the Optionee's representative may
exercise this option by giving written notice to the Company pursuant to Section
13(c). The notice shall specify the election to exercise this option, the number
of Shares for which it is being exercised and the form of payment. The notice
shall be signed by the person exercising this option. In the event that this
option is being exercised by the representative of the Optionee, the notice
shall be accompanied by proof (satisfactory to the Company) of the
representative's right to exercise this option. The Optionee or the Optionee's
representative shall deliver to the Company, at the time of giving the notice,
payment in a form permissible under Section 5 for the full amount of the
Purchase Price.
(b) ISSUANCE OF SHARES. After receiving a proper notice of exercise, the
Company shall cause to be issued a certificate or certificates for the Shares as
to which this option has been exercised, registered in the name of the person
exercising this option (or in the names of such person and his or her spouse as
community property or as joint tenants with right of survivorship). The Company
shall cause such certificate or certificates to be deposited in escrow or
delivered to or upon the order of the person exercising this option.
(c) WITHHOLDING TAXES. In the event that the Company determines that it is
required to withhold any tax as a result of the exercise of this option, the
Optionee, as a condition to the exercise of this option, shall make arrangements
satisfactory to the Company to enable it to satisfy all withholding
requirements. The Optionee shall also make arrangements satisfactory to the
Company to enable it to satisfy any withholding requirements that may arise in
connection with the vesting or disposition of Shares purchased by exercising
this option.
SECTION 5. PAYMENT FOR STOCK.
(a) CASH. All or part of the Purchase Price may be paid in cash or cash
equivalents.
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(b) SURRENDER OF STOCK. All or part of the Purchase Price may be paid by
the surrender of Shares in good form for transfer. Such Shares must have a fair
market value (as determined by the Board of Directors) on the date of exercise
of this option which, together with any amount paid in another form permissible
under this Section 5, is equal to the Purchase Price. The Optionee shall not
surrender Shares in payment of the Exercise Price if such surrender would cause
the Company to recognize compensation expense with respect to the option for
financial reporting purposes.
(c) EXERCISE/SALE. If Stock is publicly traded, all or part of the Purchase
Price and any withholding taxes may be paid by the delivery (on a form
prescribed by the Company) of an irrevocable direction to a securities broker
approved by the Company to sell Shares and to deliver all or part of the sales
proceeds to the Company.
(d) EXERCISE/PLEDGE. If Stock is publicly traded, all or part of the
Purchase Price and any withholding taxes may be paid by the delivery (on a form
prescribed by the Company) of an irrevocable direction to pledge Shares to a
securities broker or lender approved by the Company, as security for a loan, and
to deliver all or part of the loan proceeds to the Company.
SECTION 6. TERM AND EXPIRATION.
(a) BASIC TERM. This option shall in any event expire on the expiration
date set forth in the Notice of Stock Option Grant, which date is 10 years after
the Date of Grant (five years after the Date of Grant if this option is
designated as an ISO in the Notice of Stock Option Grant and Section 3(b) of the
Plan applies).
(b) TERMINATION OF SERVICE (EXCEPT BY DEATH). If the Optionee's Service
terminates for any reason other than death, then this option shall expire on the
earliest of the following occasions:
(i) The expiration date determined pursuant to Subsection (a) above;
(ii) The date three months after the termination of the Optionee's
Service for any reason other than Disability; or
(iii) The date six months after the termination of the Optionee's
Service by reason of Disability.
The Optionee may exercise all or part of this option at any time before its
expiration under the preceding sentence, but only to the extent that this option
had become exercisable before the Optionee's Service terminated. When the
Optionee's Service terminates, this option shall expire immediately with respect
to the number of Shares for which this option is not yet exercisable and with
respect to any Restricted Shares. In the event that the Optionee dies after
termination of Service but before the expiration of this option, all or part of
this option may be exercised (prior to expiration) by the executors or
administrators of the Optionee's estate or by any person who has acquired this
option directly from the Optionee by beneficiary designation, bequest or
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<PAGE>
inheritance, but only to the extent that this option had become exercisable
before the Optionee's Service terminated.
(c) DEATH OF THE OPTIONEE. If the Optionee dies while in Service, then this
option shall expire on the earlier of the following dates:
(i) The expiration date determined pursuant to Subsection (a) above;
or
(ii) The date 12 months after the Optionee's death.
All or part of this option may be exercised at any time before its expiration
under the preceding sentence by the executors or administrators of the
Optionee's estate or by any person who has acquired this option directly from
the Optionee by beneficiary designation, bequest or inheritance, but only to the
extent that this option had become exercisable before the Optionee's death. When
the Optionee dies, this option shall expire immediately with respect to the
number of Shares for which this option is not yet exercisable and with respect
to any Restricted Shares.
(d) LEAVES OF ABSENCE. For any purpose under this Agreement, Service shall
be deemed to continue while the Optionee is on a bona fide leave of absence, if
such leave was approved by the Company in writing and if continued crediting of
Service for such purpose is expressly required by the terms of such leave or by
applicable law (as determined by the Company).
(e) NOTICE CONCERNING ISO TREATMENT. If this option is designated as an ISO
in the Notice of Stock Option Grant, it ceases to qualify for favorable tax
treatment as an ISO to the extent it is exercised (i) more than three months
after the date the Optionee ceases to be an Employee for any reason other than
death or permanent and total disability (as defined in Section 22(e)(3) of the
Code), (ii) more than 12 months after the date the Optionee ceases to be an
Employee by reason of such permanent and total disability or (iii) after the
Optionee has been on a leave of absence for more than 90 days, unless the
Optionee's reemployment rights are guaranteed by statute or by contract.
SECTION 7. RIGHT OF REPURCHASE.
(a) SCOPE OF REPURCHASE RIGHT. Unless they have become vested in accordance
with the Notice of Stock Option Grant and Subsection (c) below, the Shares
acquired under this Agreement initially shall be Restricted Shares and shall be
subject to a right (but not an obligation) of repurchase by the Company. The
Optionee shall not transfer, assign, encumber or otherwise dispose of any
Restricted Shares, except as provided in the following sentence. The Optionee
may transfer Restricted Shares (i) by beneficiary designation, will or intestate
succession or (ii) to the Optionee's spouse, children or grandchildren or to a
trust established by the Optionee for the benefit of the Optionee or the
Optionee's spouse, children or grandchildren, provided in either case that the
Transferee agrees in writing on a form prescribed by the Company to be bound by
all provisions of this Agreement. If the Optionee transfers any Restricted
Shares, then this Section 7 shall apply to the Transferee to the same extent as
to the Optionee.
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<PAGE>
(b) CONDITION PRECEDENT TO EXERCISE. The Right of Repurchase shall be
exercisable only during the 60-day period next following the later of:
(i) The date when the Optionee's Service terminates for any reason,
with or without cause, including (without limitation) death or disability;
or
(ii) The date when this option was exercised by the Optionee, the
executors or administrators of the Optionee's estate or any person who has
acquired this option directly from the Optionee by bequest, inheritance or
beneficiary designation.
(c) LAPSE OF REPURCHASE RIGHT. The Right of Repurchase shall lapse with
respect to the Shares subject to this option in accordance with the vesting
schedule set forth in the Notice of Stock Option Grant. The Right of Repurchase
shall lapse and all of the remaining Restricted Shares shall become vested if
(i) the Company is subject to a Change in Control and (ii) the Right of
Repurchase is not assigned to the entity that employs the Optionee immediately
after the Change in Control or to its parent or subsidiary.
(d) REPURCHASE COST. If the Company exercises the Right of Repurchase, it
shall pay the Optionee an amount equal to the Exercise Price for each of the
Restricted Shares being repurchased.
(e) EXERCISE OF REPURCHASE RIGHT. The Right of Repurchase shall be
exercisable only by written notice delivered to the Optionee prior to the
expiration of the 60-day period specified in Subsection (b) above. The notice
shall set forth the date on which the repurchase is to be effected. Such date
shall not be more than 30 days after the date of the notice. The certificate(s)
representing the Restricted Shares to be repurchased shall, prior to the close
of business on the date specified for the repurchase, be delivered to the
Company properly endorsed for transfer. The Company shall, concurrently with the
receipt of such certificate(s), pay to the Optionee the purchase price
determined according to Subsection (d) above. Payment shall be made in cash or
cash equivalents or by canceling indebtedness to the Company incurred by the
Optionee in the purchase of the Restricted Shares. The Right of Repurchase shall
terminate with respect to any Restricted Shares for which it has not been timely
exercised pursuant to this Subsection (e).
(f) ADDITIONAL SHARES OR SUBSTITUTED SECURITIES. In the event of the
declaration of a stock dividend, the declaration of an extraordinary dividend
payable in a form other than stock, a spin-off, a stock split, an adjustment in
conversion ratio, a recapitalization or a similar transaction affecting the
Company's outstanding securities without receipt of consideration, any new,
substituted or additional securities or other property (including money paid
other than as an ordinary cash dividend) which are by reason of such transaction
distributed with respect to any Restricted Shares or into which such Restricted
Shares thereby become convertible shall immediately be subject to the Right of
Repurchase. Appropriate adjustments to reflect the distribution of such
securities or property shall be made to the number and/or class of the
Restricted Shares. Appropriate adjustments shall also, after each such
transaction, be made to the price per share to be paid upon the exercise of the
Right of Repurchase in order to reflect any change in the Company's outstanding
securities effected without receipt of consideration
5
<PAGE>
therefor; provided, however, that the aggregate purchase price payable for the
Restricted Shares shall remain the same.
(g) TERMINATION OF RIGHTS AS SHAREHOLDER. If the Company makes available,
at the time and place and in the amount and form provided in this Agreement, the
consideration for the Restricted Shares to be repurchased in accordance with
this Section 7, then after such time the person from whom such Restricted Shares
are to be repurchased shall no longer have any rights as a holder of such
Restricted Shares (other than the right to receive payment of such consideration
in accordance with this Agreement). Such Restricted Shares shall be deemed to
have been repurchased in accordance with the applicable provisions hereof,
whether or not the certificate(s) therefor have been delivered as required by
this Agreement.
(h) ESCROW. Upon issuance, the certificates for Restricted Shares shall be
deposited in escrow with the Company to be held in accordance with the
provisions of this Agreement. Any new, substituted or additional securities or
other property described in Subsection (f) above shall immediately be delivered
to the Company to be held in escrow, but only to the extent the Shares are at
the time Restricted Shares. All regular cash dividends on Restricted Shares (or
other securities at the time held in escrow) shall be paid directly to the
Optionee and shall not be held in escrow. Restricted Shares, together with any
other assets or securities held in escrow hereunder, shall be (i) surrendered to
the Company for repurchase and cancellation upon the Company's exercise of its
Right of Repurchase or Right of First Refusal or (ii) released to the Optionee
upon the Optionee's request to the extent the Shares are no longer Restricted
Shares (but not more frequently than once every six months). In any event, all
Shares which have vested (and any other vested assets and securities
attributable thereto) shall be released within 60 days after the earlier of (i)
the Optionee's cessation of Service or (ii) the lapse of the Right of First
Refusal.
SECTION 8. RIGHT OF FIRST REFUSAL.
(a) RIGHT OF FIRST REFUSAL. In the event that the Optionee proposes to
sell, pledge or otherwise transfer to a third party any Shares acquired under
this Agreement, or any interest in such Shares, the Company shall have the Right
of First Refusal with respect to all (and not less than all) of such Shares. If
the Optionee desires to transfer Shares acquired under this Agreement, the
Optionee shall give a written Transfer Notice to the Company describing fully
the proposed transfer, including the number of Shares proposed to be
transferred, the proposed transfer price, the name and address of the proposed
Transferee and proof satisfactory to the Company that the proposed sale or
transfer will not violate any applicable federal or state securities laws. The
Transfer Notice shall be signed both by the Optionee and by the proposed
Transferee and must constitute a binding commitment of both parties to the
transfer of the Shares. The Company shall have the right to purchase all, and
not less than all, of the Shares on the terms of the proposal described in the
Transfer Notice (subject, however, to any change in such terms permitted under
Subsection (b) below) by delivery of a notice of exercise of the Right of First
Refusal within 30 days after the date when the Transfer Notice was received by
the Company. The Company's rights under this Subsection (a) shall be freely
assignable, in whole or in part.
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<PAGE>
(b) TRANSFER OF SHARES. If the Company fails to exercise its Right of First
Refusal within 30 days after the date when it received the Transfer Notice, the
Optionee may, not later than 90 days following receipt of the Transfer Notice by
the Company, conclude a transfer of the Shares subject to the Transfer Notice on
the terms and conditions described in the Transfer Notice, provided that any
such sale is made in compliance with applicable federal and state securities
laws and not in violation of any other contractual restrictions to which the
Optionee is bound. Any proposed transfer on terms and conditions different from
those described in the Transfer Notice, as well as any subsequent proposed
transfer by the Optionee, shall again be subject to the Right of First Refusal
and shall require compliance with the procedure described in Subsection (a)
above. If the Company exercises its Right of First Refusal, the parties shall
consummate the sale of the Shares on the terms set forth in the Transfer Notice
within 60 days after the date when the Company received the Transfer Notice (or
within such longer period as may have been specified in the Transfer Notice);
provided, however, that in the event the Transfer Notice provided that payment
for the Shares was to be made in a form other than cash or cash equivalents paid
at the time of transfer, the Company shall have the option of paying for the
Shares with cash or cash equivalents equal to the present value of the
consideration described in the Transfer Notice.
(c) ADDITIONAL SHARES OR SUBSTITUTED SECURITIES. In the event of the
declaration of a stock dividend, the declaration of an extraordinary dividend
payable in a form other than stock, a spin-off, a stock split, an adjustment in
conversion ratio, a recapitalization or a similar transaction affecting the
Company's outstanding securities without receipt of consideration, any new,
substituted or additional securities or other property (including money paid
other than as an ordinary cash dividend) which are by reason of such transaction
distributed with respect to any Shares subject to this Section 8 or into which
such Shares thereby become convertible shall immediately be subject to this
Section 8. Appropriate adjustments to reflect the distribution of such
securities or property shall be made to the number and/or class of the Shares
subject to this Section 8.
(d) TERMINATION OF RIGHT OF FIRST REFUSAL. Any other provision of this
Section 8 notwithstanding, in the event that the Stock is readily tradable on an
established securities market when the Optionee desires to transfer Shares, the
Company shall have no Right of First Refusal, and the Optionee shall have no
obligation to comply with the procedures prescribed by Subsections (a) and (b)
above.
(e) PERMITTED TRANSFERS. This Section 8 shall not apply to (i) a transfer
by beneficiary designation, will or intestate succession or (ii) a transfer to
the Optionee's spouse, children or to a trust established by the Optionee for
the benefit of the Optionee or the Optionee's spouse, children or grandchildren,
provided in either case that the Transferee agrees in writing on a form
prescribed by the Company to be bound by all provisions of this Agreement. If
the Optionee transfers any Shares acquired under this Agreement, either under
this Subsection (e) or after the Company has failed to exercise the Right of
First Refusal, then this Section 8 shall apply to the Transferee to the same
extent as to the Optionee.
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<PAGE>
(f) TERMINATION OF RIGHTS AS SHAREHOLDER. If the Company makes available,
at the time and place and in the amount and form provided in this Agreement, the
consideration for the Shares to be purchased in accordance with this Section 8,
then after such time the person from whom such Shares are to be purchased shall
no longer have any rights as a holder of such Shares (other than the right to
receive payment of such consideration in accordance with this Agreement). Such
Shares shall be deemed to have been purchased in accordance with the applicable
provisions hereof, whether or not the certificate(s) therefor have been
delivered as required by this Agreement.
SECTION 9. LEGALITY OF INITIAL ISSUANCE.
No Shares shall be issued upon the exercise of this option unless and until
the Company has determined that:
(a) It and the Optionee have taken any actions required to register the
Shares under the Securities Act or to perfect an exemption from the registration
requirements thereof;
(b) Any applicable listing requirement of any stock exchange on which Stock
is listed has been satisfied; and
(c) Any other applicable provision of state or federal law has been
satisfied.
SECTION 10. NO REGISTRATION RIGHTS.
The Company may, but shall not be obligated to, register or qualify the
sale of Shares under the Securities Act or any other applicable law. The Company
shall not be obligated to take any affirmative action in order to cause the sale
of Shares under this Agreement to comply with any law.
SECTION 11. RESTRICTIONS ON TRANSFER.
(a) SECURITIES LAW RESTRICTIONS. Regardless of whether the offering and
sale of Shares under the Plan have been registered under the Securities Act or
have been registered or qualified under the securities laws of any state, the
Company at its discretion may impose restrictions upon the sale, pledge or other
transfer of such Shares (including the placement of appropriate legends on stock
certificates or the imposition of stop-transfer instructions) if, in the
judgment of the Company, such restrictions are necessary or desirable in order
to achieve compliance with the Securities Act, the securities laws of any state
or any other law.
(b) MARKET STAND-OFF. In connection with any underwritten public offering
by the Company of its equity securities pursuant to an effective registration
statement filed under the Securities Act, including the Company's initial public
offering, the Optionee shall not directly or indirectly sell, make any short
sale of, loan, hypothecate, pledge, offer, grant or sell any option or other
contract for the purchase of, purchase any option or other contract for the sale
of, or otherwise dispose of or transfer, or agree to engage in any of the
foregoing transactions with respect to, any Shares acquired under this Agreement
without the prior written consent of the
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<PAGE>
Company or its underwriters. Such restriction (the "Market Stand-Off") shall be
in effect for such period of time following the date of the final prospectus for
the offering as may be requested by the Company or such underwriters. In no
event, however, shall such period exceed 180 days. The Market Stand-Off shall in
any event terminate two years after the date of the Company's initial public
offering. In the event of the declaration of a stock dividend, a spin-off, a
stock split, an adjustment in conversion ratio, a recapitalization or a similar
transaction affecting the Company's outstanding securities without receipt of
consideration, any new, substituted or additional securities which are by reason
of such transaction distributed with respect to any Shares subject to the Market
Stand-Off, or into which such Shares thereby become convertible, shall
immediately be subject to the Market Stand-Off. In order to enforce the Market
Stand-Off, the Company may impose stop-transfer instructions with respect to the
Shares acquired under this Agreement until the end of the applicable stand-off
period. The Company's underwriters shall be beneficiaries of the agreement set
forth in this Subsection (b). This Subsection (b) shall not apply to Shares
registered in the public offering under the Securities Act, and the Optionee
shall be subject to this Subsection (b) only if the directors and officers of
the Company are subject to similar arrangements.
(c) INVESTMENT INTENT AT GRANT. The Optionee represents and agrees that the
Shares to be acquired upon exercising this option will be acquired for
investment, and not with a view to the sale or distribution thereof.
(d) INVESTMENT INTENT AT EXERCISE. In the event that the sale of Shares
under the Plan is not registered under the Securities Act but an exemption is
available which requires an investment representation or other representation,
the Optionee shall represent and agree at the time of exercise that the Shares
being acquired upon exercising this option are being acquired for investment,
and not with a view to the sale or distribution thereof, and shall make such
other representations as are deemed necessary or appropriate by the Company and
its counsel.
(e) LEGENDS. All certificates evidencing Shares purchased under this
Agreement shall bear the following legend:
"THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN
COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE
COMPANY AND THE REGISTERED HOLDER OF THE SHARES (OR THE
PREDECESSOR IN INTEREST TO THE SHARES). SUCH AGREEMENT GRANTS TO
THE COMPANY CERTAIN RIGHTS OF FIRST REFUSAL UPON AN ATTEMPTED
TRANSFER OF THE SHARES AND CERTAIN REPURCHASE RIGHTS UPON
TERMINATION OF SERVICE WITH THE COMPANY. THE SECRETARY OF THE
COMPANY WILL UPON WRITTEN REQUEST FURNISH A COPY OF SUCH
AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE."
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All certificates evidencing Shares purchased under this Agreement in an
unregistered transaction shall bear the following legend (and such other
restrictive legends as are required or deemed advisable under the provisions of
any applicable law):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF
COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."
(f) REMOVAL OF LEGENDS. If, in the opinion of the Company and its counsel,
any legend placed on a stock certificate representing Shares sold under this
Agreement is no longer required, the holder of such certificate shall be
entitled to exchange such certificate for a certificate representing the same
number of Shares but without such legend.
(g) ADMINISTRATION. Any determination by the Company and its counsel in
connection with any of the matters set forth in this Section 11 shall be
conclusive and binding on the Optionee and all other persons.
SECTION 12. ADJUSTMENT OF SHARES.
In the event of any transaction described in Section 8(a) of the Plan, the
terms of this option (including, without limitation, the number and kind of
Shares subject to this option and the Exercise Price) shall be adjusted as set
forth in Section 8(a) of the Plan. In the event that the Company is a party to a
merger or consolidation, this option shall be subject to the agreement of merger
or consolidation, as provided in Section 8(b) of the Plan.
SECTION 13. MISCELLANEOUS PROVISIONS.
(a) RIGHTS AS A SHAREHOLDER. Neither the Optionee nor the Optionee's
representative shall have any rights as a shareholder with respect to any Shares
subject to this option until the Optionee or the Optionee's representative
becomes entitled to receive such Shares by filing a notice of exercise and
paying the Purchase Price pursuant to Sections 4 and 5.
(b) NO RETENTION RIGHTS. Nothing in this option or in the Plan shall confer
upon the Optionee any right to continue in Service for any period of specific
duration or interfere with or otherwise restrict in any way the rights of the
Company (or any Parent or Subsidiary employing or retaining the Optionee) or of
the Optionee, which rights are hereby expressly reserved by each, to terminate
his or her Service at any time and for any reason, with or without cause.
(c) NOTICE. Any notice required by the terms of this Agreement shall be
given in writing and shall be deemed effective upon personal delivery or upon
deposit with the United States Postal Service, by registered or certified mail,
with postage and fees prepaid. Notice shall
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be addressed to the Company at its principal executive office and to the
Optionee at the address that he or she most recently provided to the Company.
(d) ENTIRE AGREEMENT. The Notice of Stock Option Grant, this Agreement and
the Plan constitute the entire contract between the parties hereto with regard
to the subject matter hereof. They supersede any other agreements,
representations or understandings (whether oral or written and whether express
or implied) which relate to the subject matter hereof.
(e) CHOICE OF LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California, as such laws are applied
to contracts entered into and performed in such State.
SECTION 14. DEFINITIONS.
(a) "AGREEMENT" shall mean this Stock Option Agreement.
(b) "BOARD OF DIRECTORS" shall mean the Board of Directors of the Company,
as constituted from time to time or, if a Committee has been appointed, such
Committee.
(c) "CHANGE IN CONTROL" shall mean:
(i) The consummation of a merger or consolidation of the Company with
or into another entity or any other corporate reorganization, if more than
50% of the combined voting power of the continuing or surviving entity's
securities outstanding immediately after such merger, consolidation or
other reorganization is owned by persons who were not shareholders of the
Company immediately prior to such merger, consolidation or other
reorganization; or
(ii) The sale, transfer or other disposition of all or substantially
all of the Company's assets.
A transaction shall not constitute a Change in Control if its sole purpose
is to change the state of the Company's incorporation or to create a holding
company that will be owned in substantially the same proportions by the persons
who held the Company's securities immediately before such transaction.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" shall mean a committee of the Board of Directors, as
described in Section 2 of the Plan.
(f) "COMPANY" shall mean Imgis, Inc., a California corporation.
(g) "CONSULTANT" shall mean an individual who performs bona fide services
for the Company, a Parent or a Subsidiary as a consultant or advisor, excluding
Employees and Outside Directors.
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(h) "DATE OF GRANT" shall mean the date specified in the Notice of Stock
Option Grant, which date shall be the later of (i) the date on which the Board
of Directors resolved to grant this option or (ii) the first day of the
Optionee's Service.
(i) "DISABILITY" shall mean that the Optionee is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment.
(j) "EMPLOYEE" shall mean any individual who is a common-law employee of
the Company, a Parent or a Subsidiary.
(k) "EXERCISE PRICE" shall mean the amount for which one Share may be
purchased upon exercise of this option, as specified in the Notice of Stock
Option Grant.
(l) "FAIR MARKET VALUE" shall mean the fair market value of a Share, as
determined by the Board of Directors in good faith. Such determination shall be
conclusive and binding on all persons.
(m) "ISO" shall mean an employee incentive stock option described in
Section 422(b) of the Code.
(n) "NONSTATUTORY OPTION" shall mean a stock option not described in
Sections 422(b) or 423(b) of the Code.
(o) "NOTICE OF STOCK OPTION GRANT" shall mean the document so entitled to
which this Agreement is attached.
(p) "OPTIONEE" shall mean the individual named in the Notice of Stock
Option Grant.
(q) "OUTSIDE DIRECTOR" shall mean a member of the Board of Directors who is
not an Employee.
(r) "PARENT" shall mean any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
(s) "PLAN" shall mean the Imgis, Inc. 1997 Stock Plan, as in effect on the
Date of Grant.
(t) "PURCHASE PRICE" shall mean the Exercise Price multiplied by the number
of Shares with respect to which this option is being exercised.
(u) "RESTRICTED SHARE" shall mean a Share that is subject to the Right of
Repurchase.
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(v) "RIGHT OF FIRST REFUSAL" shall mean the Company's right of first
refusal described in Section 8.
(w) "RIGHT OF REPURCHASE" shall mean the Company's right of repurchase
described in Section 7.
(x) "SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
(y) "SERVICE" shall mean service as an Employee, Outside Director or
Consultant.
(z) "SHARE" shall mean one share of Stock, as adjusted in accordance with
Section 8 of the Plan (if applicable).
(aa) "STOCK" shall mean the Common Stock of the Company.
(bb) "SUBSIDIARY" shall mean any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
(cc) "TRANSFEREE" shall mean any person to whom the Optionee has directly
or indirectly transferred any Share acquired under this Agreement.
(dd) "TRANSFER NOTICE" shall mean the notice of a proposed transfer of
Shares described in Section 8.
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IMGIS, INC.
1997 STOCK PLAN
ADOPTED ON APRIL 30, 1997
<PAGE>
TABLE OF CONTENTS
Page No.
--------
SECTION 1. ESTABLISHMENT AND PURPOSE............................... 1
SECTION 2. ADMINISTRATION......................................... 1
(a) Committees of the Board of Directors......................... 1
(b) Authority of the Board of Directors.......................... 1
SECTION 3. ELIGIBILITY............................................ 1
(a) General Rule................................................. 1
(b) Ten-Percent Shareholders..................................... 1
SECTION 4. STOCK SUBJECT TO PLAN.................................. 2
(a) Basic Limitation............................................. 2
(b) Additional Shares............................................ 2
SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES................ 2
(a) Stock Purchase Agreement..................................... 2
(b) Duration of Offers and Nontransferability of Rights.......... 2
(c) Purchase Price............................................... 2
(d) Withholding Taxes............................................ 2
(e) Restrictions on Transfer of Shares and Minimum Vesting....... 3
(f) Accelerated Vesting.......................................... 3
SECTION 6. TERMS AND CONDITIONS OF OPTIONS........................ 3
(a) Stock Option Agreement....................................... 3
(b) Number of Shares............................................. 3
(c) Exercise Price............................................... 3
(d) Withholding Taxes............................................ 3
(e) Exercisability............................................... 4
(f) Accelerated Exercisability................................... 4
(g) Basic Term................................................... 4
(h) Nontransferability........................................... 4
(i) Termination of Service (Except by Death)..................... 4
(j) Leaves of Absence............................................ 5
(k) Death of Optionee............................................ 5
(l) No Rights as a Shareholder................................... 5
(m) Modification, Extension and Assumption of Options............ 5
(n) Restrictions on Transfer of Shares and Minimum Vesting....... 5
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(o) Accelerated Vesting.......................................... 6
SECTION 7. PAYMENT FOR SHARES..................................... 6
(a) General Rule................................................. 6
(b) Surrender of Stock........................................... 6
(c) Services Rendered............................................ 6
(d) Promissory Note.............................................. 6
(e) Exercise/Sale................................................ 7
(f) Exercise/Pledge.............................................. 7
SECTION 8. ADJUSTMENT OF SHARES................................... 7
(a) General...................................................... 7
(b) Mergers and Consolidations................................... 7
(c) Reservation of Rights........................................ 7
SECTION 9. SECURITIES LAWS REQUIREMENTS........................... 8
(a) General...................................................... 8
(b) Financial Reports............................................ 8
SECTION 10. NO RETENTION RIGHTS.................................... 8
SECTION 11. DURATION AND AMENDMENTS................................ 8
(a) Term of the Plan............................................. 8
(b) Right to Amend or Terminate the Plan......................... 8
(c) Effect of Amendment or Termination........................... 9
SECTION 12. DEFINITIONS............................................ 9
SECTION 13. EXECUTION.............................................. 11
<PAGE>
IMGIS, INC. 1997 STOCK PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE.
The purpose of the Plan is to offer selected individuals an opportunity
to acquire a proprietary interest in the success of the Company, or to
increase such interest, by purchasing Shares of the Company's Stock. The Plan
provides both for the direct award or sale of Shares and for the grant of
Options to purchase Shares. Options granted under the Plan may include
Nonstatutory Options as well as ISOs intended to qualify under Section 422 of
the Code.
Capitalized terms are defined in Section 12.
SECTION 2. ADMINISTRATION.
(a) COMMITTEES OF THE BOARD OF DIRECTORS. The Plan may be administered
by one or more Committees. Each Committee shall consist of two or more
members of the Board of Directors who have been appointed by the Board of
Directors. Each Committee shall have such authority and be responsible for
such functions as the Board of Directors has assigned to it. If no Committee
has been appointed, the entire Board of Directors shall administer the Plan.
Any reference to the Board of Directors in the Plan shall be construed as a
reference to the Committee (if any) to whom the Board of Directors has
assigned a particular function.
(b) AUTHORITY OF THE BOARD OF DIRECTORS. Subject to the provisions of
the Plan, the Board of Directors shall have full authority and discretion to
take any actions it deems necessary or advisable for the administration of
the Plan. All decisions, interpretations and other actions of the Board of
Directors shall be final and binding on all Purchasers, all Optionees and all
persons deriving their rights from a Purchaser or Optionee.
SECTION 3. ELIGIBILITY.
(a) GENERAL RULE. Only Employees, Outside Directors and Consultants
shall be eligible for the grant of Options or the direct award or sale of
Shares. Only Employees shall be eligible for the grant of ISOs.
(b) TEN-PERCENT SHAREHOLDERS. An individual who owns more than 10% of
the total combined voting power of all classes of outstanding stock of the
Company, its Parent or any of its Subsidiaries shall not be eligible for
designation as an Optionee or Purchaser unless (i) the Exercise Price is at
least 110% of the Fair Market Value of a Share on the date of grant, (ii) the
Purchase Price (if any) is at least 100% of the Fair Market Value of a Share
and (iii) in the case of an ISO, such ISO by its terms is not exercisable
after the expiration of five years from the date of grant. For purposes of
this Subsection (b), in determining stock ownership, the attribution rules of
Section 424(d) of the Code shall be applied.
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SECTION 4. STOCK SUBJECT TO PLAN.
(a) BASIC LIMITATION. The aggregate number of Shares that may be issued
under the Plan (upon exercise of Options or other rights to acquire Shares)
shall not exceed 600,000 Shares, subject to adjustment pursuant to Section 8.
The number of Shares that are subject to Options or other rights outstanding
at any time under the Plan shall not exceed the number of Shares that then
remain available for issuance under the Plan. The Company, during the term
of the Plan, shall at all times reserve and keep available sufficient Shares
to satisfy the requirements of the Plan.
(b) ADDITIONAL SHARES. In the event that any outstanding Option or other
right for any reason expires or is canceled or otherwise terminated, the
Shares allocable to the unexercised portion of such Option or other right
shall again be available for the purposes of the Plan. In the event that
Shares issued under the Plan are reacquired by the Company pursuant to any
forfeiture provision, right of repurchase or right of first refusal, such
Shares shall again be available for the purposes of the Plan, except that the
aggregate number of Shares which may be issued upon the exercise of ISOs
shall in no event exceed 600,000 Shares (subject to adjustment pursuant to
Section 8).
SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES.
(a) STOCK PURCHASE AGREEMENT. Each award or sale of Shares under the
Plan (other than upon exercise of an Option) shall be evidenced by a Stock
Purchase Agreement between the Purchaser and the Company. Such award or sale
shall be subject to all applicable terms and conditions of the Plan and may
be subject to any other terms and conditions which are not inconsistent with
the Plan and which the Board of Directors deems appropriate for inclusion in
a Stock Purchase Agreement. The provisions of the various Stock Purchase
Agreements entered into under the Plan need not be identical.
(b) DURATION OF OFFERS AND NONTRANSFERABILITY OF RIGHTS. Any right to
acquire Shares under the Plan (other than an Option) shall automatically
expire if not exercised by the Purchaser within 30 days after the grant of
such right was communicated to the Purchaser by the Company. Such right shall
not be transferable and shall be exercisable only by the Purchaser to whom
such right was granted.
(c) PURCHASE PRICE. The Purchase Price of Shares to be offered under the
Plan shall not be less than 85% of the Fair Market Value of such Shares, and
a higher percentage may be required by Section 3(b). Subject to the preceding
sentence, the Purchase Price shall be determined by the Board of Directors
at its sole discretion. The Purchase Price shall be payable in a form
described in Section 7.
(d) WITHHOLDING TAXES. As a condition to the purchase of Shares, the
Purchaser shall make such arrangements as the Board of Directors may require
for the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with such purchase.
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(e) RESTRICTIONS ON TRANSFER OF SHARES AND MINIMUM VESTING. Any Shares
awarded or sold under the Plan shall be subject to such special forfeiture
conditions, rights of repurchase, rights of first refusal and other transfer
restrictions as the Board of Directors may determine. Such restrictions shall
be set forth in the applicable Stock Purchase Agreement and shall apply in
addition to any restrictions that may apply to holders of Shares generally.
In the case of a Purchaser who is not an officer of the Company, an Outside
Director or a Consultant, any right to repurchase the Purchaser's Shares at
the original Purchase Price (if any) upon termination of the Purchaser's
Service shall lapse at least as rapidly as 20% per year over the five-year
period commencing on the date of the award or sale of the Shares. Any such
repurchase right may be exercised only within 90 days after the termination
of the Purchaser's Service for cash or for cancellation of indebtedness
incurred in purchasing the Shares.
(f) ACCELERATED VESTING. Unless the applicable Stock Purchase Agreement
provides otherwise, any right to repurchase a Purchaser's Shares at the
original Purchase Price (if any) upon termination of the Purchaser's Service
shall lapse and all of such Shares shall become vested if (i) the Company is
subject to a Change in Control and (ii) the repurchase right is not assigned
to the entity that employs the Purchaser immediately after the Change in
Control or to its parent or subsidiary.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
(a) STOCK OPTION AGREEMENT. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to all applicable terms and conditions
of the Plan and may be subject to any other terms and conditions which are
not inconsistent with the Plan and which the Board of Directors deems
appropriate for inclusion in a Stock Option Agreement. The provisions of the
various Stock Option Agreements entered into under the Plan need not be
identical.
(b) NUMBER OF SHARES. Each Stock Option Agreement shall specify the
number of Shares that are subject to the Option and shall provide for the
adjustment of such number in accordance with Section 8. The Stock Option
Agreement shall also specify whether the Option is an ISO or a Nonstatutory
Option.
(c) EXERCISE PRICE. Each Stock Option Agreement shall specify the
Exercise Price. The Exercise Price of an ISO shall not be less than 100% of
the Fair Market Value of a Share on the date of grant, and a higher
percentage may be required by Section 3(b). The Exercise Price of a
Nonstatutory Option shall not be less than 85% of the Fair Market Value of a
Share on the date of grant, and a higher percentage may be required by
Section 3(b). Subject to the preceding two sentences, the Exercise Price
under any Option shall be determined by the Board of Directors at its sole
discretion. The Exercise Price shall be payable in a form described in
Section 7.
(d) WITHHOLDING TAXES. As a condition to the exercise of an Option, the
Optionee shall make such arrangements as the Board of Directors may require
for the satisfaction of any federal, state local or foreign withholding tax
obligations that may arise in connection with such exercise. The Optionee
shall also make such arrangements as the Board of Directors may require
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<PAGE>
for the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with the disposition of Shares
acquired by exercising an Option.
(e) EXERCISABILITY. Each Stock Option Agreement shall specify the date
when all or any installment of the Option is to become exercisable. In the
case of an Optionee who is not an officer of the Company, an Outside Director
or a Consultant, an Option shall become exercisable at least as rapidly as
20% per year over the five-year period commencing on the date of the grant.
Subject to the preceding sentence, the exercisability provisions of any Stock
Option Agreement shall be determined by the Board of Directors at its sole
discretion.
(f) ACCELERATED EXERCISABILITY. Unless the applicable Stock Option
Agreement provides otherwise, all of an Optionee's Options shall become
exercisable in full if (i) the Company is subject to a Change in Control,
(ii) such Options do not remain outstanding, (iii) such Options are not
assumed by the surviving corporation or its parent and (iv) the surviving
corporation or its parent does not substitute options with substantially the
same terms for such Options.
(g) BASIC TERM. The Stock Option Agreement shall specify the term of the
Option. The term shall not exceed 10 years from the date of grant, and a
shorter term may be required by Section 3(b). Subject to the preceding
sentence, the Board of Directors at its sole discretion shall determine when
an Option is to expire.
(h) NONTRANSFERABILITY. No Option shall be transferable by the Optionee
other than by beneficiary designation, will or the laws of descent and
distribution. An Option may be exercised during the lifetime of the Optionee
only by the Optionee or by the Optionee's guardian or legal representative.
No Option or interest therein may be transferred, assigned, pledged or
hypothecated by the Optionee during the Optionee's lifetime, whether by
operation of law or otherwise, or be made subject to execution, attachment or
similar process.
(i) TERMINATION OF SERVICE (EXCEPT BY DEATH). If an Optionee's Service
terminates for any reason other than the Optionee's death, then the
Optionee's Options shall expire on the earliest of the following occasions:
(i) The expiration date determined pursuant to Subsection (g) above;
(ii) The date three months after the termination of the Optionee's
Service for any reason other than Disability; or
(iii) The date six months after the termination of the Optionee's
Service by reason of Disability
The Optionee may exercise all or part of the Optionee's Options at any time
before the expiration of such Options under the preceding sentence, but only
to the extent that such Options had become exercisable before the Optionee's
Service terminated (or became exercisable as a result of the termination) and
the underlying Shares had vested before the Optionee's Service terminated (or
vested as a result of the termination). The balance of such Options shall lapse
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<PAGE>
when the Optionee's Service terminates. In the event that the Optionee dies
after the termination of the Optionee's Service but before the expiration of
the Optionee's Options, all or part of such Options may be exercised (prior
to expiration) by the executors or administrators of the Optionee's estate or
by any person who has acquired such Options directly from the Optionee by
beneficiary designation, bequest or inheritance, but only to the extent that
such Options had become exercisable before the Optionee's Service terminated
(or became exercisable as a result of the termination) and the underlying
Shares had vested before the Optionee's Service terminated (or vested as a
result of the termination).
(j) LEAVES OF ABSENCE. For purposes of Subsection (i) above, Service
shall be deemed to continue while the Optionee is on a bona fide leave of
absence, if such leave was approved by the Company in writing and if
continued crediting of Service for this purpose is expressly required by the
terms of such leave or by applicable law (as determined by the Company).
(k) DEATH OF OPTIONEE. If an Optionee dies while the Optionee is in
Service, then the Optionee's Options shall expire on the earlier of the
following dates:
(i) The expiration date determined pursuant to Subsection (g)
above;
or
(ii) The date 12 months after the Optionee's death.
All or part of the Optionee's Options may be exercised at any time before the
expiration of such Options under the preceding sentence by the executors or
administrators of the Optionee's estate or by any person who has acquired
such Options directly from the Optionee by beneficiary designation, bequest
or inheritance, but only to the extent that such Options had become
exercisable before the Optionee's death or became exercisable as a result of
the death. The balance of such Options shall lapse when the Optionee dies.
(l) NO RIGHTS AS A SHAREHOLDER. An Optionee, or a transferee of an
Optionee, shall have no rights as a shareholder with respect to any Shares
covered by the Optionee's Option until such person becomes entitled to
receive such Shares by filing a notice of exercise and paying the Exercise
Price pursuant to the terms of such Option.
(m) MODIFICATION, EXTENSION AND ASSUMPTION OF OPTIONS. Within the
limitations of the Plan, the Board of Directors may modify, extend or assume
outstanding Options or may accept the cancellation of outstanding Options
(whether granted by the Company or another issuer) in return for the grant of
new Options for the same or a different number of Shares and at the same or a
different Exercise Price. The foregoing notwithstanding, no modification of
an Option shall, without the consent of the Optionee, impair the Optionee's
rights or increase the Optionee's obligations under such Option.
(n) RESTRICTIONS ON TRANSFER OF SHARES AND MINIMUM VESTING. Any Shares
issued upon exercise of an Option shall be subject to such special forfeiture
conditions, rights of repurchase, rights of first refusal and other transfer
restrictions as the Board of Directors may
5
<PAGE>
determine. Such restrictions shall be set forth in the applicable Stock
Option Agreement and shall apply in addition to any restrictions that may
apply to holders of Shares generally. In the case of an Optionee who is not
an officer of the Company, an Outside Director or a Consultant, any right to
repurchase the Optionee's Shares at the original Exercise Price upon
termination of the Optionee's Service shall lapse at least as rapidly as 20%
per year over the five-year period commencing on the date of the option
grant. Any such repurchase right may be exercised only within 90 days after
the termination of the Optionee's Service for cash or for cancellation of
indebtedness incurred in purchasing the Shares.
(o) ACCELERATED VESTING. Unless the applicable Stock Option Agreement
provides otherwise, any right to repurchase an Optionee's Shares at the
original Exercise Price upon termination of the Optionee's Service shall
lapse and all of such Shares shall become vested if (i) the Company is
subject to a Change in Control and (ii) the repurchase right is not assigned
to the entity that employs the Optionee immediately after the Change in
Control or to its parent or subsidiary.
SECTION 7. PAYMENT FOR SHARES.
(a) GENERAL RULE. The entire Purchase Price or Exercise Price of Shares
issued under the Plan shall be payable in cash or cash equivalents at the
time when such Shares are purchased, except as otherwise provided in this
Section 7.
(b) SURRENDER OF STOCK. To the extent that a Stock Option Agreement so
provides, all or any part of the Exercise Price may be paid by surrendering,
or attesting to the ownership of, Shares that are already owned by the
Optionee. Such Shares shall be surrendered to the Company in good form for
transfer and shall be valued at their Fair Market Value on the date when the
Option is exercised. The Optionee shall not surrender, or attest to the
ownership of, Shares in payment of the Exercise Price if such action would
cause the Company to recognize compensation expense (or additional
compensation expense) with respect to the Option for financial reporting
purposes.
(c) SERVICES RENDERED. At the discretion of the Board of Directors,
Shares may be awarded under the Plan in consideration of services rendered to
the Company, a Parent or a Subsidiary prior to the award.
(d) PROMISSORY NOTE. To the extent that a Stock Option Agreement or
Stock Purchase Agreement so provides, all or a portion of the Exercise Price
or Purchase Price (as the case may be) of Shares issued under the Plan may be
paid with a full-recourse promissory note. The Shares shall be pledged as
security for payment of the principal amount of the promissory note and
interest thereon. The interest rate payable under the terms of the promissory
note shall not be less than the minimum rate (if any) required to avoid the
imputation of additional interest under the Code. Subject to the foregoing,
the Board of Directors (at its sole discretion) shall specify the term,
interest rate, amortization requirements (if any) and other provisions of
such note.
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(e) EXERCISE/SALE. To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part
by the delivery (on a form prescribed by the Company) of an irrevocable
direction to a securities broker approved by the Company to sell Shares and
to deliver all or part of the sales proceeds to the Company in payment of all
or part of the Exercise Price and any withholding taxes.
(f) EXERCISE/PLEDGE. To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part
by the delivery (on a form prescribed by the Company) of an irrevocable
direction to pledge Shares to a securities broker or lender approved by the
Company, as security for a loan, and to deliver all or part of the loan
proceeds to the Company in payment of all or part of the Exercise Price and
any withholding taxes.
SECTION 8. ADJUSTMENT OF SHARES.
(a) GENERAL. In the event of a subdivision of the outstanding Stock, a
declaration of a dividend payable in Shares, a declaration of an
extraordinary dividend payable in a form other than Shares in an amount that
has a material effect on the Fair Market Value of the Stock, a combination or
consolidation of the outstanding Stock into a lesser number of Shares, a
recapitalization, a spin-off, a reclassification or a similar occurrence, the
Board of Directors shall make appropriate adjustments in one or more of (i)
the number of Shares available for future grants under Section 4, (ii) the
number of Shares covered by each outstanding Option or (iii) the Exercise
Price under each outstanding Option.
(b) MERGERS AND CONSOLIDATIONS. In the event that the Company is a party
to a merger or consolidation, outstanding Options shall be subject to the
agreement of merger or consolidation. Such agreement, without the Optionees'
consent, may provide for:
(i) The continuation of such outstanding Options by the Company (if
the Company is the surviving corporation);
(ii) The assumption of the Plan and such outstanding Options by the
surviving corporation or its parent;
(iii) The substitution by the surviving corporation or its parent of
options with substantially the same terms for such outstanding Options; or
(iv) The cancellation of such outstanding Options without payment of
any consideration.
(c) RESERVATION OF RIGHTS. Except as provided in this Section 8, an
Optionee or Purchaser shall have no rights by reason of (i) any subdivision
or consolidation of shares of stock of any class, (ii) the payment of any
dividend or (iii) any other increase or decrease in the number of shares of
stock of any class. Any issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall not
affect, and no adjustment by reason thereof shall be made with respect to,
the number or Exercise Price of Shares subject to an
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Option. The grant of an Option pursuant to the Plan shall not affect in any
way the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure, to merge or
consolidate or to dissolve, liquidate, sell or transfer all or any part of
its business or assets.
SECTION 9. SECURITIES LAW REQUIREMENTS.
(a) GENERAL. Shares shall not be issued under the Plan unless the
issuance and delivery of such Shares comply with (or are exempt from) all
applicable requirements of law, including (without limitation) the Securities
Act of 1933, as amended, the rules and regulations promulgated thereunder,
state securities laws and regulations, and the regulations of any stock
exchange or other securities market on which the Company's securities may
then be traded.
(b) FINANCIAL REPORTS. The Company each year shall furnish to Optionees,
Purchasers and shareholders who have received Stock under the Plan its
balance sheet and income statement, unless such Optionees, Purchasers or
shareholders are key Employees whose duties with the Company assure them
access to equivalent information. Such balance sheet and income statement
need not be audited.
SECTION 10. NO RETENTION RIGHTS.
Nothing in the Plan or in any right or Option granted under the Plan
shall confer upon the Purchaser or Optionee any right to continue in Service
for any period of specific duration or interfere with or otherwise restrict
in any way the rights of the Company (or any Parent or Subsidiary employing
or retaining the Purchaser or Optionee) or of the Purchaser or Optionee,
which rights are hereby expressly reserved by each, to terminate his or her
Service at any time and for any reason, with or without cause.
SECTION 11. DURATION AND AMENDMENTS.
(a) TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective on the date of its adoption by the Board of Directors, subject to
the approval of the Company's shareholders. In the event that the
shareholders fail to approve the Plan within 12 months after its adoption by
the Board of Directors, any grants of Options or sales or awards of Shares
that have already occurred shall be rescinded, and no additional grants,
sales or awards shall be made thereafter under the Plan. The Plan shall
terminate automatically 10 years after its adoption by the Board of Directors
and may be terminated on any earlier date pursuant to Subsection (b) below.
(b) RIGHT TO AMEND OR TERMINATE THE PLAN. The Board of Directors may
amend, suspend or terminate the Plan at any time and for any reason;
provided, however, that any amendment of the Plan which increases the number
of Shares available or issuance under the Plan (except as provided in
Section 8), or which materially changes the class of persons who are eligible
for the grant of ISOs, shall be subject to the approval of the Company's
shareholders. Shareholder approval shall not be required for any other
amendment of the Plan.
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(c) EFFECT OF AMENDMENT OR TERMINATION. No Shares shall be issued or
sold under the Plan after the termination thereof, except upon exercise of an
Option granted prior to such termination. The termination of the Plan, or any
amendment thereof, shall not affect any Share previously issued or any Option
previously granted under the Plan.
SECTION 12. DEFINITIONS.
(a) "BOARD OF DIRECTORS" shall mean the Board of Directors of the
Company, as constituted from time to time.
(b) "CHANGE IN CONTROL" shall mean:
(i) The consummation of a merger or consolidation of the Company
with or into another entity or any other corporate reorganization, if
more than 50% of the combined voting power of the continuing or
surviving entity's securities outstanding immediately after such merger,
consolidation or other reorganization is owned by persons who were not
shareholders of the Company immediately prior to such merger,
consolidation or other reorganization; or
(ii) The sale, transfer or other disposition of all or
substantially all of the Company's assets.
A transaction shall not constitute a Change in Control if its sole purpose is
to change the state of the Company's incorporation or to create a holding
company that will be owned in substantially the same proportions by the
persons who held the Company's securities immediately before such transaction.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" shall mean a committee of the Board of Directors, as
described in Section 2(a).
(e) "COMPANY" shall mean Imgis, Inc., a California corporation.
(f) "CONSULTANT" shall mean an individual who performs bona fide
services for the Company, a Parent or a Subsidiary as a consultant or
advisor, excluding Employees and Outside Directors.
(g) "DISABILITY" shall mean that the Optionee is unable to engage in any
substantial gainful activity by reason of any medically determinable physical
or mental impairment.
(h) "EMPLOYEE" shall mean any individual who is a common-law employee of
the Company, a Parent or a Subsidiary.
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(i) "EXERCISE PRICE" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Board of Directors
in the applicable Stock Option Agreement.
(j) "FAIR MARKET VALUE" shall mean the fair market value of a Share, as
determined by the Board of Directors in good faith. Such determination shall
be conclusive and binding on all persons.
(k) "ISO" shall mean an employee incentive stock option described in
Section 422(b) of the Code.
(l) "NONSTATUTORY OPTION" shall mean a stock option not described in
Sections 422(b) or 423(b) of the Code.
(m) "OPTION" shall mean an ISO or Nonstatutory Option granted under the
Plan and entitling the holder to purchase Shares.
(n) "OPTIONEE" shall mean an individual who holds an Option.
(o) "OUTSIDE DIRECTOR" shall mean a member of the Board of Directors who
is not an Employee.
(p) "PARENT" shall mean any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent
on a date after the adoption of the Plan shall be considered a Parent
commencing as of such date.
(q) "PLAN" shall mean this Imgis, Inc. 1997 Stock Plan.
(r) "PURCHASE PRICE" shall mean the consideration for which one Share
may be acquired under the Plan (other than upon exercise of an Option), as
specified by the Board of Directors.
(s) "PURCHASER" shall mean an individual to whom the Board of Directors
has offered the right to acquire Shares under the Plan (Other than upon
exercise of an Option).
(t) "SERVICE" shall mean service as an Employee, Outside Director or
Consultant.
(u) "SHARE" shall mean one share of Stock, as adjusted in accordance
with Section 8 (if applicable).
(v) "STOCK" shall mean the Common Stock of the Company.
10
<PAGE>
(w) "STOCK OPTION AGREEMENT" shall mean the agreement between the
Company and an Optionee which contains the terms, conditions and restrictions
pertaining to the Optionee's Option.
(x) "STOCK PURCHASE AGREEMENT" shall mean the agreement between the
Company and a Purchaser who acquires Shares under the Plan which contains the
terms, conditions and restrictions pertaining to the acquisition of such
Shares.
(y) "SUBSIDIARY"" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that
attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.
SECTION 13. EXECUTION.
To record the adoption of the Plan by the Board of Directors, the
Company has caused its authorized officer to execute the same.
IMGIS, INC.
By: Chad Steelberg
Title: President
11
<PAGE>
IMGIS, INC.
611 ANTON BOULEVARD, SUITE 400
COSTA MESA, CA 91626
June 27, 1997
Mr. Charles W. Berger
15681 Kennedy Drive
Los Gatos, CA 95032
Dear Chuck,
Imgis, Inc. (the "Company") is pleased to offer and confirm your employment
on the following terms and conditions:
1. EMPLOYMENT AND ELECTION AS A DIRECTOR. You will serve as a part-time
consultant to the Company until July 28, 1997 when you will assume the full-time
position of Chief Executive Officer of the Company. As Chief Executive Officer,
you will report directly to the Board of Directors of the Company (the "Board").
The Company agrees to take all action necessary to nominate and elect you as a
director and as Chairman of the Board as soon as possible following your
commencement of employment.
2. COMPENSATION. You will be paid a total annual compensation of $250,000,
payable in accordance with the Company's standard payroll practices for salaried
employees. You will also be eligible for other performance-based bonuses at
certain designated periods during your employment as determined by the Company
or the Board of Directors.
3. BENEFITS. As an employee of the Company, you will be entitled to
participate in the Company's health insurance, vacation, and employee benefit
plans that are currently offered to the Company's employees or will be available
to the Company's employees in the future.
4. OPTIONS. Subject to the approval of the Company's Board of Directors,
you will be granted an option to purchase 450,000 shares of the Company's Common
Stock at an exercise price per share of $0.25. The option will be subject to the
usual terms and conditions applicable to options granted under the Company's
1997 Stock Plan and will be evidenced by the Company's form stock option
agreement. The option will be immediately exercisable and the purchasable shares
will be subject to repurchase by the Company at the exercise price. The
Company's repurchase right will lapse and you will vest in 25% of the option
shares after one year of service and the balance will vest monthly over the next
thirty-six months of service, as set forth in the applicable stock option
agreement. Your option begins to vest and the Company's repurchase right begins
to lapse on your hire date. Your stock option agreement will provide for full
vesting upon a Change in Control (as defined in your stock option agreement), if
your option is not assumed by the successor corporation. In addition, if your
option is assumed and your employment is involuntarily terminated or if you
resign for a Good Reason (defined in your stock option agreement to include
demotion, salary reduction or relocation) within 24 months after a Change in
Control, your option will become vested and the Company's repurchase right
<PAGE>
will lapse with respect to an additional number of shares, as if you served for
an additional 12 months of service. If the Company and the other party to the
transaction constituting a Change in Control agree that such transaction is to
be treated as a "pooling of interests" for financial reporting purposes, and if
such transaction in fact is so treated, then the acceleration of vesting shall
not occur to the extent that the Company's independent public accountants and
such other party's independent public accountants separately determine in good
faith that such acceleration would preclude the use of "pooling of interests"
accounting.
5. PROMISSORY NOTE. The Company will extend to you, as part of your
employment with the Company, a loan for the amount of the exercise price of your
shares. This loan shall be evidenced by a promissory note (the "Note") with a
term of four years at the Applicable Federal Rate. The Company will forgive
repayment of the principal balance of the Note in annual installments equal to
the portion of stock vested.
6. PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. As with all Company
employees, you will be required, as a condition to your employment with the
Company, to sign the Company's standard Proprietary Information and Inventions
Agreement, a copy of which is attached hereto as EXHIBIT A.
7. PERIOD OF EMPLOYMENT. Your employment with the Company will be "at
will," meaning that either you or the Company will be entitled to terminate your
employment at any time for any reason, with or without cause. Any contrary
representations which may have been made to you are superseded by this offer.
This is the full and complete agreement between you and the Company on this
term. Although your job duties, title, compensation and benefits, as well as the
Company's personnel policies and procedures, may change from time to time, the
"at will" nature of your employment may only be changed in an express writing
signed by you and approved by the Company's Board of Directors.
8. OUTSIDE ACTIVITIES. During the period that you render services to the
Company, you will not engage in any employment, business or activity that is in
any way competitive with the business or proposed business of the Company, or
any other gainful employment, business or activity, without the written consent
of the Company. You also will not assist any other person or organization in
competing with the Company or in preparing to engage in competition with the
business or proposed business of the Company.
9. ENTIRE AGREEMENT. This letter and all of the exhibits attached hereto
contain all of the terms of your employment with the Company and supersede any
prior representations or agreements, whether oral or written, between you and
the Company.
2
<PAGE>
We hope that you find the foregoing terms acceptable. You may indicate your
agreement with these terms and accept this offer by signing and dating both the
enclosed duplicate original of this letter and the enclosed Proprietary
Information and Inventions Agreement and returning them to me.
Very truly yours,
IMGIS, INC.
By:
------------------------------------
Chad Steelberg
President
I Have Read And Accept This Employment Offer:
- ---------------------------
Charles W. Berger
Dated: June 27, 1997
3
<PAGE>
Exhibit 10.7
SUBLEASE
THIS SUBLEASE (this "Sublease") is dated for reference purposes as of
February 12, 1999, and is made by and between Concentric Network Corporation
("Sublandlord"), and Imgis, Inc., dba "AdForce" ("Subtenant"). Sublandlord and
Subtenant hereby agree as follows:
1. RECITALS: This Sublease is made with reference to the fact that Spieker
Properties, L. P., a California limited partnership, as landlord ("Master
Landlord"), and Sublandlord, as tenant, are parties to that certain Lease dated
February 22, 1998 (the "Master Lease"), with respect to approximately 41,151
square feet of space (the "Premises"), in that certain building (the
"Building") located at 10590 N. Tantau Avenue, Cupertino, California. A copy of
the Master Lease is attached hereto as EXHIBIT A. Capitalized terms used and
not defined herein shall have the meaning ascribed to them in the Master Lease.
2. SUBLEASED PREMISES: Subject to the terms and conditions of this
Sublease, Sublandlord hereby subleases to Subtenant, and Subtenant hereby
subleases from Sublandlord, the entire Premises.
3. TERM:
A. TERM. The term (the "Term") of this Sublease shall be for the
period commencing on April 15, 1999 (the "Commencement Date"), subject to
Paragraph 3.C below, and ending on April 23, 2003, unless this Sublease is
sooner terminated pursuant to its terms or the Master Lease is sooner
terminated pursuant to its terms (the "Expiration Date").
B. OPTION TO EXTEND. Subtenant shall have no options or rights to
extend the Term of this Sublease or expand the Premises.
C. EARLY OCCUPANCY. Within five (5) days following (i) full execution
of this Sublease by Sublandlord and Subtenant (and Subtenant's payment to
Sublandlord of the prepaid rent and Security Deposit) and (ii) receipt by
Sublandlord of the Consent to Sublease Agreement (the "Consent to Sublease")
for this Sublease executed by Master Landlord, then Sublandlord shall deliver
possession of the Premises to Subtenant (the "Early Occupancy Start Date")
and following such delivery, Subtenant shall have the right to occupy and use
the Premises for the permitted use described in this Sublease from the Early
Occupancy Start Date until the Commencement Date (the "Early Occupancy
Period"), provided such occupancy shall be subject to Sublandlord's rights to
use the Data Center (as hereinafter defined) as set forth in Paragraph 3.D
below, and provided further that such early occupancy shall be subject to all
of the terms and conditions of this Sublease, excluding only the obligation
to pay Rent (as defined in Paragraph 4.A below). If Sublandlord fails to
deliver possession of the Premises to Subtenant within ten (10) days
following (i) full execution of this Sublease by Sublandlord and Subtenant
(and Subtenant's payment to Sublandlord of the prepaid rent and Security
Deposit) and (ii) receipt by Sublandlord of the Consent to Sublease for this
Sublease executed by Master Landlord, then Subtenant shall have the right to
terminate this Sublease, provided Subtenant delivers written notice of
termination to Sublandlord within five (5) days thereafter. Following full
execution of this Sublease by Sublandlord and Subtenant (and Subtenant's
payment to Sublandlord of the prepaid rent and Security Deposit), Sublandlord
shall use its reasonable efforts to obtain the Master Landlord's written
consent to this Sublease.
D. DATA CENTER ACCESS. The parties acknowledge that Sublandlord will
be operating its business in the Data Center during the Early Occupancy Period.
The Data Center shall be defined as that
<PAGE>
portion of the Premises outlined in EXHIBIT B attached hereto. Notwithstanding
anything to the contrary in this Sublease, Sublandlord shall have access to and
the exclusive control over and possession of the Data Center through February
28, 1999. Sublandlord shall provide Subtenant, however, limited access to the
Data Center beginning on the Early Occupancy Start Date for the sole purpose of
installing its telephone and network cabling provided (i) such limited access
shall be during business hours only and Subtenant shall at all times be
accompanied by an authorized employee of Sublandlord, (ii) such limited access
shall not interfere with Sublandlord's business operations in the Data Center
and (iii) such limited access shall be subject to all of the terms and
conditions of this Sublease, excluding only the obligation to pay Rent. After
February 28, 1999, Subtenant shall have the right to occupy the Data Center for
the permitted uses described in this Sublease; provided, however, that after
February 28, 1999, Sublandlord (i) shall continue to have, during the remainder
of the Early Occupancy Period, the exclusive use of ten (10) racks in the Data
Center and shall have reasonable access to the Data Center at all times during
the remainder of the Early Occupancy Period.
4. RENT:
A. BASE RENT. Commencing on the Commencement Date and continuing each
month throughout the Term of this Sublease, Subtenant shall pay to Sublandlord
as base rent for the Premises monthly installments as follows ("Base Rent"):
<TABLE>
<CAPTION>
Monthly Base Rent
<S> <C>
-------------------------------------------------------------
April 15, 1999 - April 30, 1999 $47,323.65
-------------------------------------------------------------
May 1, 1999 - April 30, 2000 $98,433.19
-------------------------------------------------------------
May 1, 2000 - April 30, 2001 $102,370.52
-------------------------------------------------------------
May 1, 2001 - April 30, 2002 $106,465.34
-------------------------------------------------------------
May 1, 2002 - April 23, 2003 $110,723.95
</TABLE>
Base Rent and Additional Rent, as defined in Paragraph 4.B below,
(collectively, hereinafter "Rent") shall be paid in advance at least two (2)
days prior to the (1st) day of each month. Rent for any period during the Term
hereof which is for less than one (1) month of the Term shall be a pro rata
portion of the monthly installment based on a thirty (30) day month. Rent shall
be payable without notice or demand and without any deduction, offset, or
abatement, in lawful money of the United States of America. Rent shall be paid
directly to Sublandlord at 1400 Parkmoor Avenue, San Jose, California 95126,
Attention: Peter J. Bergeron, or such other address as may be designated in
writing by Sublandlord.
B. ADDITIONAL RENT. All monies other than Base Rent required to be paid
by Subtenant under this Sublease, including, without limitation, all amounts
payable by Sublandlord in connection with the Master Lease or the Premises
(including, without limitation, all "Operating Expenses", "Estimated Operating
Expenses" and "Operating Expense Adjustments" under Article 7 of the Master
Lease) shall be deemed
-2-
<PAGE>
additional rent ("Additional Rent"). Subtenant and Sublandlord agree, as a
material part of the consideration given by Subtenant to Sublandlord for this
Sublease, Subtenant shall pay all costs, expenses, taxes, insurance,
maintenance and other charges of every kind and nature arising under the Master
Lease in connection with the Premises accruing after the Commencement Date,
such that Sublandlord shall receive, as net consideration for this Sublease,
full reimbursement thereof.
C. PREPAYMENT OF RENT. Upon execution hereof by Subtenant, Subtenant
shall pay to Sublandlord the sum of Forty-Seven Thousand Three Hundred
Twenty-Three Dollars and 65/100 ($47,323.65), which shall constitute Base Rent
for the period April 15, 1999 through April 30, 1999.
5. SECURITY DEPOSIT: Upon execution hereof, Subtenant shall deposit with
Sublandlord the sum of Ninety-Eight Thousand Four Hundred Thirty-Three Dollars
and 19/100 ($98,433.19) (the "Security Deposit"), in cash, as security for the
performance by Subtenant of the terms and conditions of this Sublease. If
Subtenant fails to pay Rent or other charges due under this Sublease or
otherwise defaults with respect to any provision of this Sublease, then
Sublandlord, without prejudice to any other remedy provided in this Sublease or
by law, may draw upon, use, apply or retain all or any portion of the Security
Deposit for the payment of any Rent or other charge in default, for the payment
of any other sum which Sublandlord has become obligated to pay by reason of
Subtenant's default, or to compensate Sublandlord for any loss or damage which
Sublandlord has suffered thereby. If Sublandlord so uses or applies all or any
portion of the Security Deposit, then Subtenant, within ten (10) days after
demand by Sublandlord therefor, shall deposit cash with Sublandlord in the
amount required to restore the Security Deposit to the full amount stated
above. Sublandlord may commingle the Security Deposit with its own funds and
Subtenant shall not be entitled to interest on the Security Deposit. The
Security Deposit is not an advance rental deposit or a measure of damages
incurred by Sublandlord in case of Subtenant's default. Upon the expiration of
this Sublease and Subtenant's vacation of the Premises, provided Subtenant is
not in default under the terms of this Sublease, Sublandlord shall return to
Subtenant so much of the Security Deposit as has not been applied by
Sublandlord pursuant to this Paragraph, or which is not otherwise required to
cure Subtenant's defaults.
6. HOLDOVER: Subtenant acknowledges that the Termination Date of the
Master Lease is April 30, 2003 and that it is critical that Subtenant surrender
the Premises on or before the Expiration Date in accordance with the terms of
this Sublease. Accordingly, Subtenant shall indemnify, defend and hold
harmless Sublandlord from and against all losses, costs, claims, liabilities
and damages resulting from Subtenant's failure to surrender the Premises on the
Expiration Date in the condition required under the terms of this Sublease
(including, without limitation, any liability or damages sustained by
Sublandlord as a result of a holdover of the Master Premises by Sublandlord
occasioned by the holdover of the Premises by Subtenant). In addition,
Subtenant shall pay Sublandlord holdover rent equal to one hundred fifty
percent (150%) of Base Rent plus any Additional Rent payable hereunder for any
period from the Expiration Date through the date Subtenant surrenders the
Premises in the condition required hereunder.
7. CONDITION: Sublandlord warrants to Subtenant, for the period
commencing on the Early Occupancy Start Date and expiring sixty (60) days
following the Commencement Date (the "Warranty Period"), that the existing
plumbing, electrical, fire protection, lighting and air conditioning and
heating systems in the Premises are in working order and repair on the Early
Occupancy Start Date, except for those items set forth on EXHIBIT C attached
hereto and incorporated herein. If a non-compliance with said warranty arises
during the Warranty Period, Sublandlord shall after receipt of written notice
from Subtenant setting forth with specificity the nature and extent of such
non-compliance, rectify the same at Sublandlord's expense. If Subtenant does
not give Sublandlord written notice of a non-compliance with this warranty
-3-
<PAGE>
during the Warranty Period, correction of that non-compliance shall be the
obligation of Subtenant, at Subtenant's sole cost and expense. The parties
acknowledge and agree that Subtenant is subleasing the Premises on an "AS IS"
basis, and that, except as set forth in this Paragraph 7 above, Sublandlord
has made no representations or warranties, express or implied, whatsoever, with
respect to the Premises, including, without limitation, any representation or
warranty as to the suitability of the Premises for Subtenant's intended use.
Notwithstanding anything to the contrary in this Sublease or the Master Lease,
the foregoing warranty shall not apply to (and Sublandlord shall have no
obligation to correct or pay for) any non-compliance or any deficiency or
damage to any of the systems in the Premises described in this Section 7 above
which is caused by or arises out of any act or omission of Subtenant, or its
agents, employees, contractors or invitees.
8. REPAIRS: Subject to Paragraph 7 of this Sublease, Sublandlord shall
have no obligation whatsoever to make or pay the cost of any alterations,
improvements or repairs to the Premises, including, without limitation, any
improvement or repair required to comply with any law, regulation, building
code or ordinance (including the Americans with Disabilities Act of 1990, as
may be amended). In addition, Sublandlord shall have no obligation to perform
any repairs or any other obligation of Master Landlord required to be performed
by Master Landlord under the terms of the Master Lease (including, without
limitation, Master Landlord's obligations under Articles 7, 8, 10, 23 and 24 of
the Master Lease and Master Landlord's obligation to comply with laws) and
Subtenant shall look solely to Master Landlord for performance of said
obligations. Sublandlord shall, however, request performance of the same in
writing from Master Landlord promptly after being requested to do so by
Subtenant, and shall use Sublandlord's reasonable efforts (not including the
payment of money, the incurring of any liabilities, or the institution of legal
proceedings) to obtain Master Landlord's performance. Subtenant expressly
waives the provisions of Section 1932, subsection 1, and Sections 1941 and 1942
of the Civil Code of California and all rights to make repairs at the expense
of Sublandlord as provided in Section 1942 of said Civil Code.
9. ASSIGNMENT AND SUBLETTING: In the event of any Transfer, including
without limitation, a Transfer to a "Permitted Tenant Affiliate" (as defined by
and meeting the criteria set forth in Section 21.C of the Master Lease, as
incorporated herein, even if Sublandlord consents or is deemed to have
consented to the Transfer, Subtenant shall still be required to obtain the
consent of the Master Landlord to any such Transfer, including to a Permitted
Tenant Affiliate. If Subtenant is a public company, any sale of Subtenant's
capital stock through any national market system or public exchange shall not
be deemed a Transfer under the terms of this Sublease; provided, however, that
Subtenant hereby agrees that such a sale could constitute a Transfer under the
Master Lease and therefore, Subtenant hereby agrees that it shall be required
to obtain Master Landlord's prior written consent to any such Transfer, unless
in the Consent to Sublease, Master Landlord expressly acknowledges that such a
sale does not constitute a Transfer. Notwithstanding anything to the contrary
in this Sublease, Sublandlord's approval of any transfer, including a
"Permitted Tenant Affiliate", shall be subject to the Master Landlord's written
approval and subject to the Master Landlord's right to terminate the Master
Lease as set forth in Section 21.A of the Master Lease.
10. USE:
A. Subtenant may use the Premises for general office purposes only and
for no other purpose whatsoever.
B. Subtenant shall not use, store, keep, handle, manufacture,
transport, release, discharge, emit or dispose of any Hazardous Materials in,
on, under, about, to or from the Premises. Subtenant may
-4-
<PAGE>
handle, store, use and dispose of products containing small quantities of
Hazardous Materials for "general office purposes" (such as toner for copies) to
the extent customary and necessary for the Permitted Use of the Premises;
provided that Subtenant shall always handle, store, use and dispose of any such
Hazardous Materials in a safe and lawful manner and never allow such Hazardous
Materials to contaminate the Premises, Building, or Project or surrounding land
or environment. Sublandlord shall release Subtenant from and against all
liabilities, losses, costs and expenses (including attorneys' and consultants'
fees), demands, causes of action, claims or judgments arising out of the use,
generation, storage, release or disposal of Hazardous Materials by Sublandlord
or its agents, employees, contractors or invitees on or about the Premises.
C. Subtenant shall not do or permit anything to be done in or about
the Premises which would (i) injure the Premises; or (ii) vibrate, shake,
overload, or impair the efficient operation of the Premises or the sprinkler
systems, heating, ventilating or air conditioning equipment, or utilities
systems located therein. Subtenant shall not store any materials, supplies,
finished or unfinished products or articles of any nature outside of the
Premises. Subtenant shall comply with all reasonable rules and regulations
promulgated from time to time by Master Landlord.
D. Subject to Paragraph 3 of this Sublease, Sublandlord hereby
consents to Subtenant's use of the Data Center, the diesel storage and
emergency power system, and the fire suppression system all of which are
located within the Premises in connection with its sublease of the Premises
provided that Subtenant obtains Master Landlord's express written consent to
such use.
11. EFFECT OF CONVEYANCE: As used in this Sublease, the term "Sublandlord"
means the holder of the Tenant's interest under the Master Lease. In the event
of any assignment or transfer of the Tenant's interest under the Master Lease,
which assignment or transfer may occur at any time during the Term hereof in
Sublandlord's sole discretion, Sublandlord shall be and hereby is entirely
relieved of all covenants and obligations of Sublandlord hereunder, and it
shall be deemed and construed, without further agreement between the parties
hereto, that any transferee has assumed and shall carry out all covenants and
obligations thereafter to be performed by Sublandlord hereunder. Sublandlord
may transfer and deliver any security of Subtenant to the transferee of the
Tenant's interest under the Master Lease, and thereupon Sublandlord shall be
discharged from any further liability with respect thereto.
12. DELIVERY AND ACCEPTANCE: Sublandlord shall deliver the Premises in
broom-clean condition. This Sublease shall not be void or voidable, nor shall
Sublandlord be liable to Subtenant for any loss or damage, by reason of delays
in the Commencement Date or delays in Sublandlord delivering the Premises to
Subtenant for any reason whatsoever, except as expressly set forth in Paragraph
3.C of this Sublease. Subtenant has fully inspected the Premises and is
satisfied with the condition thereof. By taking possession of the Premises,
Subtenant conclusively shall be deemed to have accepted the Premises in its
then-existing, "AS IS" condition, without any representation or warranty
whatsoever from Sublandlord with respect thereto, except as expressly set forth
in Paragraph 7 of this Sublease.
13. IMPROVEMENTS: Subtenant shall not make any alterations or
improvements to the Premises, except in accordance with the Master Lease, and
except with the prior written consent of both Master Landlord and Sublandlord.
-5-
<PAGE>
14. DATA CENTER EQUIPMENT: On or before the Early Occupancy Start Date,
Sublandlord shall execute and deliver a bill of sale conveying to Subtenant all
of the items set forth on EXHIBIT D attached hereto.
15. RELEASE AND WAIVER OF SUBROGATION: Notwithstanding anything to the
contrary in this Sublease, Sublandlord and Subtenant hereby release each other
(and Subtenant shall release Master Landlord) from any damage to property or
loss of any kind which is caused by or results from any risk that is insured
against under any property insurance policy required to be carried by either
party or is actually carried by either party in connection with this Sublease.
This release shall be in effect only so long as the applicable insurance policy
contains a clause to the effect that this release shall not affect the right of
the insured to recover under the policy. Each party shall use its reasonable
efforts to cause each property insurance policy obtained by it to provide that
the insurer waives all right of recovery against the other party and its agents
and employees in connection with any damage or injury covered by the policy,
and each party shall notify the other party if it is unable to obtain a waiver
of subrogation. Sublandlord shall not be liable to Subtenant, nor shall
Subtenant be entitled to terminate this Sublease or to abate Rent for any
reason, including, without limitation, (i) failure or interruption of any
utility system or service or (ii) failure of Master Landlord to maintain the
Premises as may be required under the Master Lease. The obligations of
Sublandlord and Subtenant shall not constitute the personal obligations of the
officers, directors, trustees, partners, joint venturers, members, owners,
stockholders or other principals or representatives of the business entity.
16. INSURANCE: Subtenant shall obtain and keep in full force and effect,
at Subtenant's sole cost and expense, during the Term the insurance required to
be carried by the "Tenant" under the Master Lease. Subtenant shall include
Sublandlord and Master Landlord as an additional insured in any policy of
insurance carried by Subtenant in connection with this Sublease and shall
provide Sublandlord with certificates of insurance upon the Early Occupancy
Start Date.
17. DEFAULT: Subtenant's failure to perform each of its obligations under
this Sublease shall be deemed a material default under this Sublease. In
addition, Subtenant shall be in material default of its obligations under this
Sublease if Subtenant is responsible for the occurrence of any of the events of
default set forth in Section 26 of the Master Lease, incorporated herein, as
modified by this Sublease, or if Subtenant commits any other act or omission
which constitutes a default under the Master Lease.
18. SUBLANDLORD DEFAULT: Sublandlord shall not be deemed in default of
this Sublease unless Sublandlord fails within a reasonable period of time to
perform an obligation required to be performed by Sublandlord. For purposes of
this Paragraph 18, a reasonable period of time shall in no event be less than
thirty (30) days after receipt by Sublandlord of written notice specifying
wherein such obligation of Sublandlord which has not been performed; provided,
however, that if the nature of Sublandlord's obligation is such that more than
thirty (30) days after such notice are reasonably required for its performance,
then Sublandlord shall not be in default of this Sublease if performance is
commenced within such thirty (30) day period and thereafter diligently pursued
to completion.
19. REMEDIES: In the event of any default by Subtenant, Sublandlord shall
have all remedies provided to the "Landlord" in the Master Lease as if an event
of default had occurred thereunder and all other rights and remedies otherwise
available at law and in equity. Without limiting the generality of the
foregoing, Landlord shall have the remedy described in California Civil Code
Section 1951.4 (Sublandlord may continue the Sublease in effect after
Subtenant's breach and abandonment and recover rent as it becomes
-6-
<PAGE>
due, if Subtenant has right to sublet or assign, subject only to reasonable
limitations). Sublandlord may resort to its remedies cumulatively or in the
alternative.
20. SURRENDER: On or before the Expiration Date or any sooner termination
of this Sublease, Subtenant shall remove all of its trade fixtures, personal
property and all alterations constructed by Subtenant in the Premises which are
required to be removed under the terms of this Sublease or the Master Lease and
shall surrender the Premises to Sublandlord in (a) good condition, order and
repair, reasonable wear and tear excepted and (b) free of Hazardous Materials
used, stored, handled, manufactured, transported, released, discharged, emitted
or disposed of by Subtenant or it agents, employees, contractors or invitees.
Subtenant shall repair any damage to the Premises caused by Subtenant's removal
of its personal property, furnishings and equipment. If the Premises are not so
surrendered, then Subtenant shall be liable to Sublandlord for all reasonable
costs incurred by Sublandlord in returning the Premises to said required
condition, plus interest thereon at the Applicable Interest Rate. Subtenant
shall not be required to remove any tenant improvements or alterations
installed in the Premises by Sublandlord. Subtenant shall be required to remove
all equipment set forth on EXHIBIT D, to the extent such removal is permitted
under the terms of this Sublease and/or the Master Lease, of if required by
Sublandlord.
21. BROKER: Sublandlord and Subtenant each represent to the other that
they have dealt with no real estate brokers, finders, agents or salesmen in
connection with this transaction other than Spallino Reid representing
Sublandlord and Cornish & Carey representing Subtenant. Each party agrees to
indemnify and hold the other party harmless from and against all claims for
brokerage commissions, finder's fees or other compensation made by any other
agent, broker, salesman or finder as a consequence of the other party's actions
or dealings with such other agent, broker, salesman, or finder.
22. NOTICES: Unless at least five (5) days' prior written notice is given
in the manner set forth in this paragraph, the address of each party for all
purposes connected with this Sublease shall be that address set forth below
their signatures at the end of this Sublease. All notices, demands or
communications in connection with this Sublease shall be properly addressed and
delivered as follows: (a) personally delivered; or (b) submitted to an
overnight courier service, charges prepaid; or (c) deposited in the mail
(certified, return-receipt requested, and postage prepaid). Notices shall be
deemed delivered upon receipt, if personally delivered, one (1) business day
after being so submitted to an overnight courier service and two (2) business
days after deposit in the United States mail, if mailed as set forth above. All
notices given to Master Landlord under the Master Lease shall be considered
received only when delivered in accordance with the Master Lease.
23. OTHER SUBLEASE TERMS:
A. INCORPORATION BY REFERENCE. Except as set forth below and except as
otherwise provided in this Sublease, the terms and conditions of this Sublease
shall include all of the terms of the Master Lease and such terms are
incorporated into this Sublease as if fully set forth herein, except that: (i)
each reference in such incorporated sections to "Lease" shall be deemed a
reference to this "Sublease"; (ii) each reference to the "Premises" shall be
deemed a reference to the "Premises" herein; (iii) each reference to "Landlord"
and "Tenant" shall be deemed a reference to "Sublandlord" and "Subtenant",
respectively, except as otherwise expressly set forth herein; (iv) with respect
to work, services, utilities, electricity, repairs (or damage caused by Master
Landlord), restoration, insurance, indemnities, reimbursements,
representations, warranties which are the obligation of the Master Landlord
under the Master Lease or the performance of any other obligation of Master
Landlord under the Master Lease, whether or not incorporated herein, the sole
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obligation of Sublandlord shall be to request the same in writing from Master
Landlord as and when requested to do so by Subtenant, and to use Sublandlord's
reasonable efforts (not including the payment of money, the incurring of any
liabilities, or the institution of legal proceedings) to obtain Master
Landlord's performance; (v) with respect to any obligation of Subtenant to be
performed under this Sublease, wherever the Master Lease grants to "Tenant" a
specified number of days to perform its obligations under the Master Lease,
except as otherwise provided herein, Subtenant shall three (3) fewer days (but
not less than three (3)) to perform the obligation, including, without
limitation, curing any defaults; (vi) with respect to any approval required to
be obtained from the "Landlord" under the Master Lease, such approval must be
obtained from both Master Landlord and Sublandlord, and Sublandlord's
withholding of approval shall in all events be deemed reasonable if for any
reason Master Landlord's approval is not obtained or is denied; (vii) with
respect to any approval required to be obtained from the Sublandlord in
connection with this Sublease, Sublandlord's approval shall not be unreasonably
withheld, except to the extent otherwise set forth in the Master Lease,
provided Sublandlord's withholding of approval shall in all events be deemed
reasonable if for any reason Master Landlord's approval is not obtained or is
denied; (viii) in any case where the "Landlord" reserves or is granted the
right to manage, supervise, control, repair, alter, regulate the use of, enter
or use the Premises or any areas beneath, above or adjacent thereto, such
reservation or grant of right of entry shall be deemed to be for the benefit of
both Master Landlord and Sublandlord; (viii) in any case where "Tenant" is to
indemnify, release or waive claims against "Landlord", such indemnity, release
or waiver shall be deemed to run from Subtenant to both Master Landlord and
Sublandlord; (ix) in any case where "Tenant" is to execute and deliver certain
documents or notices to "Landlord", such obligation shall be deemed to run from
Subtenant to both Master Landlord and Sublandlord; and (x) the following
modifications shall be made to the Master Lease as incorporated herein:
(a) the following provisions of the Master Lease are not incorporated
herein: Basic Lease Information (except Landlord and Landlord's Notice Address
(for the purpose of incorporating the Master Landlord's name and address, only)
and except for Project Description, Building Description, Permitted Use,
Parking Density, Tenant's Proportionate Share of Building, Tenant's
Proportionate Share of Project) Sections 3, 6, 19, 32 (first sentence),
Additional Paragraphs to Lease Section 39 and the Addenda to Lease Agreement;
references to "Landlord" in the following provisions shall mean "Master
Landlord" only (subject, however, to clauses (iv) through (ix) of the
introductory language to this Paragraph 22.A): Sections 7.E, 8.A, 10, 16, 20,
24 (except first reference to "Landlord" and except 24.E) and 28;
(b) references to "twenty (20) days" in Section 7.E shall be changed to
"fifteen (15) days";
(c) the phrase "except as expressly otherwise provided in Paragraph 10" in
the second sentence of Section 8.B(6) of the Lease shall be deleted;
(d) Section 34 of the Lease, incorporated herein, shall not apply to
Subtenant's obligation to surrender the Premises in accordance with the
Sublease or apply to any monetary obligation of Subtenant;
(e) any right to abate rent provided to Subtenant through incorporation of
the provisions of the Master Lease shall not exceed the rent actually abated
under the Master Lease.
24. ASSUMPTION OF OBLIGATIONS: This Sublease is and at all times shall be
subject and subordinate to the Master Lease and the rights of Master Landlord
thereunder. Subtenant hereby expressly assumes and agrees: (i) to comply with
all provisions of the Master Lease which are assumed by Subtenant hereunder;
and (ii) to perform all the obligations on the part of the "Tenant" to be
performed under the terms of the Master
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Lease, except as otherwise expressly provided herein. In the event the Master
Lease is terminated for any reason whatsoever, this Sublease shall terminate
simultaneously with such termination without any liability of Sublandlord to
Subtenant. In the event of a conflict between the provisions of this Sublease
and the Master Lease, as between Sublandlord and Subtenant, the provisions of
this Sublease shall control.
25. RIGHT TO CONTEST: If Sublandlord does not have the right to contest
any matter in the Master Lease due to expiration of any time limit that may be
set forth therein or for any other reason, then notwithstanding any
incorporation of any such provision from the Master Lease in this Sublease,
Subtenant shall also not have the right to contest any such matter.
26. DAMAGE AND DESTRUCTION: Notwithstanding anything to the contrary in
Section 24 of the Master Lease, as incorporated herein, in the event the
Premises or the Building should be damaged or destroyed by a Casualty which is
not due to an act or omission of Subtenant or its agents, employees, invitees
or contractors, then Subtenant shall have the right to terminate this Sublease
if material restoration of the Premises are not substantially completed within
one hundred and eighty (180) days after the date of the damage or destruction.
27. CONDITIONS PRECEDENT: Notwithstanding anything to the contrary in this
Sublease, this Sublease and Sublandlord's and Subtenant's obligations hereunder
are conditioned upon Sublandlord's receipt of the written consent of Master
Landlord to this Sublease in form and substance satisfactory to Sublandlord and
Subtenant. If Sublandlord does not receive such consent within thirty (30) days
after execution of this Sublease by Sublandlord and Subtenant, then Sublandlord
may terminate this Sublease by giving Subtenant written notice thereof prior
to receipt of such consent, and upon such termination, Sub landlord shall
return to Subtenant the first month's Base Rent paid by Subtenant pursuant to
Paragraph 4.C hereof and the Security Deposit. If Sublandlord does not receive
such consent within forty-five (45) days after full execution of this Sublease
by Sublandlord and Subtenant, then Subtenant may terminate this Sublease by
giving Sublandlord written notice thereof prior to receipt of such consent, and
upon such termination, Sublandlord shall return to Subtenant the first month's
Base Rent paid by Subtenant pursuant to Paragraph 4.C hereof and the Security
Deposit. Subtenant can elect to waive the incorporation in the Consent to
Sublease of the "Special Provisions" (described in Subtenant's insert 6
"Special Provisions" to the Consent to Sublease), provided Subtenant delivers
written notice to Sublandlord setting forth such waiver.
28. SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT: Upon full
execution of this Sublease by Sublandlord and Subtenant, Sublandlord shall ask
Master Landlord to request that any lender of Master Landlord who has a
security interest in the Premises or the Building, to provide Subtenant with a
Subordination, Non-Disturbance and Attornment Agreement in connection with this
Sublease. The execution or delivery of such an agreement shall not be a
condition to this Sublease.
29. MASTER LEASE: Sublandlord shall at all times faithfully and timely
comply with all of its obligations under the Master Lease which have not been
assumed by Subtenant under this Sublease. Without limiting any other right or
remedy of Subtenant under this Sublease, if Master Landlord seeks to terminate
the Master Lease because of an event of default by Sublandlord, Sublandlord
shall use its reasonable good faith efforts to maintain the Master Lease in
full force and effect for the benefit of Subtenant. To the actual knowledge of
Sublandlord, without further inquiry: (a) the Master Lease is in full force and
effect and there exists under the Master Lease no default or event of default
by either Master Landlord or Sublandlord, nor has there occurred any event
which with the giving of notice or the passage of time or both, could
constitute such a default or event of default; (b) there are no pending or
threatened actions, suits or proceedings before
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any court or administrative agency against Sublandlord which could adversely
affect the Premises or any part thereof or the ability of Sublandlord to
perform its obligations under the Master Lease; (c) there is no pending or
threatened condemnation or similar proceeding affecting the Premises or any
portion thereof, and Sublandlord has no knowledge that any such action
currently is contemplated; (d) Sublandlord has not received any written notice
from any insurance company of any defects or inadequacies of the Premises which
would adversely affect the insurability of the Premises or materially increase
the premiums for insurance thereof; and (e) Sublandlord has not received any
written notice from any applicable governmental agency that the condition of
the Premises violates any applicable law or regulation; and (f) there are no
Hazardous Materials on the Premises that require remediation under any
applicable environmental laws. If there is an Event of Default under the Master
Lease which is due to an act or omission of Sublandlord (and not due to an act
or omission of Subtenant or any of its agents, employees, contractors,
invitees, successors, subtenants or assigns), Subtenant can elect, at is sole
discretion, to cure such Event of Default by making payment directly to the
Master Landlord or performing such obligation, and thereafter, until
Sublandlord reimburses Subtenant for its out of pocket costs incurred for such
direct performance (plus interest at the Applicable Interest Rate from the date
paid by Subtenant until the dated reimbursed by Sublandlord), Subtenant can
further elect to make all payments or other performances required hereunder
directly to the Master Landlord, provided Master Landlord elects to recognize
and/or permit such action. If there is an Event of Default under the Master
Lease due to an act or omission of Subtenant or Subtenant's agents, employees,
contractors, invitees, successors, subtenants or assigns, Subtenant shall not
have the rights set forth in the immediately preceding sentence.
30. COUNTERPARTS: This Sublease may be executed in one (1) or more
counterparts each of which shall be deemed an original but all of which
together shall constitute one (1) and the same instrument. Signature copies may
be detached from the counterparts and attached to a single copy of this
Sublease physically to form one (1) document.
IN WITNESS WHEREOF, the parties have executed this Sublease as of the
day and year first above written.
SUBLANDLORD: SUBTENANT:
CONCENTRIC NETWORK CORPORATION IMGIS, INC. DBA "ADFORCE"
By: /s/ PETER J. BERGERON By: /s/ REX S. JACKSON
------------------------------ ----------------------------
Print Name: PETER J. BERGERON Print Name: REX S. JACKSON
---------------------- --------------------
Title: CORPORATE SECRETARY Title: V.P. & G.C.
--------------------------- -------------------------
By:___________________________ By:_____________________________
Print Name:___________________ Print Name:_____________________
Title:________________________ Title:__________________________
Address: Address:
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Cupertino Master Lease Agreement
Exhibit 10.8
STANDARD FORM OFFICE LEASE
"AS-IS"
It is Lease dated May 29, 1998 (this "Lease") is entered into by and
between DE ANZA PLAZA II, LLC, a Delaware limited liability company
("Landlord"), and IMGIS, a California corporation ("Tenant").
ARTICLE 1.
BASIC LEASE PROVISIONS
Each reference in this Lease to the "Basic Lease Provisions" shall mean and
refer to the following terms, the application of which shall be governed by
the provisions in the remaining Articles of this Lease:
1. Address of Landlord: c/o Insignia/ESG of California, Inc.
--------------------------------------------------
160 W. Santa Clara Street, Suite 1350
--------------------------------------------------
San Jose, CA 95113 Attn: Mark E. Schmidt
--------------------------------------------------
2. Premises Address: 10101 N. De Anza Blvd., Ste. 230
--------------------------------------------------
Cupertino, CA 95014
--------------------------------------------------
3. Address of Tenant:
(a) Notices: 10101 N. De Anza Blvd., Ste. 230
--------------------------------------------------
Cupertino, CA 95014
--------------------------------------------------
(b) Billing: 10101 N. De Anza Blvd., Ste. 230
--------------------------------------------------
Cupertino, CA 95014
--------------------------------------------------
4. Tenant's Trade Name: IMGIS
--------------------------------------------------
5. Tenant's Contact: Nadine Franczyk Telephone: (408)873-3680
----------------------- --------------------
6. Premises Square footage: Approximately 4,025 Square Feet
----------
Project Square Footage: Approximately 74,589 Square Feet
-----------
7. Commencement Date: July 1, 1998
--------------------------------------------------
8. Term: Five (5) years
------------
9. Initial Monthly Rent: $12,880.00/month
-----------
(subject to adjustment per Addendum)
10. Security Deposit: $56,914.45
---------------
11. Permitted Uses: General office purposes only, all in accordance with
Applicable Laws and Restrictions (as hereafter defined) and pursuant to
approvals to be obtained by Tenant from all relevant City, County and
other required governmental agencies and authorities.
12. Broker: CPS; Cornish & Carey Commercial
-----------------------------------
13. Landlord's Architect: n/a
---------------------------------------------------
14. Guarantor: n/a
--------------------------------------------------------------
15. Vehicle Parking Spaces: Thirteen (13) non-exclusive parking spaces
-------------------------------------------------
16. Additional Insureds: De Anza Plaza I, LLC, De Anza Plaza II, LLC,
---------------------------------------------------
Insignia/ESG of California, Inc.
---------------------------------------------------
17. Tenant's Liability Insurance Limits: $2,000,000
------------------------------------
18. Tenant's Share: See Section 7.2 and Exhibit I
------------------------------------
19. Operating Expense Base: Operating Expenses for the 1998 calendar year
-------------------------------------------------
Exhibits:
A Description of Premises G Rules and Regulations
B Project Site Plan H
C I
D Commencement Date Memorandum J
E K
F L Calculation of Tenant's Share
Exhibits C,E,F,H,I,J and K
Riders: have been intentionally omitted.
Addendum to Lease
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ARTICLE II
DEFINITIONS
2.1. Certain Definitions. The capitalized terms set forth below,
unless the context clearly requires otherwise, shall have the following
meanings in this Lease:
"Additional Rent" means any and all sums (whether or not specifically
called "Additional Rent" in this Lease) other than Monthly Rent which Tenant
is or becomes obligated to pay to Landlord under this Lease. See also Rent.
"Alterations" means any alterations, decorations, modifications,
additions or improvements made in, on, about, under or contiguous to the
Building or the Premises after the Commencement Date, including, but not
limited to, lighting, HVAC and electrical fixtures, pipes and conduits,
transfer, storage and disposal facilities, partitions, drapery, wall
coverings, shelves, cabinetwork, carpeting and other floor coverings, ceiling
tiles, fixtures and carpentry installations.
"Applicable Laws" means the laws, rules, regulations, ordinances,
restrictions, and practices described in Section 5.2.
"Applicable Rate" means the greater of ten percent (10%) per annum or
five percent (5%) in excess of the discount rate of the Federal Reserve Bank
of San Francisco in effect on the twenty-fifth (25th) day of the calendar
month immediately prior to the event giving rise to the Applicable Rate
Imposition; provided, however, the Applicable Rate shall in no event exceed
the maximum interest rate permitted to be charged by applicable law.
"Broker" means the person or entity identified in Item 12 of the Basic
Lease Provisions.
"Building" means that certain building within which the Premises are
located.
"Casualty" is defined in Section 12.1.
"CC&R's" means the Declaration of Covenants, Conditions and Restrictions
applicable to the Project recorded in the Official Records of the County as
the same may be amended from time to time.
"City" means the city in which the Premises are located.
"Commencement Date" means the commencement date of the Term, described
in Section 3.2.
"Common Area" means all areas and facilities within the Project
exclusive of the Premises and other portions of the Project leased (or to be
leased) exclusively to other tenants. The Common Area includes, but is not
limited to, parking areas, access and perimeter roads, sidewalks, landscaped
areas and similar areas and facilities. Tenant's use of the Common Area, and
its rights and obligations with respect thereto, are more particularly
described in Article X.
"County" means the county in which the Premises are located.
"Event of Default" means the Tenant defaults described in Section 15.1.
"Guarantor" means the person(s) or entity identified in Item 14 of the
Basic Lease Provisions, if any.
"HVAC" means the heating, ventilating and air conditioning system
serving the Building.
"Hazardous Materials" is defined in Section 6.1.
"Landlord's Agents" means Landlord's authorized agents, representatives,
property managers (whether as agents or independent contractors),
consultants, contractors, partners, subsidiaries, affiliates, directors,
officers and employees, including without limitation the Additional Insureds
named in Item 16 of the Basic Lease Provisions.
"Landlord's Architect" means the architect or architectural firm from
time to time designated by Landlord to perform the function of Landlord's
Architect set forth in this Lease. Landlord's Architect initially shall be
the architect or architectural firm designated in Item 13 of the Basic Lease
Provisions.
"Lease" means this instrument together with all exhibits, amendments,
addends and riders attached hereto and made a part hereof.
"Monthly Rent" means the monthly rental which Tenant is to pay to
Landlord pursuant to Section 4.1, as the same may be adjusted from time to
time as set forth in this Lease. See also Rent.
"Mortgage" means any mortgage, deed of trust, or similar lien on or
covering the Project or any part thereof.
"Mortgagee" means any mortgagee of a mortgage, beneficiary of a deed of
trust or lender having a lien on or covering the Project or any part thereof.
"Notice" means each and every notice, communication, request, demand,
reply or advice, or duplicate thereof, in this Lease provided or permitted to
be given, made or accepted by either party to any other party, which shall be
in writing and given in accordance with the provisions of Section 21.6.
"Operating Expenses" means, collectively, Project Costs and Real
Property Taxes.
"Operating Expense Base" means the allowance for Operating Expenses that
Landlord will credit to Tenant's Share of Operating Expenses under Article
VII, which allowance amount is set forth under Item 19 of the Basic Lease
Provisions.
"Premises" means the premises shown in EXHIBIT A, and all areas
appurtenant thereto, if any, for the exclusive use of Tenant, as shown in
EXHIBIT A. The Premises are located within and constitute a portion of the
Building at the address set forth in Item 2 of the Basic Lease Provisions.
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"Premises Square Footage" means (a) the entire area included within the
Premises, being the area bounded by the inside surface of any exterior glass
walls (or the inside surface of the permanent exterior wall where there is no
glass) of the Building bounding the Premises, the inside surface of the
exterior of all walls separating the Premises from any public corridors or
such other public areas on such floor, and the centerline of all walls
separating the Premises from other areas leased or to be leased to other
tenants on such floor; and (b) an amount equal to Tenant's Share of the lobby
areas, elevator shafts, stairwells, corridors, restrooms, mechanical rooms,
janitorial rooms, electrical rooms and telephone closets in the Building. The
Premises Square Footage as of the execution of this Lease is set forth in
Item 6 of the Basic Lease Provisions.
"Project" means that certain real property, and all Improvements
thereon, including the Building and other buildings, if any, located within
the boundaries of such property, shown on the Project Site Plan.
"Project Costs" is defined in Section 7.3.
"Project Site Plan" means EXHIBIT B.
"REA" means the Reciprocal Easement Agreement applicable to the Project,
if any, recorded in the Official Records of the County as the same may be
amended from time to time.
"Real Property Taxes" is defined in Section 7.4.
"Rent" means Monthly Rent and Additional Rent, collectively.
"Restrictions" means, collectively, the CC&R's, the REA and any other
covenants, conditions or restrictions affecting the Premises or any portion
thereof, as the same may be amended from time to time.
"Rules and Regulations" means the rules and regulations attached hereto
as EXHIBIT G and any modifications thereto promulgated by Landlord or
Landlord's Agents from time to time.
"Security Deposit" means the amount set forth in Item 10 of the Basic
Lease Provisions, which shall be paid to Landlord by Tenant pursuant to
Section 4.6.
"Substantial Completion" and "substantially completed" means repair of
the Premises following a Casualty has been fully completed except for minor
details of construction, mechanical adjustments or decoration which do not
materially interfere with Tenant's use and enjoyment of the Premises (items
normally referred to as "punch list" items).
"Tenant Delays" means any and all delays due to the fault of the Tenant,
including without limitation Tenant's failure to deliver to Landlord prior to
the Commencement Date executed copies of policies of insurance or
certificates thereof as required under Section 11.8.
"Tenant's Agents" means Tenant's agents, representatives, consultants,
contractors, affiliates, subsidiaries, officers, directors, employees,
subtenants, guests and invitees.
"Tenant's Personal Property" means Tenant's removable trade fixtures,
furniture, equipment and other personal property located in or on the
Premises.
"Term" means the term of this Lease, as provided in Section 3.2.
"Unavoidable Delay" means any delays which are beyond a party's
reasonable control, including, but not limited to, delays due to inclement
weather, strikes, acts of God, inability to obtain labor or materials,
inability to secure governmental approvals or permits, governmental
restrictions, civil commotion, fire, earthquake, explosion, flood, hurricane,
the elements, or the public enemy, action or interference of governmental
authorities or agents, war, invasion, insurrection, rebellion, riots,
lockouts or any other cause whether similar or dissimilar to the foregoing
which is beyond a party's reasonable control; provided however, that in no
event shall any of the foregoing ever apply with respect to the payment of
any monetary obligation.
2.2. Other Definitions. Terms defined elsewhere in this Lease, unless
the context clearly requires otherwise, shall have the meaning as there given.
ARTICLE III
PREMISES AND TERM
3.1. Lease of Premises. Subject to and upon the terms and conditions
set forth herein, Landlord hereby leases the Premises to Tenant, and Tenant
hereby leases the Premises from Landlord.
3.2. Term and Commencement. Unless sooner terminated as provided herein,
the Term of this Lease shall be for that period of years and months set forth
in Item 8 of the Basic Lease Provisions, as the same may be extended in
accordance with any option or options to extend the Term granted herein, and
shall commence on the date set forth in Item 7 of the Basic Lease Provisions
(the "Commencement Date"). Promptly following the Commencement Date, Landlord
and Tenant shall execute a Commencement Date Memorandum in the form shown in
EXHIBIT D.
3.3.
3.4. Delay in Possession. If for any reason Landlord cannot deliver
possession of the Premises to Tenant on or before the Commencement Date,
Landlord shall not be subject to any liability therefor, and such failure
shall not affect the validity of this Lease or the obligations of Tenant
hereunder, but in such case.
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Tenant shall not be obligated to pay Monthly Rent or Additional Rent other
than as provided in Section 3.3 and Section 3.5 until possession of the
Premises has been delivered to Tenant (which date shall then be deemed the
"Commencement Date" for all purposes under this Lease). If, due to Landlord's
delay in delivering possession of the Premises, the Commencement Date has not
occurred within one hundred twenty (120) days following the date set forth in
Item 7 of the Basic Lease Provisions plus periods attributable to Tenant
Delays or Unavoidable Delay, Tenant may, at its option, by Notice to Landlord
within ten (10) days thereafter, terminate this Lease, in which event the
parties shall be discharged from all further obligations hereunder; provided,
however, if Tenant fails to give such notice to Landlord within such ten-day
period, Tenant shall no longer have the right to terminate this Lease under
this Section 3.4. Tenant understands that, notwithstanding anything to the
contrary contained herein, Landlord shall have no obligation to deliver
possession of the Premises to Tenant for so long as Tenant fails to deliver
to Landlord executed copies of policies of insurance or certificates thereof
as required under Section 11.8.
3.5. Tenant Delays. The Commencement Date shall not be delayed or
postponed due to Tenant Delays, and the Term, Tenant's obligations to pay
Rent and all of Tenant's other obligations under this Lease shall commence
upon the date which would have been the Commencement Date but for Tenant
Delays.
3.6. Condition of Premises. The taking of possession or use of the
Premises by Tenant for any purpose other than as provided in Section 3.3
shall conclusively establish that Tenant has inspected the Premises and
accepts them as being in good and sanitary order, condition and repair.
3.7. No Representations. Tenant acknowledges that neither Landlord nor
any of Landlord's Agents has made any representations or warranties as to the
suitability or fitness of the Premises for the conduct of Tenant's business,
including, but not limited to, any representations or warranties regarding
zoning or other land use matters, or for any other purpose, and that neither
Landlord nor any of Landlord's Agents has agreed to undertake any alterations
or additions to the Premises except as expressly provided in this Lease.
ARTICLE IV
RENT AND ADJUSTMENTS
4.1. Monthly Rent. From and after the Commencement Date, Tenant shall
pay to the Landlord, for each calendar month of the Term, the Monthly Rent
set forth in Item 9 of the Basic Lease Provisions, as the same may be
adjusted from time to time as provided in Section 4.2. Monthly Rent shall be
due and payable to Landlord in lawful money of the United States, in advance,
on the first (1st) day of each calendar month of the Term, without abatement,
deduction, claim or offset, and without prior notice, invoice or demand, at
Landlord's address forth in Item 1 of the Basic Lease Provisions or at such
place as Landlord may from time to time designate. Tenant's payment of
Monthly Rent for the first (1st) month of the Term shall be delivered to
Landlord concurrently with Tenant's execution of this Lease.
4.2. Adjustments. Monthly Rent shall be adjusted from time to time as
provided in the Addendum to Lease.
4.3. Additional Rent. All Additional Rent shall be due and payable to
Landlord in lawful money of the United States, at Landlord's address set
forth in Item 1 of the Basic Lease Provisions or at such other place as
landlord may from time to time designate, without abatement, deduction, claim
or offset, within ten (10) days of receipt of Landlord's invoice or statement
for same, or, if this Lease provides another time for the payment of certain
items of Additional Rent, then at such other time.
4.4. Prorations. If the Commencement Date is not the first (1st) day
of a month, or if the expiration of the Term of this Lease is not the last
day of a month, a prorated installment of Monthly Rent based on a thirty
(30) day month shall be paid for the fractional month during which the Term
commences or terminates.
4.5. Late Payment Charges. Tenant acknowledges that late payment by
Tenant to Landlord of Rent under this Lease will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of which is extremely
difficult or impracticable to determine. Such costs include, but are not
limited to, processing and accounting charges, late charges that may be
imposed on Landlord by the terms of any Mortgage, and late charges and
penalties that may be imposed due to late payment of Real Property Taxes.
Therefore, if any installment of Monthly Rent or any payment of Additional
Rent due from Tenant is not received by Landlord in good funds by the second
(2nd) calendar day from the applicable due date, Tenant shall pay to Landlord
an additional sum equal to five percent (5%) of the amount overdue as a late
charge for every month or portion thereof that such amount remains unpaid.
The parties acknowledge that this late charge represents a fair and
reasonable estimate of the costs that Landlord will incur by reason of the
late payment by Tenant. Acceptance of any late Rent and late charge therefor
shall not prevent Landlord from exercising any of the other rights and
remedies available to Landlord for any other Event of Default under this
Lease. Notwithstanding the foregoing (i) should any payment of Rent by
personal check be rejected for insufficient funds, Landlord shall have the
right, upon notice to Tenant, to require that all future payments by Tenant
under this Lease be by cashier's check acceptable to Landlord, and (ii) upon
the third (3rd) occurrence during the Term of Tenant's failure to timely pay
Rent when due, Landlord may, upon notice to Tenant, require that Monthly Rent
for the balance of the Term be made in quarterly installments, in advance, in
an amount equal to the sum of the Monthly Rent amounts payable during such
three (3) month period.
4.6. Security Deposit. Tenant has deposited with Landlord the sum set
forth in item 10 of the Basic Lease Provisions as a Security Deposit for the
full and faithful performance of every provision of this Lease to be
performed by Tenant. Landlord may apply, in its sole discretion at any time
during the Term of this Lease, all or any part of the Security Deposit to the
payment of all prepaid expenses by Landlord for which Tenant would be
required to reimburse Landlord under this Lease, including without limitation
for Broker commissions. Such application of the Security Deposit is not and
shall never be dependent upon an Event of Default. Upon an Event of Default,
and whether or not Landlord is informed of or has knowledge of the Event of
Default, the Security Deposit (if not already applied as hereinabove
provided) shall be deemed to be automatically applied, without waiver of any
rights Landlord may have under this Lease or at law or in equity as a result
of an Event of Default, to the payment of any Rent not paid when due, the
repair of damage to the Premises or the payment of any other amount which
Landlord may spend or become obligated to spend by reason of an Event of
Default, or to compensate Landlord for any other loss or damage which
Landlord may suffer by reason of an Event of Default, to the full extent
permitted by law. If any portion of the Security Deposit is so applied,
Tenant shall, within ten (10) 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. The unused portion of the Security
Deposit, if any, shall be returned to Tenant within thirty (30) days of the
expiration of this Lease or any termination of this Lease not resulting from
an Event of Default, so long as Tenant has vacated the Premises in the manner
required
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by this Lease and paid all sums required to be paid under this Lease,
provided however that Landlord may retain the Security Deposit until such
time as any amounts of Additional Rent due from Tenant have been determined
and paid In full. Tenant hereby waives the provisions of Section 1950.7(c) of
the California Civil Code and any present or future laws otherwise governing
the return of the Security Deposit to Tenant to the extent of reasonably
anticipated Additional Rent retained by Landlord pursuant to the previous
sentence.
ARTICLE V
USE
5.1. Tenant's Use. Tenant shall use the Premises solely for the
purposes set forth in Item 11 of the Basic Lease Provisions and shall use
the Premises for no other purpose. Tenant's use of the Premises shall be
subject to all of the terms and conditions of this Lease, including, but not
limited to, all the provisions of this Article V. Tenant, at Tenant's sole
cost and expense, shall procure, maintain and make available for Landlord's
inspection throughout the Term, all governmental approvals, licenses and
permits required for the proper and lawful conduct of Tenant's permitted use
of the Premises. At Landlord's request, Tenant shall deliver copies of all
such approvals, licenses and permits to Landlord.
5.2. Compliance With Applicable Laws. Throughout the Term, Tenant, at
Tenant's sole cost and expense, shall comply with, and shall not use the
Premises, Building or Common Area, or suffer or permit anything to be done in
or about the same which will in any way conflict with, (i) any and all
present and future laws, statutes, zoning restrictions, ordinances, orders,
regulations, directions, rules and requirements of all governmental or
private authorities having jurisdiction over all or any part of the Premises
(including, but not limited to, state, municipal, county and federal
governments and their departments, bureaus, boards and officials) pertaining
to the use or occupancy of, or applicable to, the Premises or privileges
appurtenant to or in connection with the enjoyment of the Premises, (ii) any
and all applicable federal, state and local laws, regulations or ordinances
pertaining to air and water quality, Hazardous Materials (as defined in
Section 6.1), waste disposal, air emissions and other environmental or
health and safety matters, zoning, land use and utility availability, which
impose any duty upon Landlord or Tenant directly or with respect to the use
or occupation of the Project or any portion thereof, (iii) the requirements
of the Board of Fire Underwriters or other similar body now or hereafter
constituted relating to or affecting the condition, use or occupancy of the
Project or any portion thereof, (iv) any covenants, conditions, easements or
restrictions, including but not limited to the Restrictions, now or hereafter
affecting or encumbering the Project or any portion thereof, regardless of
when they become effective, (v) the Rules and Regulations, and (vi) good
business practices (collectively, (i) through (vi) above are hereinafter
referred to as "Applicable Laws"). Tenant shall not commit any waste of the
Premises, Building or Project, or any public or private nuisance or any other
act or thing which might or would disturb the quiet enjoyment of any other
tenant of Landlord or any occupant of nearby property. Tenant shall not place
or permit to be placed any loads upon the floors, walls or ceilings in excess
of the maximum designed load specified by Landlord or which might damage the
Premises or the Building, or place or permit to be placed any harmful liquids
in the drainage systems, and Tenant shall not dump or store, or permit to be
dumped or stored, any inventory, waste materials, refuse or other materials
or allow any such materials to remain outside the Building proper, except in
designated enclosed trash areas. Tenant shall not conduct or permit any
auctions, sheriff's sales or other like activities at the Project or any
portion thereof.
5.3. Restrictions. Tenant agrees that this Lease is subject and
subordinate to the Restrictions, as the same may now or hereafter exist, and
that it will execute and deliver to Landlord within fifteen (15) days of
Landlord's request therefor, any further documentation or instruments which
Landlord deems necessary or desirable to evidence or effect such
subordination. Without limiting the provisions of Section 5.2, Tenant shall
throughout the Term timely comply with all of the terms, provisions,
conditions and restrictions of the Restrictions which pertain to, restrict or
affect the Premises or Tenant's use thereof, or Tenant's use of any other
area of the Project permitted hereunder, including the payment by Tenant of
any periodic or special dues or assessments charged against the Premises or
Tenant which may be allocated to the Premises or Tenant in accordance with
the provisions of the Restrictions. Tenant shall hold Landlord, Landlord's
Agents and the Premises harmless and shall indemnify, protect and defend
Landlord and Landlord's Agents from and against any loss, expense, damage,
attorney's fees and costs or liability arising out of or in connection with
the failure of Tenant to so perform or comply with the Restrictions. Tenant
agrees that it will subordinate this Lease to any other covenants, conditions
and restrictions and any reciprocal easement agreements or any similar
agreements which Landlord may hereafter record against the Premises and to
any amendment or modification to any of the existing Restrictions, provided
that such subordination does not unreasonably interfere with Tenant's use and
employment of the Premises.
5.4. Landlord's Right of Entry. Landlord and Landlord's Agents shall
have the right to enter the Premises at all reasonable times upon reasonable
notice to Tenant, except for emergencies in which case no notice shall be
required, to inspect the Premises, to take samples and conduct environmental
investigations, to post notices of nonresponsibility and similar notices and
signs indicating the availability of the Premises for sale, to show the
Premises to interested parties such as prospective lenders and purchasers, to
make necessary Alterations or maintenance and repairs, to perform Tenant's
obligations as permitted herein when Tenant has failed to do so and, at any
reasonable time after one hundred eighty (180) days prior to the expiration
of the Term, to place upon the Premises reasonable signs indicating the
availability of the Premises for lease and to show the Premises to
prospective tenants, all without being deemed to have caused an eviction of
Tenant and without any liability to Tenant or abatement of Rent. The above
rights are subject to reasonable security regulations of Tenant, and in
exercising its rights set forth herein, Landlord shall endeavor to cause the
least possible interference with Tenant's business. Landlord shall at all
times have the right to retain a key which unlocks all of the doors in the
Premises, excluding Tenant's vaults and safes, and Landlord and Landlord's
Agents shall have the right to use any and all means which Landlord may deem
proper to open the doors in an emergency to obtain entry to the Premises, and
any entry to the Premises so obtained by Landlord or Landlord's Agents shall
not under any circumstances be deemed to be a forcible or unlawful entry
into, or a detainer of, the Premises, or an eviction of Tenant from the
Premises.
ARTICLE VI
HAZARDOUS MATERIALS
6.1. Definition of Hazardous Materials. For purposes of this Lease, the
term "Hazardous Materials" includes (i) any "hazardous materials" as defined
in Section 25501(k) of the California Health and Safety Code unless Tenant
establishes, to the satisfaction of Landlord, that because of the quantity,
concentration, or physical or chemical characteristics, such substance or
matter does not pose a present or potential hazard to human health and
safety or to the environment, (ii) any other substance or matter which
results in liability to any person or entity from exposure to such
substance or matter under any statutory or common law theory, and (iii) any
substance or matter which is in excess of relevant and appropriate levels set
forth in any applicable
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federal, state or local law or regulation pertaining to any hazardous or
toxic substance, material or waste, or for which any applicable federal,
state or local agency orders or otherwise requires removal, treatment or
remediation.
6.2. Use of Hazardous Materials. Tenant shall not cause or permit any
Hazardous Materials to be brought upon, stored, used, generated, released
into the environment or disposed of on, under, from or about the Premises
(which for purposes of this Article VI shall include, but is not limited to,
subsurface soil and ground water) by Tenant or Tenant's Agents without the
prior written consent of Landlord. Landlord may, in its sole discretion,
place such conditions as Landlord deems appropriate with respect to such
Hazardous Materials, and may further require that Tenant demonstrates to
Landlord that such Hazardous Materials are necessary or useful to Tenant's
business and will be generated, stored, used and disposed of in a manner that
complies with all Applicable Laws regulating such Hazardous Materials and
with good business practices. Without limiting any other rights or remedies
of Landlord under this Lease, Tenant shall pay the cost of any cleanup work
performed on, under or about the Premises, the Building and the Project as
required by this Lease or any Applicable Laws in connection with the removal,
disposal, neutralization or other treatment of such Hazardous Materials
caused or permitted by Tenant or Tenant's Agents.
6.3. Disclosures. Tenant shall promptly notify Landlord of, and shall
promptly provide Landlord with true, correct, complete and legible copies of,
all of the following environmental items relating to the Premises: reports
filed pursuant to any self-reporting requirements; reports filed pursuant to
any Applicable Laws or this Lease; all permit applications, permits,
monitoring reports, workplace exposure and community exposure warnings or
notices, and all other reports, disclosures, plans or documents (even those
which may be characterized as confidential) relating to water discharges, air
pollution, waste generation or disposal, underground storage tanks or
Hazardous Materials; all orders, reports, notices, listings and
correspondence (even those which may be considered confidential) of or
concerning the release, investigation, compliance, clean up, remedial and
corrective actions, and abatement of Hazardous Materials whether or not
required by Applicable Laws; and all complaints, pleadings and other legal
documents filed against Tenant related to Tenant's use, handling, storage or
disposal of Hazardous Materials.
6.4. Inspection: Compliance. Landlord and Landlord's Agents shall have
the right, but not the obligation, to inspect, investigate, sample and/or
monitor the Premises, including any air, soil, water, groundwater or other
sampling, and any other testing, digging, drilling or analyses, at any time
to determine whether Tenant is complying with the terms of this Article VI,
and in connection therewith, Tenant shall provide Landlord with full access
to all relevant facilities, records and personnel. If Tenant is not in
compliance with any of the provisions of this Article VI, or in the event of
a release of any Hazardous Material on, under, from or about the Premises,
Landlord and Landlord's Agents shall have the right, but not the obligation,
without limitation on any of Landlord's other rights and remedies under this
Lease, to immediately enter upon the Premises and to discharge Tenant's
obligations under this Article VI at Tenant's expense, including without
limitation the taking of emergency or long-term remedial action. Landlord and
Landlord's Agents shall endeavor to minimize interference with Tenant's
business but shall not be liable for any such interference. All sums
reasonably disbursed, deposited or incurred by Landlord in connection
herewith, including, but not limited to, all costs, expenses and actual
attorneys fees, shall be due and payable by Tenant to Landlord, as an item of
Additional Rent, on demand by Landlord, together with interest thereon at the
Applicable Rate from the date of such demand until paid by Tenant.
6.5. Indemnification. To the fullest extent permitted by law, Tenant
hereby agrees to indemnify, hold harmless, protect and defend (with attorneys
acceptable to Landlord) Landlord and Landlord's Agents, and any successors to
all or any portion of Landlord's interest in the Premises, the Building and
the Project and their directors, officers, partners, employees, authorized
agents, affiliates, representatives and Mortgagees, from and against any and
all liabilities, losses, damages (including, but not limited to, damages for
the loss or restriction on use of rentable or usable space or any amenity of
the Premises, the Building and the Project or damages arising from any
adverse impact on marketing of space in the Premises, the Building and the
Project), diminution in the value of the Premises, the Building and the
Project, judgments, fines, demands, claims, recoveries, deficiencies, costs
and expenses (including, but not limited to, reasonable attorneys' fees,
disbursements and court costs and all other professional or consultant's
expenses), whether foreseeable or unforeseeable, arising directly or
indirectly out of the presence, use, generation, storage, treatment, on or
off-site disposal or transportation of Hazardous Materials on, into, from,
under or about the Premises, the Building and the Project by Tenant or
Tenant's Agents, and specifically including the cost of any required or
necessary repair, restoration, clean-up (including, but not limited to, the
costs of investigation and removal of Hazardous Materials) or detoxification
of the Premises, the Building and the Project and the preparation of any
closure or other required plans, whether or not such action is require or
necessary during the Term or after the expiration of this Lease.
6.6 [See Addendum]
ARTICLE VII
OPERATING EXPENSES; TAXES; UTILITIES
7.1. Tenant to Bear Tenant's Share of Operating Expenses. Tenant shall
pay to Landlord Tenant's Share (as defined in Section 7.2) of Operating
Expenses in excess of the Operating Expense Base as follows: Prior to the
Commencement Date and thereafter prior to the commencement of each of
Landlord's fiscal years during the Term, Landlord shall give Tenant a written
estimate of Tenant's Share of Operating Expenses in excess of the Operating
Expense Base for the ensuing fiscal year or partial fiscal year, as the case
may be. Tenant shall pay, as an item of Additional Rent, such estimated
amount in equal monthly installments, in advance, on or before the first
(1st) day of each calendar month concurrent with its payment of Monthly
Rent. If Landlord has not furnished its written estimate by the time set
forth above, Tenant shall pay monthly installments of Operating Expenses in
excess of the Operating Expense Base at the rate established for the prior
fiscal year, if any; provided that when the new estimate is delivered to
Tenant, Tenant shall at the next monthly payment date pay Landlord any
accrued deficiency based on the new estimate, or Landlord shall credit any
accrued overpayment based on such estimate toward Tenant's next installment
payment hereunder. Within a reasonable period of time after the end of each
fiscal year (in no event less than one hundred (120) days after the end of
each fiscal year unless sooner completed by Landlord) Landlord shall furnish
Tenant a statement showing in reasonable detail Tenant's share of the actual
Operating Expenses in excess of the Operating Expense Base incurred for the
period in question. If Tenant's estimated payments are less than Tenant's
Share of actual Operating Expenses in excess of the Operating Expense Base as
shown by the applicable statement, Tenant shall pay the difference to
Landlord within thirty (30) days thereafter. If Tenant shall have overpaid
Landlord, Landlord shall credit such overpayment toward Tenant's next
installment payment hereunder. When the final
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determination is made of Tenant's Share of the actual Operating Expenses in
excess of the Operating Expense. Base for the fiscal year in which this Lease
terminates, Tenant shall, even if this Lease has terminated, pay to Landlord
within fifteen (15) days after notice the excess of Tenant's Share of such
actual Operating Expenses in excess of the Operating Expense Base over the
estimate of Tenant's Share of such Operating Expenses paid. Conversely, any
overpayment shall be rebated by Landlord to Tenant. If Landlord shall
determine at any time that the estimate of Tenant's Share of Operating
Expenses in excess of the Operating Expense Base for the current fiscal year
is or will become inadequate to meet Tenant's Share of all such Operating
Expenses for any reason, Landlord shall immediately determine the
approximate amount of such inadequacy and issue a supplemental estimate as
to Tenant's Share of such Operating Expenses and Tenant shall pay any
increase as reflected by such supplemental estimate. Landlord shall keep or
cause to be kept separate and complete books of accounting covering all
Operating Expenses and showing the method of calculating Tenant's Share of
Operating Expenses in excess of the Operating Expense Base, and shall
preserve for at least twelve (12) months after the close of each fiscal year
all material documents evidencing said Operating Expenses for that fiscal
year. Tenant, at its sole cost and expense, through any certified public
accountant designated by it, shall have the right, during reasonable business
hours and not more frequently than once during any fiscal year, to examine
and/or audit the books and documents mentioned above evidencing such costs
and expenses for the previous fiscal year. Any delay or failure by Landlord
in delivering any estimate or statement pursuant to this Section 7.1 shall
not constitute a waiver of its right to require Tenant to pay Tenant's Share
of Operating Expenses in excess of the Operating Expense Base pursuant hereto.
7.2. Definition of Tenant's Share. The term "Tenant's Share" means
that portion of an Operating Expense determined by multiplying the cost of
such item by a fraction, the numerator of which is the Premises Square
Footage and the denominator of which is the total square footage of the floor
area, as of the date on which the computation is made, to be charged with
such Operating Expense. A determination of Tenant's Share for various
Operating Expenses is set forth in Exhibit I attached to and made a part of
this Lease.
7.3. Definition of Project Costs. The term "Project Costs" means all
costs and expenses incurred by Landlord or Landlord's Agents in connection
with the operation of the Project, including, but not limited to, the
following: repair and maintenance of the roof, foundation and exterior walls
of the buildings in the Project, periodic painting of the buildings in the
Project, periodic cleaning of the exterior windows of the buildings in the
Project, landscaping services, outside pest control, normal maintenance and
repair of the HVAC through maintenance contracts or otherwise, sweeping,
maintenance services, repairs to and replacement of asphalt paving, bumpers,
striping, light bulbs, light standards, monument and directional signs and
lighting systems, perimeter walls, retaining walls, sidewalks, planters,
landscaping and sprinkler system in planting area, any and all assessments
levied against the Project pursuant to the Restrictions, water, electrical
and other utility services not supplied directly to a tenant, removal of
trash, rubbish and other refuse from the Project, cleaning of and replacement
of signs of the Project, including relamping and repairs made as required;
repair, operation and maintenance of the Common Area, including, but not
limited to, removal of any obstructions not reasonably required for the
Common Area uses, prohibition and removal of the sale or display of
merchandise or the storing of materials and/or equipment in the Common Area,
and payment of all electrical, water and other utility charges or fees for
services furnished to the Common Area; obtaining and maintaining public
liability, property damage and other forms of insurance which Landlord may or
is required to maintain in connection with the Project (including the payment
of any deductibles thereunder); costs incurred in connection with compliance
of any laws or changes in laws applicable to the Project, excepting any laws
or changes in laws regarding Hazardous Materials; establishment of reasonable
reserves for replacements and/or repair of Common Area improvements,
equipment and supplies; employment of such personnel as Landlord may deem
reasonably necessary, if any, to direct parking and police the Common Area
and facilities; the cost of any capital improvements (other than tenant
improvements for specific tenants) made by or on behalf of Landlord to the
Project or Common Area to the extent of the amortized amount thereof over the
useful life of such capital improvements calculated at a market cost of
funds, all as determined by Landlord, for each such year of useful life
during the Term; depreciation of machinery and equipment used in connection
with the maintenance and operation of the Common Area for which a reasonable
reserve has not been established as herein provided; employment of personnel
used in connection with any of the foregoing, including, but not limited to,
payment or provision for unemployment insurance, worker's compensation
insurance and other employee costs; the cost of bookkeeping, accounting and
auditing and legal services provided in connection with any of the foregoing;
the cost of any tax, insurance or other consultant utilized in connection
with the Project; and any other items reasonably necessary from time to time
to properly repair, replace, maintain and operate the Project. Project Costs
shall also include a management fee to cover Landlord's management, overhead
and administrative expenses; provided, however, if Landlord elects to
delegate its duties hereunder to a professional property manager, then
Project Costs shall not include any management fee to Landlord (except for
any costs and/or administrative and overhead expenses reasonably incurred by
Landlord in monitoring and auditing the performance delegated to the
professional property manager), but under such circumstances any reasonable
amounts paid to the professional property manager shall be added to and
deemed a part of Project Costs. If Landlord elects to perform any maintenance
or repair herein described in conjunction with properties other than the
Project, and if a common maintenance contractor is contracted with for such
purpose, the contract amount allocable to the Project, as reasonably
determined by Landlord, shall be added to and deemed a part of Project Costs
hereunder. Increases in Project Costs by reason of a disproportionate impact
by Tenant thereon (for example, and not by way of limitation, increases in
costs of trash collection because of Tenant's excessive generation of trash
or increases in costs of Common Area maintenance because of Tenant's
unpermitted storage of inventory or materials in the Common Area), In
Landlord's reasonable judgment, may be billed by Landlord, as an item of
Additional Rent, directly to Tenant.
7.4. Definition of Real Property Taxes. The term "Real Property Taxes"
means any form of tax, assessment, charge, license, fee, rent tax, levy,
penalty (if a result of Tenant's delinquency), real property or other tax
(other than Landlord's net income, estate, succession, inheritance, or
franchise taxes), now or hereafter imposed with respect to the Project or any
part thereof (including any Alterations), this lease or any Rent payable
under this Lease by any authority having the direct or indirect power to tax,
or by any city, county, state or federal government or any improvement
district or other district or division thereof, whether such tax or any
portion thereof (i) is determined by the area of the Project or any part
thereof or the Rent payable under this Lease by Tenant including, but not
limited to, any gross income or excise tax levied by any of the foregoing
authorities with respect to receipt of the Rent due under this Lease, (ii) is
levied or assessed in lieu of, in substitution for, or in addition to,
existing or additional taxes with respect to the Project or any part thereof
whether or not now customary or within the contemplation of Landlord or
Tenant, or (iii) is based upon any legal or equitable interest of Landlord in
the Project or any part thereof.
7.5. Apportionment of Taxes. If the Project is assessed as part of a
larger parcel, then Landlord shall equitably apportion the Real Property
Taxes assessed against the real property which includes the Project and
reasonably determine the amount of Real Property Taxes attributable to the
Project. If other buildings exist on the assessed parcel, the Real Property
Taxes apportioned to the project shall be based upon the ratio
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of the square footage of all buildings within the Project to the square
footage of all buildings on the assessed parcel, and the amount of Real
Property Taxes so apportioned to the Project shall be included as part of
Operating Expenses. Landlord's reasonable determination of such apportionment
shall be conclusive.
7.6. Tax on Improvements; Permitted contests. Tenant shall, at
Landlord's election, be directly responsible for and shall pay the full
amount of any increase in Real Property Taxes attributable to any
improvements of any kind whatsoever placed in, on or about the Premises for
the benefit of, at the request of, or by Tenant. Tenant may contest the
amount or validity of any Real Property Taxes by appropriate proceedings,
provided that Tenant gives Landlord prior Notice of any such contest and
keeps Landlord advised as to all proceedings, and provided further that
Tenant shall continue to reimburse Landlord for Landlord's payment of such
Reel Property Taxes unless such proceedings shall operate to prevent or stay
such payment and the collection of the tax so contested. Landlord shall join
in any such proceedings if any Applicable Laws shall so require, provided
that Tenant shall hold harmless, indemnify, protect and defend Landlord from
and against any liability, claim, demand, cost or expense in connection
therewith, including, but not limited to, actual attorneys' fees and costs
reasonably incurred.
7.7. Utilities and Services. Provided that no Event of Default has
occurred and is continuing, Landlord agrees to furnish to the Premises during
reasonable hours of generally recognized business days, subject to the
conditions and in accordance with the standards set forth in the Rules and
Regulations, as may be amended in writing by Landlord from time to time
during the Term of this Lease and delivered to Tenant, reasonable quantities
of electric current for normal lighting and fractional horsepower office
machines, water for lavatory and drinking purposes, heat and air conditioning
required in Landlord's judgment for the comfortable use and occupation of the
Premises, Janitorial service, and to the extent provided in the Building
only, elevator service by non-attended automatic elevators. The cost of all
such utilities and services shall be included within the definition of
Project Costs, and shall be paid by Tenant in the manner set forth in Section
7.1. Landlord shall not be liable for, and Tenant shall not be entitled to
any abatement or reduction of Rent by reason of Landlord's failure to furnish
any of the foregoing when such failure is caused by accident, breakage,
repairs, Unavoidable Delay or for any other causes. If Tenant requires or
utilizes more water or electrical power than is considered reasonable or
normal by Landlord, Landlord may at its option require Tenant to pay, as
Additional Rent, the cost, as reasonably determined by Landlord, incurred by
such extraordinary usage. In addition, Landlord may install separate meter(s)
for the Premises, at Tenant's sole expense, and Tenant thereafter shall pay
all charges of the metered service. Tenant shall cooperate with any present
or future government conservation requirements and with any conservation
practices established by Landlord. If there is any failure, stoppage or
interruption of any services provided hereunder, Landlord shall use
reasonable diligence to resume services promptly. Landlord shall at all times
have free access to all mechanical installations of the Building and
Premises, including but not limited to air conditioning equipment and vents,
fans, ventilating and machine rooms and electrical closets.
ARTICLE VIII
ALTERATIONS
8.1. Permitted Alterations. After the Commencement Date. Tenant shall
not make or permit any Alterations in, on or about the Premises without the
prior written consent of Landlord. Notwithstanding the foregoing, in no event
shall any Alterations (i) affect the exterior of the Building or the outside
areas (or be visible from adjoining sites), (ii) affect or penetrate any of
the structural portions of the Building, including, but not limited to, the
roof, (iii) require any change to the basic floor plan of the Premises, any
change to the structural or mechanical components of the Premises, or any
governmental approval or permit as a prerequisite to the construction
thereof, (iv) interfere in any manner with the proper functioning of or
Landlord's access to any mechanical, electrical, plumbing or HVAC systems,
facilities or equipment located in or serving the Building, or (v) diminish
the value of the Premises. All Alterations shall be constructed pursuant to
plans and specifications previously provided to and, when applicable,
approved in writing by Landlord, shall be installed by a licensed contractor
at Tenant's sole expense in compliance with all Applicable Laws, and shall be
accomplished in a good and workmanlike manner conforming in quality and
design with the Premises existing as of the Commencement Date. No Hazardous
Materials, including, but not limited to, asbestos or asbestos-containing
materials, shall be used by Tenant or Tenant's Agents in the construction of
any Alterations permitted hereunder. All Alterations made by Tenant shell be
and become the property of Landlord upon the installation thereof and shall
not be deemed Tenant's Personal Property; provided, however, that Landlord
may, at its option, require that Tenant, upon the termination of this Lease,
at Tenant's expense, remove any or all non-structural Alterations installed
by or on behalf of Tenant and return the Premises to its condition as of the
Commencement Date of this Lease, normal wear and tear excepted.
Notwithstanding any other provisions of this Lease, Tenant shall be solely
responsible for the maintenance, repair and replacement of any and all
Alterations made by or on behalf of Tenant (including without limitation by
Landlord on behalf of Tenant) to the Premises.
8.2. Trade Fixtures. Tenant shall, at its own expense, provide, install
and maintain in good condition all of Tenant's Personal Property required in
the conduct of its business in the Premises.
8.3. Mechanics' Liens. Tenant shall give Landlord Notice of Tenant's
intention to perform any work on the Premises which might result in any claim
of lien at least twenty (20) days prior to the commencement of such work to
enable Landlord to post and record a notice of nonresponsibility or other
notice Landlord deems proper prior to the commencement of any such work.
Tenant shall not permit any mechanic's, materialmen's or other liens to be
filed against the property of which the Premises are a part or against
Tenant's leasehold interest in the Premises. If Tenant fails to cause the
release of record of any lien(s) filed against the Premises or its Leasehold
estate therein by payment or posting of a proper bond within ten (10) days
from the date of the lien filing(s), then Landlord may, at Tenant's expense,
cause such lien(s) to be released by any means Landlord deems proper,
including, but not limited to, payment of or defense against the claim giving
rise to the lien(s). All sums reasonably disbursed, deposited or incurred by
Landlord in connection with the release of the lien(s), including, but not
limited to, all costs, expenses and actual attorneys fees, shall be due and
payable by Tenant to Landlord. as an item of Additions Rent. on demand by
Landlord, together with interest thereon at the Applicable Rate from the date
of such demand until paid by Tenant.
8.4 Alterations by Landlord, Landlord reserves the right at any time
and from time to time without the same constituting an actual or constructive
eviction and without incurring any liability to Tenant therefor or otherwise
affecting Tenant's obligations under this Lease, to make such changes,
alterations, additions, improvements, repairs or replacements in or to the
Building (including the Premises required to do so by any Applicable Laws)
and the fixtures and equipment thereof, as well as in or to the street
entrances, walls, passages, and stairways thereof, or to change the name by
which the Building is commonly known, as Landlord may deem necessary or
desirable. Nothing contained herein shall be deemed to relieve Tenant of any
duty, obligation or liability of Tenant with respect to making any repair,
replacement or improvement or complying with any Applicable Laws in
connection with the Premises, and nothing contained herein shall be deemed or
construed to
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impose upon Landlord any obligation, responsibility or liability whatsoever
for the care, supervision or repair of the Building or any part thereof other
than as otherwise especially provided in this lease.
ARTICLE IX
MAINTENANCE AND REPAIR
9.1. Landlord's Maintenance and Repair Obligations. Landlord shall,
subject to receiving Tenant's Share of Operating Expenses in excess of the
Operating Expense Base, and subject to Section 9.2, Article XII and Article
XII, maintain in good condition and repair the roof (excluding any
skylights, but including as needed any replacement thereof), exterior walls
and foundation of the Building, provide normal maintenance services for the
HVAC serving the Building through maintenance contracts or otherwise, and
paint the exterior of the Building and clean the exterior windows of the
Building as and when such painting or window cleaning, as the case may be,
becomes necessary in Landlord's sole discretion. Landlord shall also provide
maintenance and repair services to the electrical, plumbing, and mechanical
systems serving the Premises. Landlord shall not be required to make any
repairs to the roof, exterior walls, foundation or any systems within the
Premises unless and until Tenant has notified Landlord in writing of the need
for such repair and Landlord shall have a reasonable period of time
thereafter to commence and complete said repair, if warranted. The cost of
any maintenance and repairs on the part of Landlord provided for in this
Section 9.1 shall be considered part of Project Costs, except that repairs
which Landlord deems arise out of any act or omission of Tenant or Tenant's
Agents shall be made at the expense of Tenant. Landlord's obligation to so
repair and maintain the Premises shall be limited to the cost of effecting
such repair and maintenance and in no event shall Landlord be liable for any
costs or expenses in excess of said amounts, including, but not limited to,
any consequential damages, opportunity costs or lost profits incurred or
suffered by Tenant.
9.2. Tenant's Maintenance and Repair Obligations. Tenant shall at all
times during the Term of this Lease, at Tenant's sole cost and expense,
clean, keep, maintain, repair and make necessary improvements to, the
Premises and every portion thereof and all improvements therein or thereto,
in good and sanitary order and condition to the reasonable satisfaction of
Landlord and in compliance with all Applicable Laws, usual wear and tear
excepted. Any damage or deterioration of the Premises shall not be deemed
usual wear and tear if the same could have been prevented by good maintenance
practices by Tenant. Tenant's repair and maintenance obligations herein shall
include, but are not limited to, all necessary maintenance and repairs to all
portions of the Premises, and all exterior entrances, all glass, windows,
window casements, show window moldings, partitions, doors, door jambs, door
closures, hardware, fixtures, electrical lighting and outlets, plumbing
fixtures, sewage facilities, interior walls, floors, callings, skylights,
fans and exhaust equipment, and fire extinguisher equipment and systems. As
part of its maintenance obligations hereunder, Tenant shall, at Landlord's
request, provide Landlord with copies of all maintenance schedules, reports
and notices prepared by, for, or on behalf of Tenant. Landlord may impose
reasonable restrictions and requirements with respect to repairs by Tenant,
which repairs shall be at least equal in quality to the original work, and
the provisions of Section 8.3 shall apply to all such repairs. Tenant's
obligation to repair includes the obligation to replace, as necessary,
regardless of whether the benefit of such replacement extends beyond the
Term. Notwithstanding the foregoing, Landlord shall have the right, upon
notice to Tenant, to undertake the responsibility for maintenance and repair
of automatic fire extinguisher equipment, such as sprinkler systems and
alarms, and other obligations of Tenant hereunder which Landlord deems
appropriate to undertake that affect the Building as a whole, in which event
the cost thereof shall be included as part of Project Costs and paid by
Tenant in the manner set forth in Section 7.1. Tenant shall not permit or
authorize any person to go onto the roof of the Building without the prior
written consent of Landlord.
9.3. Waiver. Tenant hereby waives all rights provided for by the
provisions of Sections 1941 and 1942 of the California Civil Code and any
present or future laws regarding Tenant's right to make repairs at the
expense of Landlord or to terminate this Lease because of the condition of
the Premises.
9.4. Self-Help. If Tenant refuses or fails to repair and maintain the
Premises as required hereunder within ten (10) days from the date on which
Landlord makes a written demand on Tenant to effect such repair and
maintenance, Landlord may enter upon the Premises and make such repairs or
perform such maintenance without liability to Tenant for any loss or damage
that may accrue to Tenant or its merchandise, fixtures or other property or
to Tenant's business by reason thereof. All sums reasonably disbursed,
deposited or incurred by Landlord in connection with such repairs or
maintenance, plus ten percent (10%) for overhead, shall be due and payable by
Tenant to Landlord, as an item of Additional Rent, on demand by Landlord,
together with interest at the Applicable Rate on such aggregate amount from
the date of such demand until paid by Tenant.
ARTICLE X
COMMON AREA AND PARKING
10.1. Grant of Nonexclusive Common Area License and Right. Landlord
hereby grants to Tenant and its permitted subtenants, in common with Landlord
and all persons, firma and corporations conducting business in the Project
and their respective customers, guests, licensees, invitees, subtenants,
employees and agents, to use the Common Area within the Project for vehicular
parking, for pedestrian and vehicular ingress, egress and travel, and for
such other purposes and for doing such other things as may be provided for,
authorized and/or permitted by the Restrictions, such nonexclusive license
and right to be appurtenant to Tenant's leasehold estate created by this
Lease. The nonexclusive license and rights granted pursuant to the provisions
of this Article X shall be subject to the provisions of the Restrictions,
which pertain in any way to the Common Area covered by such Restrictions, and
the provisions of this Lease.
10.2. Use of Common Area. Notwithstanding anything to the contrary
herein, Tenant and its successors, assigns, employees, agents and invitees
shall use the Common Area only for the purposes permitted hereby and by the
Restrictions and the Rules and Regulations. All uses permitted within the
Common Area shall be undertaken with reason and judgment so as not to
interfere with the primary use of the Common Area which is to provide parking
and vehicular and pedestrian access throughout the Common Area within the
Project and to adjacent public streets for the Landlord, Landlord's Agents,
Its tenants, subtenants and all persons, firms and corporations conducting
business within the Project and their respective customers, guests and
licensees. In no event shall Tenant erect, install, or place, or cause to be
erected, installed, or placed any structure, building, trailer, fence, wall,
signs or other obstructions on the Common Area except as otherwise permitted
herein and in the Restrictions, and Tenant shall not store or sell any
merchandise, equipment or materials on the Common Area.
10.3. Control of Common Area. Subject to provisions of the
Restrictions, all Common Area and all improvements located from time to time
within the Common Area shall at all times be subject to the exclusive control
and management of the Landlord. Landlord shall have the right to construct,
maintain and operate
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lighting facilities within the Common Area; to police the Common Area from time
to time; to change the area, level, location and arrangement of the parking
areas and other improvements within the Common Area: to restrict parking by
tenants, their officers, agents and employees to employee parking areas; to
enforce parking charges (by operation of meters or otherwise); to close all
or any portion of the Common Area or improvements therein to such extent as
may, in the opinion of counsel for Landlord, be legally sufficient to prevent
a dedication thereof or the accrual of any rights to any person or to the
public therein; to close temporarily all or any portion of the Common Area
and/or the improvements thereon; to discourage noncustomer parking; and to do
and perform such other acts in and to said Common Area and improvements
thereon as, in the use of good business judgment, Landlord shall determine to
be advisable.
10.4. Maintenance of Common Area. Subject to the provisions of the
Restrictions, Landlord shall operate and maintain (or cause to be operated
and maintained) the Common Area in a first-class condition, in such manner as
Landlord in its sole discretion shall determine from time to time. Without
limiting the scope of such discretion, Landlord shall have the full right and
authority to employ or cause to be employed all personnel and to make or
cause to be made all rules and regulations pertaining to or necessary for the
proper operation and maintenance of the Common Area and the improvements
located thereon. The cost of such maintenance of the Common Area shall be
included as part of Project Costs. No part of the Common Area may be used for
the storage of any items, including without limitation, vehicles, materials,
inventory and equipment. All trash and other refuse shall be placed In
designated receptacles. No work of any kind, including, but not limited to,
painting, drying, cleaning, repairing, manufacturing, assembling, cutting,
merchandising or displaying shall be permitted upon the Common Area.
10.5. Revocation of License. All Common Area and Improvements located
thereon which Tenant is permitted to use and occupy pursuant to the
provisions of this Lease are to be used and occupied under a revocable
license and right, and If any such license be revoked, or if the amount of
such areas be diminished, Landlord shall not be subject to any liability nor
shall Tenant be entitled to compensation or diminution or abatement of Rent,
and such revocation or diminution of such areas shall not be deemed
constructive or actual eviction. It is understood and agreed that the
condemnation or other taking or appropriation by any public or quasi-public
authority, or sale in lieu of condemnation, of all or any portion of the
Common Area shall not constitute a violation of Landlord's agreements
hereunder, and Tenant shall not be entitled to participate in or make any
claim for any award or other condemnation proceeds arising from any such
taking or appropriation of the Common Area. Notwithstanding the foregoing,
so long as no Event of Default has occurred and is continuing, Landlord shall
provide to Tenant the number of vehicle parking spaces set forth in item 15
of the Basic Lease Provisions throughout the Term (subject to the rights of
Landlord under this Article X).
10.6. Landlord's Reserved Rights. Landlord reserves the right to
install, use, maintain, repair, relocate and replace pipes, ducts, conduits,
wires and appurtenant meters and equipment included in the Premises or
outside the Premises, change the boundary lines of the Project and install,
use, maintain, repair, alter or relocate, expand and replace any Common Area;
provided, however, Landlord shall not unreasonably interfere with Tenant's
use of the Premises. Such rights of Landlord shall include, but are not
limited to, designating from time to time certain portions of the Common Area
as exclusively for the benefit of certain tenants in the Project.
10.7. Parking. Tenant shall be entitled to the number of vehicle
parking spaces set forth in Item 15 of the Basic Lease Provisions, which
spaces shall be unreserved and unassigned, on those portions of the Common
Area designated by Landlord for parking. Tenant shall not use more parking
spaces than such number. All parking spaces shall be used only for parking by
vehicles no larger than full size passenger automobiles or pick-up trucks.
Tenant shall not permit or allow any vehicles that belong to or are controlled
by Tenant or Tenant's employees, suppliers, shippers, customers, or
invitees to be loaded, unloaded, or parked in areas other than those
designated by Landlord for such activities. If Tenant permits or allows any
of the prohibited activities described above, then Landlord shall have the
right, without notice, in addition to such other rights and remedies that
Landlord may have, to remove or tow away the vehicle involved and charge the
cost to Tenant, which cost shall be immediately payable upon demand by
Landlord. Parking within the Common Area shall be limited to striped parking
stalls, and no parking shall be permitted in any driveways, accessways or in
any area which would prohibit or impede the free flow of traffic within the
Common Area. There shall be no overnight parking of any vehicles of any kind,
and vehicles which have been abandoned or parking in violation of the terms
hereof may be towed away at the owner's expense.
ARTICLE XI
INDEMNITY AND INSURANCE
11.1. Indemnification. To the fullest extent permitted by law, Tenant
hereby agrees to defend (with attorneys acceptable to), indemnify, protect
and hold harmless Landlord and Landlord's Agents and any successors to all
or any portion of Landlord's interest in the Premises and their directors,
officers, partners, employees, authorized agents, representatives, affiliates
and Mortgagees, from and against any and all damage, loss, claim, liability
and expense including, but not limited to, actual attorneys' fees and legal
costs, incurred directly or indirectly by reason of any claim, suit or
judgment brought by or on behalf of (i) any person or persons for damage,
loss or expense due to, but not limited to, bodily injury or property damage
sustained by such person or persons which arise out of, are occasioned by, or
are in any way attributable to the use or occupancy of the Premises or the
acts or omissions of the Tenant or Tenant's Agents in or about the Premises
or the Project (including but not limited to any Event of Default hereunder),
or (ii) Tenant or Tenant's Agents for damage, loss or expanse due to, but not
limited to, bodily Injury or property damage which arise out of, are
occasioned by, or are in any way attributable to the use of any of the Common
Area, except to the extent caused by the sole active negligence or willful
misconduct of Landlord.
11.2. Property Insurance. Landlord shall obtain and keep in force
during the term of this Lease a policy or policies of insurance, with
deductibles at the sole discretion of Landlord, covering loss or damage to
the Premises, the Building, and objects owned by Landlord and normally
covered under a "Boiler and Machinery" policy (as such term is used in the
insurance industry), at least in the amount of the full replacement cost
thereof, and in no event less than the total amount required by Mortgagees,
against all perils included within the classification of fire, extended
coverage, vandalism, malicious mischief, special extended perils ("all risk"
or "special causes of action," as such terms are used in the insurance
industry, including, at Landlord's option, collapse, earthquake and flood)
and other perils as required by the Mortgagees or deemed necessary by
Landlord. A stipulated value or agreed amount endorsement deleting any co-
insurance provision of said policy or policies shall be procured with said
insurance. The cost of such insurance policies shall be included in the
definition of Project Costs, and shall be paid by Tenant in the manner set
forth in Section 7.1. Such insurance Policies shall provide for payment of
loss thereunder to Landlord or, at Landlord's election, to the Mortgagees. If
the Premises are part of a larger building, or if the Premises are part of a
group of buildings owned by Landlord which are adjacent to the Premises, then
Tenant shall pay for any increase in the property insurance of the Building
or such other building or buildings within the Project if such increase is
caused by
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Tenant's acts, omissions, use or occupancy of the Premises. Tenant shall
obtain and keep in force during the Term, at its sole cost and expense, (i) an
"all risk" or "special causes of action" property policy in the amount of the
full replacement cost covering Tenant's Personal Property and any Alterations
made by or at the request of Tenant, with Landlord insured as its interest
may appear.
11.3. LIABILITY/MISCELLANEOUS INSURANCE. Tenant shall maintain in full
force and collect at all times during the term (plug such earlier and later
periods as Tenant may be in occupancy of the Premises), at its sole cost and
expense, for the protection of Tenant, Landlord and Landlord's Agents and
Mortgagees, policies of insurance issued by a carrier or carriers acceptable
to Landlord and the Mortgagees which afford the following coverages: (i)
statutory workers' compensation, (ii) employer's liability with minimum
limits of Five Hundred Thousand Dollars ($500,000), (iii)
comprehensive/commercial general liability insurance including, but not
limited to, fire and water, legal liability, broad form property damage,
personal injury, completed operations, products liability, independent
contractors, warehouser's legal liability and, if alcoholic beverages are
served, manufactured, distributed or sold in the Premises, comprehensive
liquor liability, and owned, non-owned and hired vehicles, of not less than
the limits set forth in Item 17 of the Basic Lease Provisions (or current
limit carried, whichever is greater), naming Landlord, the Mortgagees, and
the Additional Insureds named in Item 16 of the Basic Lease Provisions as
additional insureds, and including a cross-liability or severability of
interests indorsement, and (iv) such other insurance in such form and amounts
as may be required by Landlord or the Mortgagees from time to time. Landlord
or Landlord's Agents on behalf of Landlord may, at Landlord's election,
obtain liability insurance in such amounts and on such terms as Landlord
shall determine, and the cost thereof shall be included in Project Costs and
paid by Tenant in the manner described in Section 7.1.
11.4. DEDUCTIBLES. Any policy of insurance required pursuant to this
Lease containing a deductible exceeding Five Thousand Dollars ($5,000.00) per
occupancy must be approved in writing by Landlord prior to the issuance of
such policy. Tenant shall be solely responsible for the payment of any
deductible.
11.5 BLANKET COVERAGE. Any insurance required of Tenant pursuant to
this Lease may be provided by means of a so-called "blanket policy", so long
as (i) the Premises are specifically covered (by rider, endorsement or
otherwise), (ii) the limits of the policy are applicable on a "per location"
basis to the Premises and provide for restoration of the aggregate limits,
and (iii) the policy otherwise complies with the provisions of this Lease.
11.7. SUFFICIENCY OF COVERAGE. Neither Landlord nor any of Landlord's
Agents makes any representation that the types of insurance and limits
specified to be carried by Tenant under this Lease are adequate to protect
Tenant. If Tenant believes that any such insurance coverage is insufficient,
Tenant shall provide, at its own expense, such additional insurance as
Tenant deems adequate. Nothing contained herein shall limit Tenant's
liability under this Lease, and Tenant's liability under any provision of
this Lease, including without limitation under any indemnity provisions,
shall not be limited to the amount of any insurance obtained.
11.8. INSURANCE REQUIREMENTS. Tenant's insurance (i) shall be in a form
satisfactory to Landlord and the Mortgagees and shall be carried with
companies that have a general policyholder's rating of not less than "A" and
that are determined by Landlord, in its sole discretion, as financially sound
on a current basis, (ii) shall provide that such policies shall not be
subject to material alteration or cancellation except after at least thirty
(30) days prior written notice to Landlord, and (iii) shall be primary, and
any insurance carried by Landlord or Landlord's Agents shall be
noncontributing. Tenant's policy or policies, or duly executed certificates
for them in the form and content acceptable to Landlord, shall be deposited
with Landlord prior to the Commencement Date, and prior to renewal of such
policies. If Tenant falls to procure and maintain the insurance required to
be procured by Tenant under this Lease, Landlord may, but shall not be
required to, order such insurance at Tenant's expense. All sums reasonably
disbursed, deposited or incurred by Landlord in connection therewith,
including, but not limited to, all costs, expenses and actual attorneys' fees,
shall be due and payable by Tenant to Landlord, as an item of Additional
Rent, on demand by Landlord, together with Interest thereon at the Applicable
Rate from the date of such demand until paid by Tenant.
11.9. IMPOUND FUNDS. If requested by any Mortgagees to whom Landlord
has granted a security interest in the Premises, or if any Event of Default
occurs under this Lease, Tenant shall, at Landlord's election, pay Landlord,
concurrently with each payment of Monthly Rent, a sum equal to one-twelfth
(1/12) of the annual insurance premiums payable by Tenant for all insurance
which Tenant is required to obtain pursuant to this Article XI. Such sums
(the "Impound Funds") shall be held by Landlord and applied to the payment of
such insurance premiums when due; provided, however, Landlord shall not be
required to keep the Impound Funds separate from other funds, Tenant shall
not be entitled to interest on the Impound Funds and no trust relationship
shall be created with respect to the Impound Funds. The amount of the Impound
Funds when unknown shall be reasonably estimated by Landlord. If the Impound
Funds paid to Landlord by Tenant under this Section 11.9 are insufficient to
discharge the obligations of Tenant to pay such insurance premiums as the
same become due, Tenant shall pay to Landlord, within ten (10) days after
Landlord's written request therefor, such additional sums necessary to pay
such obligations. If an Event of Default has occurred, any balance remaining
from the Impound Funds may, at the option of Landlord, be applied to any
obligation then due under this Lease in lieu of being applied to the payment
of insurance premiums. The unused portion of the Impound Funds, if any, shall
be returned to Tenant within thirty (30) days of the expiration of this Lease
or any termination of this Lease not resulting from an Event of Default,
provided that Tenant has vacated the Premises in the manner required by this
Lease.
11.10. LANDLORD'S DISCLAIMER. Notwithstanding any other provisions of
this Lease, and to the fullest extent permitted by law, Landlord and
Landlord's Agents shall not be liable for any loss or damage to persons or
property resulting from theft, vandalism, fire, explosion, falling materials,
glass, tile or sheetrock, steam, gas, electricity, water or rain which may
leak from any part of the Premises, or from the pipes, appliances or plumbing
works therein or from the roof, street or subsurface or whatsoever, unless
caused by or due to the sole active negligence or willful misconduct of
Landlord. Landlord and Landlord's Agents shall not be liable for interference
with light or air, or for any latent defect in the Premises except as
otherwise expressly provided in this Lease. Tenant shall give prompt Notice
to Landlord in case of a casualty, accident or repair needed to the Premises.
11.11. WAIVER OF SUBROGATION. Landlord, except to the extent Tenant's
insurance covers loss to Landlord plus Tenant's obligations with respect to
maintenance and repair and payment of insurance deductibles hereunder,
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and Tenant each hereby waives all rights of recovery against the other and
the other's agents on account of loss and damage occasioned to such waiving
party to the extent only that such loss or damage is insured against under
any insurance policies required by this Article XI (and to the extent such
insurance is inadequate to cover such loss, this waiver shall not apply to
amounts of loss above such coverage). Tenant and Landlord shall, upon
obtaining policies of insurance required hereunder, give notice to the
insurance carriers that the foregoing waiver of subrogation is contained in
this Lease. Notwithstanding the foregoing, it is agreed that in the event
that any loss is due to the act, omission or negligence or willful misconduct
of Tenant or Tenant's Agents, Tenant's liability insurance shall be primary
and shall cover all losses and damages prior to any other insurance hereunder.
ARTICLE XII
DAMAGE OR DESTRUCTION
12.1. LANDLORD'S OBLIGATION TO REBUILD. if the Premises are damaged or
destroyed by fire or other casualty (a "Casualty"), Tenant shall promptly
give notice thereof to Landlord, and Landlord shall thereafter repair the
Premises as set forth in Sections 12.4 and 12.5 unless Landlord has the right
to terminate this Lease as provided in Section 12.2 and Landlord elects to so
terminate or Tenant has the right to terminate this Lease as provided in
Section 12.3 and Tenant elects to so terminate.
12.2. LANDLORD'S RIGHT TO TERMINATE. Landlord shall have the right to
terminate this Lease following a Casualty if any of the following occurs: (i)
Insurance proceeds (together with any additional amounts Tenant elects, at
its option, to contribute) are not available to Landlord to pay one hundred
percent (100%) of the cost to fully repair the Premises, excluding the
deductible (for which Tenant shall pay Tenant's Share of such deductible);
(ii) Landlord's Architect determines that the Premises cannot, with
reasonable diligence, be fully repaired by Landlord (or cannot be safely
repaired because of the presence of hazardous factors, including, but not
limited to, Hazardous Materials, earthquake faults, radiation, chemical waste
and other similar dangers) within one hundred eighty (180) days after the
date of such Casualty; (iii) the Premises are destroyed or damaged during the
last twelve (12) months of the Term; or (iv) an Event of Default has occurred
and is continuing at the time of such Casualty. If Landlord elects to
terminate this Lease following a Casualty pursuant to this Section 12.2,
Landlord shall give Tenant Notice of its election to terminate within thirty
(30) days after landlord has knowledge of such Casualty, and this Lease shall
terminate fifteen (15) days after the date of such Notice.
12.3. TENANT'S RIGHT TO TERMINATE. Subject to the later terms hereof,
Tenant shall have the right to terminate this Lease following the destruction
of the Premises (or damage to the Premises so extensive as to reasonably
prevent Tenant's substantial use and enjoyment of the Premises) if any of
the following occurs: (i) the Premises cannot, with reasonable diligence, be
fully repaired by Landlord within one hundred eighty (180) days after the
date of the damage or destruction, as determined by Landlord's Architect;
(ii) the Premises cannot safely be repaired because of the presence of
hazardous factors, including Hazardous Materials, earthquake faults,
radiation, chemical waste and other similar dangers; or (iii) the damage or
destruction occurs during the last twelve (12) months of the Term and cannot,
with reasonable diligence, be fully repaired by Landlord within ninety (90)
days after the date of the destruction or damage, as determined by
Landlord's Architect. Notwithstanding the foregoing, Tenant shall not have
the right to terminate under this Section 12.3 if (a) an Event of Default has
occurred and is continuing at the time of such damage or destruction or at
the time of exercising the right to terminate, or (b) the damage or
destruction was caused, in whole or in part, by the act or omission of Tenant
or Tenant's Agents. If Tenant elects to terminate this Lease pursuant to this
Section 12.3, Tenant shall give Landlord Notice of its election to terminate
within ten (10) days after the date of such damage or destruction, and this
Lease shall terminate thirty (30) days after the date of such Notice.
12.4. EFFECT OF TERMINATION. If this Lease is terminated following a
Casualty pursuant to Section 12.2 or Section 12.3, Landlord shall, subject to
the rights of the Mortgagees, be entitled to receive and retain all the
insurance proceeds resulting from or attributable to such Casualty, except
for those proceeds payable under policies obtained by Tenant which
specifically insure Tenant's Personal Property. If neither party exercises
any such right to terminate this Lease, this Lease will continue in full
force and effect, and Landlord shall, promptly following the tenth (10th) day
after the date of such Casualty and receipt of the amounts set forth in
clause (i) of Section 12.2, commence the process of obtaining necessary
permits and approvals for the repair of the Premises, and shall commence such
repair and prosecute the same diligently to completion as soon thereafter as
is practicable. Tenant shall fully cooperate with Landlord in removing
Tenant's Personal Property and any debris from the Premises to facilitate the
making of such repairs.
12.5. LIMITED OBLIGATION TO REPAIR. Landlord's obligation, should it
elect or be obligated to repair the Premises following a Casualty, shall be
limited to the basic Building and Tenant shall, at its expense, replace or
fully repair all Tenant's Personal Property and any Alterations installed by
Tenant existing at the time of such Casualty.
12.6. ABATEMENT OF MONTHLY RENT. During any period when Landlord or
Landlord's Architect reasonably determines that there is substantial
interference with Tenant's use of the Premises by reason of a Casualty,
Monthly Rent shall be temporarily abated in proportion to the degree of such
substantial interference, but only to the extent of any business
interruption or loss of income insurance proceeds received by Landlord from
Tenant's insurance described in Section 11.2. Such abatement shall commence
upon the date Tenant notifies Landlord of such Casualty and shall end upon
the Substantial Completion of the repair of the Premises which landlord
undertakes or is obligated to undertake hereunder. Tenant shall not be
entitled to any compensation or damages from Landlord for loss of the use of
the Premises, Tenant's Personal Property or other damage or any
inconvenience occasioned by a Casualty or by the repair or restoration of the
Premises thereafter, including, but not limited to, any consequential
damages, opportunity costs or lost profits incurred or suffered by Tenant.
Tenant hereby waives the provisions of Section 1932(2) and Section 1933(4) of
the California Civil Code, and the provisions of any similar or successor
statutes.
12.7. LANDLORD'S DETERMINATION. The determination in good faith by
Landlord's Architect of or relating to the estimated cost of repair of any
damage, replacement cost, the time period required for repair or the
interference with or suitability of the Premises for Tenant's use or
occupancy shall be conclusive for purposes of this Article XII and Article
XIII.
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ARTICLE XIII
CONDEMNATION
13.1. TOTAL TAKING--TERMINATION. If title to the Premises or so much
thereof is taken for any public or quasi-public use under any statute or by
right of eminent domain so that reconstruction of the Premises will not
result in the Premises being reasonably suitable for Tenant's continued
occupancy for the uses and purposes permitted by this Lease, this Lease shall
terminate as of the date possession of the Premises or part thereof is so
taken.
13.2. PARTIAL TAKING. If any part of the Premises is taken for any
public or quasi-public use under any statute or by right of eminent domain
and the remaining part is reasonably suitable for Tenant's continued
occupancy for the uses permitted by this lease, this Lease shall, as to the
part so taken, terminate as of the date that possession of such part of the
Premises is taken and the Monthly Rent shall be reduced in the same
proportion that the floor area of the portion of the Premises so taken (less
any addition thereto by reason of any reconstruction) bears to the original
floor area of the Premises, as reasonably determined by Landlord or
Landlord's Architect. Landlord shall, at its own cost and expense, make all
necessary repairs or alterations to the Premises so as to make the portion of
the Premises not taken a complete architectural unit. Such work shall not,
however, exceed the scope of the work done by Landlord in originally
constructing the Premises. If severance damages from the condemning authority
are not available to Landlord in sufficient amounts to permit such
restoration, Landlord may terminate this Lease upon Notice to Tenant.
Monthly Rent due and payable hereunder shall be temporarily abated during
such restoration period in proportion to the degree to which there is
substantial interference with Tenant's use of the Premises, as reasonably
determined by Landlord or Landlord's Architect. Each party hereby waives the
provisions of Section 1265.130 of the California Code of Civil Procedure and
any present or future law allowing either party to petition the Superior
Court to terminate this Lease in the event of a partial taking of the
Building or Premises.
13.3. NO APPORTIONMENT OF AWARD. No award for any partial or total
taking shall be apportioned, it being agreed and understood that Landlord
shall be entitled to the entire award for any partial or entire taking.
Tenant assigns to Landlord its interest in any award which may be made in
such taking or condemnation, together with any and all rights of Tenant
arising in or to the same or any part thereof. Nothing contained herein
shall be deemed to give Landlord any interest in or require Tenant to assign
to Landlord any separate award made to Tenant for the taking of Tenant's
Personal Property, for the interruption of Tenant's business or its moving
costs, or for the loss of its goodwill.
13.4. TEMPORARY TAKING. No temporary taking of the Premises (which for
purposes hereof shall mean a taking of all or any part of the Premises for
one hundred eighty (180) days or less) shall terminate this Lease or give
Tenant any right to any abatement of Rent. Any award made to Tenant by
reason of such temporary taking shall belong entirely to Tenant and
Landlord shall not be entitled to share therein. Each party agrees to execute
and deliver to the other all instruments that may be required to effectuate
the provisions of this Section 13.4.
13.5. SALE UNDER THREAT OF CONDEMNATION. A sale made in good faith to
any authority having the power of eminent domain, either under threat of
condemnation or while condemnation proceedings are pending, shall be deemed a
taking under the power of eminent domain for all purposes of this Article
XIII.
ARTICLE XIV
ASSIGNMENT AND SUBLETTING
14.1. PROHIBITION. Tenant shall not directly or indirectly, voluntarily
or by operation of law, assign which term shall include any transfer,
assignment, pledge, mortgage or hypothecation) this lease, or any right or
interest hereunder, or sublet the Premises or any part thereof, or allow any
other person or entity to occupy or use all or any part of the Premises
without first obtaining the written consent of Landlord in each instance,
which consent shall not be unreasonably withheld. No assignment, encumbrance,
subletting, or other transfer in violation of the terms of this Article XIV,
whether voluntary or involuntary, by operation of law, under legal process or
proceedings, by receivership, in bankruptcy, or otherwise shall be valid or
effective and, at the option of Landlord, shall constitute an Event of
Default under this Lease. To the extent not prohibited by provisions of the
Bankruptcy Code of 1978, 11 U.S.C. Section 101 ET SEQ.. (the "Bankruptcy
Code"), Tenant on behalf of itself, creditors, administrators and assigns
waives the applicability of Sections 541(c) and 365(e) of the Bankruptcy
Code unless the proposed assignee of the trustee for the estate of the
bankrupt meets Landlord's standards for consent as set forth below. Landlord
has entered into this Lease with Tenant in order to obtain for the benefit
of the Project the unique attraction of Tenant's name and business; the
foregoing prohibition on assignment or subletting is expressly agreed to by
Tenant in consideration of such fact. If this Lease is assigned to any
person or entity pursuant to the provisions of the Bankruptcy Code, any and
all monies or other considerations payable or otherwise to be delivered in
connection with such assignment shall be paid or delivered to Landlord, shall
be and remain the exclusive property of Landlord and shall not constitute
property of Tenant or the estate of Tenant within the meaning of the
Bankruptcy Code. Any and all monies or other considerations constituting
Landlord's property under the preceding sentence not paid or delivered to
Landlord shall be held in trust for the benefit of Landlord and be promptly
paid or delivered to Landlord. Any person or entity to which this Lease is
assigned pursuant to the provisions of the Bankruptcy Code shall be deemed
without further act or deed to have assumed all of the obligations arising
under this Lease on and after the date of such assignment. Any such
assignee shall upon demand execute and deliver to Landlord an instrument
confirming such assumption.
14.2. LANDLORD'S CONSENT. In the event Landlord consents to any
assignment or subletting, such consent shall not constitute a waiver of any
of the restrictions of this Article XIV and the same shall apply to each
successive assignment or subletting hereunder, if any. In no event shall
Landlord's consent to an assignment or subletting affect the continuing
primary liability of Tenant (which, following assignment, shall be joint and
several with the assignee), or relieve Tenant of any of its obligations
hereunder without an express written release being given by Landlord. In the
event that Landlord shall consent to an assignment or subletting under this
Article XIV, such assignment or subletting shall not be effective until the
assignee or sublessee shall assume all of the obligations of this Lease on
the part of Tenant to be performed or observed and whereby the assignee or
sublessee shall agree that the provisions contained in this Lease shall,
notwithstanding such assignment or subletting, continue to be binding upon it
with respect to all future assignments and sublettings. Such assignment or
sublease agreement shall be duly executed and a fully executed copy thereof
shall be delivered to Landlord, and Landlord may collect Monthly Rent and
Additional Rent due hereunder directly from the assignee or sublessee.
Collection of Monthly Rent and Additional Rent directly from an assignee or
sublessee shall not constitute a consent or a waiver of the necessity of
consent to such assignment or subletting, nor shall such collection
constitute a recognition of such assignee or sublessee as the Tenant
hereunder or a release of Tenant from the performance of all of its
obligations hereunder.
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14.3 INFORMATION. Regardless of whether Landlord's consent is
required under this Article XIV, Tenant shall notify Landlord in writing of
Tenant's intent to assign this Lease or any right or interest hereunder, or
to sublease the Premises or any part thereof, end of the name of the proposed
assignee or sublessee, the nature of the proposed assignee's or sublessee's
business to be conducted on the Premises, the terms and provisions of the
proposed assignment or sublease, a copy of the proposed assignment or
sublease form, and such other information as Landlord may reasonably request
concerning the proposed assignee or sublessee, including, but not limited to,
net worth, income statements and other financial statements for a two-year
period preceding Tenant's request for consent, evidence of insurance
complying with the requirements of Article XI, and the fee described in
Section 14.7.
14.4. STANDARD FOR CONSENT. Landlord shall, within thirty (30) days of
receipt of such Notice and all information requested by Landlord concerning
the proposed assignee or sublessee, elect to take one of the following
actions:
(a) consent to such proposed assignment or sublease;
(b) refuse to consent to such proposed assignment or sublease,
which refusal shall be on reasonable grounds; or
(c) if Tenant proposes to sublease all or part of the Premises for
the entire remaining Term, Landlord may, at its option exercised by thirty
(30) days Notice to Tenant, elect to recapture such portion of the Premises
as Tenant proposes to sublease and as of the thirtieth (30th) day after
Landlord so notifies Tenant of its election to recapture, this Lease shall
terminate as to the portion of the Premises recaptured and the Monthly Rent
payable under this Lease shall be reduced in the same proportion that the
floor area of that portion of the Premises so recaptured bears to the floor
area of the Premises prior to such recapture.
Tenant agrees, by way of example and without limitation, that it shall
not be unreasonable for Landlord to withhold its consent to a proposed
assignment or subletting if any of the following situations exist or may
exist:
(i) Landlord determines that the proposed assignee's or
sublessee's use of the Premises conflicts with Article V or Article VI,
presents an unacceptable risk, as determined by Landlord, under Article
VI, or conflicts with any other provision under this Lease;
(ii) Landlord determines that the proposed assignee or
sublessee is not as financially responsible as Tenant as of the date of
Tenant's request for consent or as of the effective date of such
assignment or subletting;
(iii) Landlord determines that the proposed assignee or
sublessee lacks sufficient business reputation or experience to conduct
on the Premises a business of a type and quality equal to that
conducted by Tenant:
(iv) Landlord determines that the proposed assignment or
subletting would breach a covenant, condition or restriction in some
other lease, financing agreement or other agreement relating to the
Project, the Building, the Premises or this Lease; or
(v) An Event of Default has occurred and is continuing at
the time of Tenant's request for Landlord's consent, or as of the
effective date of such assignment or subletting.
Tenant acknowledges that if Tenant has any exterior sign rights under this
Lease, such rights are personal to Tenant and may not be assigned or
transferred to any assignee of this Lease or sublessee of the Premises
without Landlord's prior written consent, which consent may be withheld in
Landlord's sole and absolute discretion.
14.5. BONUS VALUE. Tenant agrees that seventy-five percent (75%) of any
amounts paid by assignee or sublessee. however described, in excess of (i)
the Monthly Rent payable by Tenant hereunder (or, in the case of sublease of
a portion of the Premises, in excess of the Monthly Rent reasonably
allocable to such portion), plus (ii) Tenant's direct out-of-pocket costs
which Tenant certifies to Landlord have been paid to provide occupancy
related services to such assignee or sublessee of a nature commonly provided
by landlords of similar space, shall be the property of Landlord and such
amounts shall be payable directly to Landlord by the assignee or sublessee.
At Landlord's request, a written agreement shall be entered into by and among
Tenant, Landlord and the proposed assignee or sublessee confirming the
requirements of this Section 14.5.
14.6. CERTAIN TRANSFERS. The sale of all or substantially all of
Tenant's assets (other than bulk sales in the ordinary course of business),
or, if Tenant is a corporation, an unincorporated association, or a
partnership, the transfer, assignment or hypothecation of any stock or
interest in such corporation, association or partnership in the aggregate in
excess of twenty-five percent (25%) (except for publicly traded shares of
stock constituting a transfer of twenty-five percent (25%) or more in the
aggregate, so long as no change in the controlling interests of Tenant occurs
as a result thereof) shall be deemed an assignment within the meaning
and provisions of this Article XIV.
14.7. LANDLORD'S FEE AND EXPENSES. If Tenant requests Landlord's consent
to an assignment or subletting by Tenant under this Lease, Tenant shall pay
to Landlord a fee of Five Hundred Dollars ($500) and all of Landlord's
out-of-pocket expenses, including, but not limited to, attorneys' fees
reasonably incurred related to such assignment or subletting by Tenant,
whether or not the assignment or subletting is approved.
14.8. TRANSFER OF THE PREMISES BY LANDLORD. Upon any conveyance of the
Premises and assignment by Landlord of this Lease, Landlord shall and is
hereby entirely released from all liability under any and all of its
covenants and obligations contained in or derived from this Lease occurring
after the date of such conveyance and assignment, and Tenant agrees to
attorn to any entity purchasing or otherwise acquiring the Premises.
14.9 [See Addendum]
ARTICLE XV
DEFAULTS AND REMEDIES
15.1. TENANT'S DEFAULT. At the option of Landlord, a default under this
Lease by Tenant shall exist if any of the following events shall occur
(each is called an "Event of Default"):
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(a) Tenant fails to pay the Rent payable hereunder, as and when
due, for a period of three (3) days after Notice by Landlord; provided,
however, the Notice given hereunder shall be in lieu of, and not in addition
to, any notice required under Section 1161, ET SEQ., of the California Code
of Civil Procedure;
(b) Tenant attempts to make or suffers to be made any transfer,
assignment or subletting, except as provided in Article XIV hereof;
(c) Any of Tenant's rights under this Lease are sold or otherwise
transferred by or under court order or legal process or otherwise or if any
of the actions described in Section 15.2 are taken by or against Tenant or
any Guarantor;
(d) The Premises are used for any purpose other than as permitted
pursuant to Article V;
(e) Tenant vacates or abandons the Premises or fails to
continuously and uninterruptedly conduct its business in the Premises;
(f) Any representation or warranty given by Tenant under or in
connection with this Lease proves to be materially false or misleading;
(g) Tenant fails to timely comply with the provisions of Article VI
("Hazardous Materials"), Article XIV ("Assignment and Subletting"), Article
XVI ("Subordination; Estoppel Certificate; Financials"), Section 21.5
("Modifications for Mortgagees") or Section 21.19 ("Authority'); or
(h) Tenant fails to observe, keep, perform or cure within fifteen
(15) days after Notice by Landlord any of the other terms, covenants,
agreements or conditions contained in this Lease or those set forth in any
other agreements or rules or regulations which Tenant is obligated to
observe or perform. In the event such default reasonably could not be cured
or corrected within such fifteen-day period, but is reasonably susceptible to
cure or correction, then Tenant shall not be in default hereunder if Tenant
commences the cure or correction of such default within such fifteen-day
period and diligently prosecutes the same to completion after commencing
such cure or correction. The Notice required by this subparagraph 15.1(h)
shall be in lieu of, and not in addition to, any notice required under
Section 1161, ET SEQ., of the California Code of Civil Procedure.
Notices given under this Section 15.1 shall specify the alleged default and
shall demand that Tenant perform the provisions of this Lease or pay the Rent
that is in arrears, as the case may be, within the applicable period of
time, or quit the Premises. No such Notice shall be deemed a forfeiture or a
termination of this Lease unless Landlord so elects in the Notice.
15.2. BANKRUPTCY OR INSOLVENCY. In no event shall this Lease be
assigned or assignable by operation of law and in no event shall this Lease
be an asset of Tenant in any receivership, bankruptcy, insolvency or
reorganization proceeding. In the event:
(a) A court makes or enters any decree or order adjudging Tenant to
be insolvent, or approving as properly filed by or against Tenant a petition
seeking reorganization or other arrangement of Tenant under any provisions of
the Bankruptcy Code or any applicable state law, or directing the winding up
or liquidation of Tenant and such decree or order shall have continued for a
period of thirty (30) days;
(b) Tenant makes or suffers any transfer which constitutes a
fraudulent or otherwise avoidable transfer under any provisions of the
Bankruptcy Code or any applicable state law;
(c) Tenant assigns its assets for the benefit of its creditors; or
(d) The material part of the property of Tenant or any property
essential to Tenant's business or of Tenant's interest in this Lease is
sequestered, attached or executed upon, and Tenant fails to secure a return
or release of such property within ten (10) days thereafter, or prior to sale
pursuant to such sequestration, attachment or levy, whichever is earlier;
then this Lease shall, at Landlord's election, immediately terminate and be
of no further force or effect whatsoever, without the necessity for any
further action by Landlord, except that Tenant shall not be relieved of
obligations which have accrued prior to the date of such termination. Upon
such termination, the provisions herein relating to the expiration or earlier
termination of this Lease shall control and Tenant shall immediately
surrender the Premises in the condition required by the provisions of this
Lease. Additionally, landlord shall be entitled to all relief, including
recovery of damages from Tenant, which may from time to time be permitted, or
recoverable, under the Bankruptcy Code or any other applicable state laws.
15.3. LANDLORD'S REMEDIES. Upon the occurrence of an Event of Default,
then, in addition to and without waiving any other rights and remedies
available to Landlord at law or in equity or otherwise provided in this
Lease, Landlord may, at its option, cumulatively or in the alternative,
exercise the following remedies:
(a) Landlord may terminate Tenant's right to possession of the
Premises, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Premises to Landlord. No act by
Landlord other than giving Notice to Tenant of Landlord's election to
terminate Tenant's right to possession 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.
Termination shall terminate Tenant's right to possession of the Premises but
shall not relieve Tenant of any obligation under this Lease which has
accrued prior to the date of such termination. Upon such termination,
Landlord shall have the right to re-enter the Premises, and remove all
persons and property, and Landlord shall also be entitled to recover from
Tenant:
(i) The worth at the time of award of the unpaid Monthly Rent
and Additional Rent which had been earned at the time of termination;
(ii) The worth at the time of award of the amount by which the
unpaid Monthly Rent and Additional Rent which would have been earned after
termination until the time of award exceeds the amount of such rental loss
that Tenant proves could have been reasonably avoided;
(iii) The worth at the time of award of the amount by which the
unpaid Monthly Rent and Additional Rent for the balance of the Term after the
time of award exceeds the amount of such rental loss that Tenant proves could
be reasonably avoided;
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(iv) Any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things would
be likely to result from Tenant's default, including, but not limited to, the
cost of recovering possession of the Premises, comissions and other expenses
of reletting, including necessary repair, demolition and renovation of the
Premises to the condition existing immediately prior to Tenant's occupancy,
the unamortized portion of any brokerage commissions funded by Landlord in
connection with this Lease, the cost of rectifying any damage to the Premises
occasioned by the act or omission of Tenant, reasonable attorneys' fees, and
any other reasonable costs; and
(v) At Landlord's election, all other amounts in addition to
or in lieu of the foregoing as may be permitted by law.
As used in subsections (i) and (ii) above, the "worth at the time of
award" shall be computed by allowing interest at the maximum legal rate
permitted by law. As used in subsection (iii) above, the "worth at the time
of award" shall be computed by discounting the amount at the discount rate of
the Federal Reserve Bank of San Francisco at the time of award plus one
percent (1%).
(b) Landlord may elect not to terminate Tenant's right to
possession of the Premises, in which event this Lease will continue in full
force and effect as long as Landlord does not terminate Tenant's right to
possession, and Landlord may continue to enforce all of its rights and
remedies under this Lease, including the right to collect all Rent as it
becomes due. In the event that Landlord elects to avail itself of the remedy
provided by this subparagraph 15.3(b), Landlord shall not unreasonably
withhold its consent to an assignment or subletting of the Premises subject
to the reasonable standards for Landlord's consent as are contained in this
Lease. In addition, in the event Tenant has entered into a sublease which
is valid under the terms of this Lease, Landlord may also, at its option,
cause Tenant to assign to Landlord the interest of Tenant under said
sublease, including, but not limited to, Tenant's right to payment of Rent as
it becomes due. Landlord may elect to enter the Premises and relet them, or
any part of them, to third parties for Tenant's account. Tenant shall be
liable immediately to Landlord for all costs Landlord incurs in reletting the
Premises, including, but not limited to, broker's commissions, expenses of
cleaning and remodeling the Premises required by the reletting, attorneys
fees and like costs. Reletting can be for a period shorter or longer than the
remaining Term of this Lease and for the entire Premises or any portion
thereof. Tenant shall pay to Landlord the Monthly Rent and Additional Rent
due under this Lease on the dates the Monthly Rent and such Additional Rent
are due, less the Rent Landlord actually collects from any reletting. Except
as provided in the preceding sentence, if Landlord relets the Premises or any
portion thereof, such reletting shall not relieve Tenant of any obligation
hereunder. Notwithstanding the above, no act by Landlord allowed by this
subparagraph 15.3(b) shall terminate this Lease unless Landlord notifies
Tenant in writing that Landlord elects to terminate this Lease.
15.4. NO SURRENDER. Tenant waives any right of redemption or relief
from forfeiture under California Code of Civil Procedure Sections 1174 and
1179, or under any other present or future law in the event Tenant is evicted
or Landlord takes possession of the Premises by reason of an Event of
Default. No act or thing done by Landlord or Landlord's Agents during the
Term shall be deemed an acceptance of a surrender of the Premises, and no
agreement to accept a surrender shall be valid unless in writing and signed
by Landlord. No employee of Landlord or of Landlord's Agents shall have any
power to accept the keys to the Premises prior to the termination of this
Lease, and the delivery of the keys to any employee shall not operate as a
termination of this Lease or a surrender of the Premises.
15.5. INTEREST ON LATE PAYMENTS. Any Rent due under this Lease that is
not paid to Landlord within three (3) days of the date when due shall
commence to bear interest at the Applicable Rate until fully paid. Neither
the accrual nor the payment of interest shall cure any default by Tenant
under this Lease.
15.6. ATTORNEYS' AND OTHER FEES. All sums reasonably incurred by
Landlord in connection with an Event of Default or holding over of possession
by Tenant after the expiration or termination of this Lease, including, but
not limited to, all costs, expenses and actual accountants', appraisers',
attorneys' and other professional fees, and any collection agency or other
collection charges, shall be due and payable by Tenant to Landlord on demand,
and shall bear interest at the Applicable Rate from the date of such demand
until paid by Tenant. In addition, in the event that any action shall be
instituted by either of the parties hereto for the enforcement of any of its
rights in and under this Lease, the party in whose favor judgment shall be
rendered shall be entitled to recover from the other party all expenses
reasonably incurred by the prevailing party in such action, including actual
costs and reasonable attorneys fees.
15.7. LANDLORD'S DEFAULT. Landlord shall not be deemed to be in default
in the performance of any obligation required to be performed by it hereunder
unless and until it has failed to perform such obligation within thirty (30)
days after receipt of Notice by Tenant to Landlord (and the Mortgagees who
have provided Tenant with notice) specifying the nature of such default;
provided, however, that if the nature of Landlord's obligation is such that
more than thirty (30) days are required for its performance, then Landlord
shall not be deemed to be in default if it shall commence such performance
within such thirty (30) day period and thereafter diligently prosecutes the
same to completion.
15.8. LIMITATION OF LANDLORD'S LIABILITY. The obligations of Landlord
do not constitute the personal obligations of the individual partners,
trustees, directors, officers or shareholders of Landlord or its constituent
partners. If Landlord shall fail to perform any covenant, term, or condition
of this Lease upon Landlord's part to be performed, Tenant shall be required
to deliver to Landlord Notice of the same. If, as a consequence of such
default, Tenant shall recover a money judgment against Landlord, such
judgment shall be satisfied only out of the proceeds of sale received upon
execution of such judgment and levied thereon against the right, title and
interest of Landlord in the Building and out of rent or other income from
such property receivable by Landlord or out of consideration received by
Landlord from the sale or other disposition of all or any part of Landlord's
right, title or interest in the Building, and no action for any deficiency
may be sought or obtained by Tenant.
15.9. MORTGAGEE PROTECTION. Upon any default on the part of Landlord,
Tenant will give notice by registered or certified mail to any Mortgagee who
has provided Tenant with notice of its interest together with an address for
receiving notice, and shall offer such Mortgagee a reasonable opportunity to
cure the default (which in no event shall be less than sixty (60) days),
including time to obtain possession of the Premises by power of sale or a
Judicial foreclosure, if such should prove necessary, to effect a cure.
Tenant agrees that each of the Mortgagees to whom this Lease has been
assigned by Landlord is an express third party beneficiary hereof. Tenant
shall not make any prepayment of Monthly Rent more than one (1) month in
advance without the prior written consent of such Mortgagee. Tenant waives
any right under California Civil Code Section 1950.5 or any other present or
future law to the collection of any deposit from such Mortgagee or any
purchaser at a foreclosure sale of such Mortgagee's interest unless such
Mortgagee or such purchaser shall have actually received and not refunded
the deposit. Tenant agrees to make all payments under this Lease to the
Mortgagee with the most senior encumbrance upon receiving a direction, in
writing, to pay said amounts to such Mortgagee.
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Tenant shall comply with such written direction to pay without determining
whether an event of default exists under such Mortgagee's loan to Landlord.
15.10. LANDLORD'S RIGHT TO PERFORM. If Tenant shall at any time fail
to make any payment or perform any other act on its part to be made or
performed under this Lease, Landlord may (but shall not be obligated to), at
Tenant's expense, and without waiving or releasing Tenant from any
obligation of Tenant under this Lease, make such payment or perform such
other act to the extent Landlord may deem desirable, and in connection
therewith, pay expenses and employ counsel. All sums paid by Landlord and
all penalties, interest and costs, including, but not limited to, collection
costs and attorneys' fees reasonably incurred in connection therewith,
shall be due and payable by Tenant to Landlord, as an item of Additional
Rent, on demand by Landlord, together with interest thereon at the Applicable
Rate from the date of such demand until paid by Tenant.
15.11. LIMITATION OF ACTIONS AGAINST LANDLORD. Any claim, demand or
right of any kind by Tenant which is based upon or arises in connection with
this Lease shall be barred unless Tenant commences an action thereon within
six (6) months after the date that the act, omission, event or default upon
which the claim, demand or right arises, has occurred.
15.12. WAIVER OF JURY TRIAL. To the full extent permitted by law,
Tenant hereby waives the right to trial by jury in any action, proceeding or
counterclaim brought by Tenant on any matter whatsoever arising out of or in
any way connected with this Lease, the relationship of Landlord and Tenant,
Tenant's use or occupancy of the Premises and/or any claim of injury or
damage.
ARTICLE XVI
SUBORDINATION; ESTOPPEL CERTIFICATE; FINANCIALS
16.1. SUBORDINATION, ATTORNMENT AND NON-DISTURBANCE. Without the
necessity of any additional document being executed by Tenant for the purpose
of effecting a subordination, and at the election of Landlord or any
Mortgagee or any ground lessor with respect to the land of which the Premises
are a part, this Lease shall be subject and subordinate at all times to (i)
all ground leases or underlying leases which may now exist or hereafter be
executed affecting the Building, and (ii) the lien of any Mortgage which may
now exist or hereafter be executed in any amount for which the Project, the
Building, ground leases or underlying leases, or Landlord's interest or
estate in any of said items is specified as security. Landlord or any such
Mortgagee or ground lessor shall have the right, at its election, to
subordinate or cause to be subordinated any such ground leases or underlying
leases or any such liens to this Lease. No subordination shall permit
material interference with Tenant's rights hereunder, and any ground lessor
or Mortgagee shall recognize Tenant and its permitted successors and assigns
as the tenant of the Premises and shall not disturb Tenant's right to quiet
possession of the Premises during the Term so long as no Event of Default has
occurred and is continuing under this Lease. If Landlord's interest in the
Premises is acquired by any ground Lessor or Mortgagee, or in the event
proceedings are brought for the foreclosure of, or in the event of exercise
of the power of sale under, any Mortgage made by Landlord covering the
Premises or any part thereof, or in the event a conveyance in lieu of
foreclosure is made for any reason, Tenant shall, notwithstanding any
subordination and upon the request of such successor in interest to
Landlord, attorn to and become the Tenant of the successor in interest to
Landlord and recognize such successor in interest as the Landlord under this
Lease. Although this Section 16.1 is self-executing, Tenant covenants and
agrees to execute and deliver, upon demand by Landlord and in the form
requested by Landlord, or any Mortgagee or ground lessor, any additional
documents evidencing the priority or subordination of this Lease with respect
to any such ground leases or underlying leases or the lien of any such
Mortgage, or evidencing the attornment of Tenant to any successor in Interest
to Landlord as herein provided. Tenant's failure to timely execute and
deliver such additional documents shall, at Landlord's option, constitute an
Event of Default hereunder.
16.2. ESTOPPEL CERTIFICATE. Tenant shall within ten (10) days following
written request by Landlord, execute and deliver to Landlord any documents,
including estoppel certificates, in a form required by Landlord (i)
certifying that this Lease is unmodified and in full force and effect or, if
modified, attaching a copy of such modification and certifying that this
Lease, as so modified, is in full force and effect and the date to which the
Rent and other charges are paid in advance, if any, (ii) acknowledging that
there are not, to Tenant's knowledge, any uncured defaults on the part of the
Landlord or stating the nature of any uncured defaults, (iii) evidencing the
status of this Lease as may be required by a Mortgagee or a purchaser of the
Premises, (iv) certifying the current Monthly Rent amount and the amount and
form of Security Deposit on deposit with Landlord, and (v) certifying to such
other information as Landlord, Landlord's Agents, Mortgagees and prospective
purchasers may reasonably request, including, but not limited to, any
requested information regarding Hazardous Materials. Tenant's failure to
deliver an estoppel certificate within ten (10) days after delivery of
Landlord's written request therefor shall constitute an Event of Default
hereunder.
16.3. FINANCIAL INFORMATION. Tenant shall deliver to Landlord, prior to
the execution of this Lease, and within ten (10) days following written
request therefor by Landlord at any time during the Term, Tenant's current
financial statements, and Tenant's financial statements for the two (2)
years prior to the current fiscal financial statement's year, certified to be
true, accurate and complete by the chief financial officer of Tenant,
including a balance sheet and profit and loss statement for the most recent
prior year (collectively, the "Statements") , which Statements shall
accurately and completely reflect the financial condition of Tenant. Landlord
agrees that it will keep the Statements confidential, except that Landlord
shall have the right to deliver the same to any proposed purchaser of the
Premises, the Project or any portion thereof, and to the Mortgagees of
Landlord or such purchaser. Tenant acknowledges that Landlord is relying on
the Statements in its determination to enter into this Lease, and Tenant
represents to Landlord, which representation shall be deemed made on the date
of this Lease and again on the Commencement Date, that no material change in
the financial condition of Tenant, as reflected in the Statements, has
occurred since the date Tenant delivered the Statements to Landlord. If any
material change in Tenant's financial condition, as reflected in the
Statements, occurs prior to the date of this Lease or prior to the
Commencement Date, as the case may be, or if Tenant fails to inform Landlord
of any such material change, Landlord shall have the right, in addition to
any other rights and remedies of Landlord, to terminate this Lease by notice
to Tenant given within thirty (30) days after Landlord learns of such
material change.
ARTICLE XVII
SIGNS AND GRAPHICS
Landlord shall designate the location on the Premises, if any, for one
(1) or more identification signs for Tenant. Tenant shall have no right to
maintain identification signs in any other location in, on or about the
Premises and shall not display or erect any other signs, displays or other
advertising materials that are visible from the exterior of the Building.
The size, design, color and other physical aspects of permitted
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<PAGE>
signs shall be subject to Landlord's written approval prior to installation,
which approval may be withheld in landlord's discretion, any Restrictions and
any applicable municipal or other governmental permits and approvals. All
such signs end graphics shall conform to the Sign Criteria. The cost of all
signs and graphics, including the installation, maintenance and removal
thereof, shall be at Tenant's sole cost and expense. If Tenant fails to
maintain its signs, or if Tenant fails to remove same upon termination of
this Lease and repair any damage caused by such removal (including, but not
limited to, repainting the affected area, if required by Landlord), Landlord
may do so at Tenant's expense. All sums reasonably disbursed, deposited or
incurred by Landlord in connection with such removal, including, but not
limited to, all costs, expenses and actual attorneys' fees, shall be due and
payable by Tenant to Landlord on demand by Landlord, together with interest
thereon at the Applicable Rate from the date of such demand until paid by
Tenant.
ARTICLE XVIII
QUIET ENJOYMENT
Landlord covenants that Tenant, upon performing the terms, conditions
and covenants of this Lease, shall have quiet and peaceful possession of the
Premises as against any person claiming the same by, through or under
Landlord.
ARTICLE XIX
SURRENDER: HOLDING OVER
19.1. SURRENDER OF THE PREMISES. Upon the expiration or earlier
termination of this Lease, Tenant shall surrender the Premises to Landlord in
its condition existing as of the Commencement Date, normal wear and tear and
acts of God excepted, with all interior walls in good repair, all carpets
shampooed and cleaned, the HVAC equipment, plumbing, electrical and other
mechanical installations in good operating order and all floors cleaned and
waxed, all to the reasonable satisfaction of Landlord. Tenant shall remove
from the Premises all of Tenant's Alterations which Landlord requires Tenant
to remove pursuant to Section 8.1 and all Tenant's Personal Property, and
shall repair any damage and perform any restoration work caused by such
removal. If Tenant fails to remove such Alterations and Tenant's Personal
Property which Tenant is authorized and obligated to remove pursuant to the
above, and such failure continues after the termination of this Lease,
Landlord may retain such property and all rights of Tenant with respect to it
shall cease, or Landlord may place all or any portion of such property in
public storage for Tenant's account. Tenant shall pay to Landlord, upon
demand, the costs of removal of any such Alterations and Tenant's Personal
Property and storage and transportation costs of same, and the cost of
repairing and restoring the Premises, together with attorneys' fees and
interest on said amounts at the Applicable Rate from the date of expenditure
by Landlord. If the Premises are not so surrendered at the termination of
this Lease, Tenant hereby agrees to indemnify Landlord and Landlord's Agents
against all loss or liability resulting from any delay by Tenant in so
surrendering the Premises, including, but not limited to, any claims made by
any succeeding tenant, losses to Landlord due to lost opportunities to lease
to succeeding tenants, and actual attorneys' fees and costs.
19.2. HOLDING OVER. If Tenant remains in possession of all or any part
of the Premises after the expiration of the Term with the prior written
consent of Landlord, such possession shall constitute a month-to-month
tenancy only and shall not constitute a renewal or extension for any further
term. If Tenant remains in possession of all or any part of the Premises
after the expiration of the Term without the prior written consent of
Landlord, such possession shall constitute a tenancy at sufferance. In
either of such events, Monthly Rent shall be increased to an amount equal to
one hundred fifty percent (150%) of the Monthly Rent payable during the last
month of the Term, and any other sums due hereunder shall be payable in the
amounts and at the times specified in this Lease. Any such tenancy shall
be subject to every other term, condition, and covenant contained in this
Lease.
ARTICLE XX
[INTENTIONALLY OMITTED]
ARTICLE XXI
MISCELLANEOUS AND INTERPRETIVE PROVISIONS
21.1. BROKER. Landlord and Tenant each warrant and represent to the
other that neither has had any dealings with any real estate broker, agent
or finder in connection with the negotiation of this Lease or the
introduction of the parties to this transaction, except for the Broker (whose
commission shall be paid by Landlord), and that it knows of no other real
estate broker, agent or finder who is or might be entitled to a commission or
fee in connection with this Lease. In the event of any additional claims for
brokers' or finders' fees with respect to this Lease, Tenant shall indemnify,
hold harmless, protect and defend Landlord from and against such claims if
they shall be based upon any statement or representation or agreement made
by Tenant, and Landlord shall indemnify, hold harmless, protect and defend
Tenant from and against such claims if they shall be based upon any
statement, representation or agreement made by Landlord.
21.2. EXAMINATION OF LEASE. Submission of this Lease for examination or
signature by Tenant does not create a reservation of or option to lease.
This Lease shall become effective and binding only upon full execution of
this Lease by both Landlord and Tenant.
21.3. NO RECORDING. Tenant shall not record this lease or any
memorandum of this Lease without Landlord's prior written consent, but if
Landlord so requests, Tenant agrees to execute, have acknowledged and
deliver a memorandum of this Lease in recordable form which Landlord
thereafter may file for record.
21.4. QUITCLAIM. Upon any termination of this Lease, Tenant shall, at
Landlord's request, execute, have acknowledged and deliver to Landlord an
instrument in writing releasing and quitclaiming to Landlord all right,
title and interest of Tenant in and to the Premises by reason of this Lease
or otherwise.
21.5. MODIFICATIONS FOR MORTGAGEES. If in connection with obtaining
financing for the Premises or any portion thereof, Landlord's Mortgagees
shall request reasonable modifications to this Lease as a condition to such
financing, Tenant shall not unreasonably withhold, delay or defer its consent
thereto, provided such
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<PAGE>
modifications do not adversely affect Tenant's rights hereunder. Tenant's
failure to so consent shall constitute an Event of Default under this Lease.
21.6. NOTICE. Any Notice required or desired to be given under this
Lease shall be in writing and shall be addressed to the address of the party
to be served. The addresses of Landlord and Tenant are as set forth in Items
1 and 3, respectively, of the Basic Lease Provision, except that (a) prior to
the Commencement Date, the address for Notices to Tenant shall be as set
forth opposite Tenant's signature on this Lease, and (b) from and after the
Commencement Date, notwithstanding the addresses for Tenant set forth in
Item 3 of the Basic Lease Provisions, all Notices regarding the operation
and maintenance of the Project shall be delivered to Tenant at the Premises.
Each such Notice shall be deemed effective and given (i) upon receipt, if
personally delivered (which shall include delivery by courier or overnight
delivery service), (ii) upon being telephonically confirmed as transmitted,
if sent by telegram, telex or telecopy, (iii) two (2) business days after
deposit in the United States mail in Orange County or in the county in which
the Premises are located, certified and postage prepaid, properly addressed
to the party to be served, or (iv) upon receipt if sent in any other way. Any
party hereto may from time to time, by Notice to the other in accordance with
this Section 21.6, designate a different address than that set forth above
for the purposes of Notice.
21.7. CAPTIONS. The captions and headings used in this Lease are for
the purpose of convenience only and shall not be construed to limit or extend
the meaning of any part of this Lease.
21.8. EXECUTED COPY. Any fully executed copy of this Lease shall be
deemed an original for all purposes.
21.9. TIME. Time is of the essence for the performance of each term,
condition and covenant of this Lease.
21.10. SEVERABILITY. If any one or more of the provisions contained
herein shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality, or unenforceability shall not
affect any other provision of this Lease, but this Lease shall be construed
as if such invalid, illegal or unenforceable provision had not been contained
herein.
21.11. SURVIVAL. All covenants and indemnities set forth herein which
contemplate the payment of sums, or the performance by Tenant after the Term
or following an Event of Default, including specifically, but not limited to,
the covenants and indemnities set forth in Section 5.3, Article VI, Article
VII, Section 8.1, Section 9.2, Section 11.1, Section 11.10, Article XV, and
Article XIX, and all representations and warranties of Tenant, shall
survive the expiration or sooner termination of this Lease.
21.12. CHOICE OF LAW. This Lease shall be construed and enforced in
accordance with the laws of the State of California. The language in all
parts of this Lease shall in all cases be construed as a whole according to
its fair meaning and not strictly for or against either Landlord or Tenant.
21.13. GENDER; SINGULAR, PLURAL. When the context of this Lease
requires, the neuter gender includes the masculine, the feminine, a
partnership or corporation or joint venture, the singular includes the plural
and the plural includes the singular.
21.14. NON-AGENCY. It is not the intention of Landlord or Tenant to
create hereby a relationship of master-servant or principal-agent, and under
no circumstance shall Tenant herein be considered the agent of Landlord, it
being the sole purpose and intent of the parties hereto to create a
relationship of Landlord and tenant.
21.15. SUCCESSORS. The terms, covenants, conditions and agreements
contained in this Lease shall, subject to the provisions as to assignment,
subletting, and bankruptcy contained herein and any other provisions
restricting successors or assigns, apply to and bind the heirs, successors,
legal representatives and assigns of the parties hereto.
21.16. WAIVER; REMEDIES CUMULATIVE. The waiver by either party of any
term, covenant, agreement or condition herein contained shall not be deemed
to be a waiver of any subsequent breach of the same or any other term,
covenant, agreement or condition herein contained, nor shall any custom or
practice which may grow up between the parties in the administration of this
Lease be construed to waive or to lessen the right of Landlord to insist upon
the performance by Tenant in strict accordance with all of the provisions of
this Lease. The subsequent acceptance of Rent hereunder by Landlord shall
not be deemed to be a waiver of any preceding breach by Tenant of any
provisions, covenant, agreement or condition of this Lease, other than the
failure of Tenant to pay the particular Rent payment so accepted, regardless
of Landlord's knowledge of such preceding breach at the time of acceptance of
such Rent payment. Landlord's acceptance of any check, letter or payment
shall in no event be deemed an accord and satisfaction, and Landlord shall
accept the check, letter or payment without prejudice to Landlord's right to
recover the balance of the Rent or pursue any other remedy available to it.
The rights and remedies of either party under this Lease shall be
cumulative and in addition to any and all other rights and remedies which
either party has or may have.
21.17. UNAVOIDABLE DELAY. Except for the monetary obligations of Tenant
under this Lease, neither party shall be chargeable with, liable for, or
responsible to the other for anything or in any amount for any Unavoidable
Delay and any Unavoidable Delay shall not be deemed a breach of or default in
the performance of this Lease, it being specifically agreed that any time
limit provision contained in this Lease (other than the scheduled expiration
of the Term) shall be extended for the same period of time lost by
Unavoidable Delay.
21.18. ENTIRE AGREEMENT. This Lease is the entire agreement between
the parties, and supersedes any prior agreements, representations,
negotiations or correspondence between the parties except as expressed
herein. Except as otherwise provided herein, no subsequent change or addition
to this Lease shall be binding unless in writing and signed by the parties
hereto.
21.19. AUTHORITY. If Tenant is a corporation or a partnership, each
individual executing this Lease on behalf of the corporation or partnership,
as the case may be, represents and warrants that he is duly authorized to
execute and deliver this Lease on behalf of said entity in accordance with
its corporate bylaws, statement of partnership or certificate of limited
partnership, as the case may be, and that this Lease is binding upon said
entity in accordance with its terms. If Tenant is a corporation, Tenant
shall, if requested by Landlord, within thirty (30) days after execution of
this Lease and prior to entering into possession of the Premises, deliver to
Landlord a certified copy of a resolution of the Board of Directors of the
corporation or certificate of the Secretary of the corporation, authorizing,
ratifying or confirming the execution of this Lease. If Tenant is a
partnership, Tenant shall, if requested by Landlord, within thirty (30) days
after the execution of this Lease and prior to entering into possession of
the Premises, deliver to Landlord a certified copy of its partnership
agreement authorizing such execution.
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<PAGE>
21.20. GUARANTY. As a condition to the execution of this Lease by
Landlord, the obligations, covenants and performance of the Tenant as herein
provided shall be guaranteed in writing by the Guarantor listed in Item 14 of
the Basic Lease Provisions, if any, on a form of guarantee provided by
Landlord.
21.21. EXHIBITS; REFERENCES. All exhibits, amendments, riders and
addenda attached to this Lease are hereby incorporated into and made a part
of this Lease. In the event of variation or discrepancy, the duplicate
original hereof (including exhibits, amendments, riders and addenda, if any,
specified above) held by Landlord shall control. All references in this
Lease to Articles, Sections, Exhibits, Riders and clauses are made,
respectively, to Articles, Sections, Exhibits, Riders and clauses of this
Lease, unless otherwise specified.
21.22. BASIC LEASE PROVISIONS. The Basic Lease Provisions at the
beginning of this Lease are intended to provide general information only. In
the event of any inconsistency between the Basic Lease Provisions and the
specific provisions of this Lease, the specific provisions of this Lease
shall prevail.
21.23. NO MERGER. The voluntary or other surrender of this Lease by
Tenant, or a mutual cancellation thereof, or a termination by Landlord, shall
not work a merger, and shall, at the option of Landlord, terminate all or any
existing subtenancies or may, at the option of Landlord, operate as an
assignment to Landlord of any or all such subtenancies.
21.24. JOINT AND SEVERAL OBLIGATIONS. If more than one person or entity
is Tenant, the obligations imposed on each such parson or entity shall be
joint and several.
21.25. NO LIGHT OR AIR EASEMENT. Any diminution or shutting off of
light or air by any structure which may be erected on lands adjacent to the
Building shall in no way affect this Lease, abate Rent or otherwise impose
any liability on Landlord. This Lease does not confer any right with regard
to the subsurface below the ground level of the Building.
21.26. SECURITY MEASURES. Tenant hereby acknowledges that Landlord shall
have no obligation whatsoever to provide guard service or other security
measures for the benefit of the Premises or the Project. Tenant assumes all
responsibility for the protection of Tenant, Tenant's Agents and the property
of Tenant and of Tenant's Agents from acts of third parties. Nothing herein
contained shall prevent Landlord, at Landlord's sole option, from providing
security protection for the Project or any part thereof, in which event the
cost thereof shall be included within the definition of Project Costs and
paid by Tenant in the manner set forth in Section 7.1.
THIS LEASE is effective as of the date the last signatory necessary
to execute this Lease shall have executed this Lease.
"LANDLORD"
[See Attachment No. 1 for
Landlord's signature block]
ADDRESS FOR NOTICES PRIOR TO "TENANT"
COMMENCEMENT DATE:
IMGIS, a California corporation
---------------------------------
10101 N. De Anza Blvd., Ste.
- ------------------------------------- ---------------------------------
210, Cupertino, CA 95014
- ------------------------------------- ---------------------------------
Attn: Nadine Franczyk By: /s/ [ILLEGIBLE]
----------------------------
Name: /s/ [ILLEGIBLE]
----------------------------
Title: /s/ [ILLEGIBLE]
----------------------------
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
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<PAGE>
ATTACHMENT NO. 1
"LANDLORD"
DE ANZA PLAZA II, LLC, a Delaware
limited liability company
By: BINGHAM PARTNERS, LP, a
Delaware limited partnership
Its: Sole Member
By: ICIG BINGHAM, LLC, a Dela-
ware limited liability company
Its: Managing Limited Partner
By: INSIGNIA/ESG, INC., a
Delaware corporation
Its: Managing Member
By:
-----------------------------
Title:
--------------------------
<PAGE>
EXHIBIT A
DESCRIPTION OF PREMISES
This Exhibit is attached to and made a part of that certain Standard
Form Office Lease dated May 29, 1998, by and between DE ANZA PLAZA II, LLC
("Landlord"), and IMGIS ("Tenant"), for the Premises known as 10101 North
De Anza Boulevard, Suite 230, Cupertino, California.
SECOND FLOOR
10101 N. DE ANZA BLVD.
[FLOOR PLAN]
<PAGE>
EXHIBIT B
PROJECT SITE PLAN
This Exhibit is attached to and made a part of that certain Standard
Form Office Lease dated May 29, 1998, by and between DE ANZA PLAZA II, LLC
("Landlord"), and IMGIS ("Tenant"), for the Premises known as 10101 North
De Anza Boulevard, Suite 230, Cupertino, California.
[MAP]
<PAGE>
EXHIBIT D
COMMENCEMENT DATE MEMORANDUM
("AS-IS")
DATE:_______________________, 199__
RE: Standard Form Lease dated ______________________________, by and between
________________________________________________________________________
________________________________, as "Landlord", and ___________________
________________________________________________________________________
as "Tenant", for the Premises known as _________________________________
_______________________________________________, California.
AGREEMENT
The undersigned hereby agree as follows:
1. The Commencement Date, as defined in and determined in accordance
with the Lease, is hereby stipulated for all purposes to be __________________
__________________________.
2. In accordance with the Lease, Monthly Rent (as defined in the
Lease) in the amount of $_______________, subject to adjustment in accordance
with the terms of the Lease, commences to accrue on _______________ and is due
and payable in advance on the first day of each end every month during the Term
(as defined in the Lease). Unless and until notified by Landlord to the
contrary, Tenant shall make its Rent checks payable to ________________________,
c/o 2201 Dupont Drive, Suite 100, Irvine, California 92715.
"Landlord"
----------------------------------------
----------------------------------------
By:
----------------------------------
Its:
-----------------------------
By:
----------------------------------
Its:
-----------------------------
"Tenant"
----------------------------------------
----------------------------------------
By:
----------------------------------
Its:
-----------------------------
By:
----------------------------------
Its:
-----------------------------
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<PAGE>
EXHIBIT G
RULES AND REGULATIONS
(Office)
This Exhibit is attached to and made a part of that certain Standard
Form Lease dated May 29, 1998, by and between De Anza Plaza II, LLC as
"Landlord", and IMGIS, as "Tenant", for the Premises known as 10101 North De
Anza Boulevard, Suite 230, Cupertino, California.
This Exhibit sets forth the rules and regulations governing Tenant's use
of the Common Area and the Premises leased to Tenant pursuant to the terms,
covenants and conditions of the Lease to which this Exhibit is attached and
therein made part thereof. Unless otherwise defined, capitalized terms used
herein shall have the same meanings as set forth in the Lease. In the event
of any conflict or inconsistency between this Exhibit and the lease, the
Lease shall control.
1. Tenant shall not place anything or allow anything to be placed near
the glass of any window, door, Partition or wall which may appear unsightly
from outside the Premises.
2. The walls, walkways, sidewalks, entrance passages, courts and
vestibules shall not be obstructed or used for any purpose other than
ingress and egress of pedestrian travel to and from the Premises, and shall
not be used for loitering or gathering, or to display, store or place any
merchandise, equipment or devices, or for any other purpose. The walkways,
entrance passageways, courts, vestibules and roof are not for the use of
the general public and Landlord shall in all cases retain the right to
control and prevent access thereto by all persons whose presence in the
judgment of the Landlord shall be prejudicial to the safety, character,
reputation and interests of the Building and its tenants, provided that
nothing herein contained shall be construed to prevent such access to
persons with whom Tenant normally deals in the ordinary course of Tenant's
business unless such persons are engaged in illegal activities. No tenant
or employee or invitee of any tenant shall be permitted upon the roof of the
Building.
3. No awnings or other projection shall be attached to the outside
walls of the Building. No security bars or gates, curtains, blinds, shades or
screens shall be attached to or hung in, or used in connection with, any
window or door of the Premises without the prior written consent of Landlord.
Neither the interior nor exterior of any windows shall be coated or
otherwise sunscreened without the express written consent of Landlord.
4. Tenant shall not in anyway deface any part of the Premises or the
Building. Tenant shall not lay linoleum, tile, carpet or other similar floor
covering so that the same shall be affixed to the floor of the Premises in
any manner except as approved by Landlord in writing. The expense of
repairing any damage resulting from a violation of this rule or removal of
any floor covering shall be borne by Tenant.
5. The toilet room, urinals, wash bowls and other plumbing apparatus
shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown
therein. The expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by Tenant.
6. Landlord shall direct electricians as to the manner and location of
any future telephone wiring. No boring or cutting for wires will be allowed
without the prior written consent of Landlord. The locations of the
telephone, call boxes and other office equipment affixed to the Premises
shall be subject to the prior written approval of Landlord.
7. The Premises shall not be used for manufacturing, retail sales, or
the storage of merchandise. No exterior storage shall be allowed at any
time without the prior written approval of Landlord. The Premises shall not
be used for a beauty parlor, manicuring, any medical use or washing of
clothes without the prior written consent of Landlord, or for lodging or
sleeping or for any immoral or illegal purposes. No Vending machines shall be
installed by or on behalf of Tenant within the Premises or the Project.
8. Tenant shall not make, or permit to be made, any unseemly or
disturbing noises or disturb or interfere with occupants of this or
neighboring buildings or premises or those having business with them, whether
by the use of any musical instrument, radio, phonograph, machinery, or
otherwise. Tenant shall not use, keep or permit to be used, or kept, any foul
or obnoxious gas or substance in the Premises or permit or suffer the
Premises to be used or occupied in any manner offensive or objectionable to
Landlord or other occupants of this or neighboring buildings or premises by
reason of any odors, fumes or gases.
9. Neither Tenant nor any of Tenant's Agents shall at any time bring
or keep upon the Premises any toxic, hazardous, inflammable, combustible or
explosive fluid, chemical or substance without the prior written consent of
Landlord. Smoking or carrying cigars or cigarettes in the common Area may be
regulated from time to time as determined by Landlord, and Tenant and
Tenant's Agents shall strictly comply with any such regulations.
10. No animals shall be permitted at any time within the Premises.
11. Tenant shall not use the name of the Building or the Project in
connection with or in promoting or advertising the business of Tenant, except
as Tenant's address, without the prior written consent of Landlord. Landlord
shall have the right to prohibit any advertising by Tenant which, in
Landlord's reasonable opinion, tends to impair the reputation of the Project
or its desirability for Its intended uses, and upon written notice from
Landlord Tenant shall refrain from or discontinue such advertising.
12. Canvassing, soliciting, peddling, parading, picketing,
demonstrating or otherwise engaging in any conduct that unreasonably impairs
the value or use of the Premises or the Project are prohibited and Tenant
shall cooperate to prevent the same.
13. All equipment of any electrical or mechanical nature shall be
placed by Tenant on the Premises, in settings approval by Landlord in
writing, in such a way as to best minimize, absorb and prevent any
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<PAGE>
vibration, noise or annoyance. No cooking shall be done or permitted upon
the Premises except pursuant to normal use of a microwave oven, toaster oven
and coffee maker for the sole benefit of Tenant and Tenant's Agents.
14. No safes, computers or other objects larger or heavier than the
freight elevators of the Building are limited to carry shall be brought into
or installed in the Premises. Landlord shall have the right to prescribe and
approve of the weight and position of safes, computers or other large or
heavy objects which shall, if deemed necessary by Landlord, be placed on some
type of applicable platform prescribed by Landlord to distribute the weight.
The moving of safes, computers or other large or heavy objects shall occur
only between those hours as may be designated by, and only upon previous
written notice to, Landlord, and the persons employed to move those objects
in or out of the Building must be reasonably acceptable to Landlord. No
freight, furniture or bulky matter of any description shall be received into
or moved out of the lobby of the Building or carried into the elevators
during normal business hours (i.e., Monday through Friday, 8:00 a.m. to 6:00
p.m.) unless approved in writing by Landlord.
15. No air conditioning unit or other similar apparatus shall be
installed or used by Tenant without the prior written consent of Landlord.
Tenant shall not install equipment, such as but not limited to electronic
tabulating or computer equipment, requiring electrical or air conditioning
service in excess of that to be provided by Landlord under the Lease.
16. No aerial antenna shall be erected on the roof or exterior walls
of the Premises, or on the grounds, without in each instance the prior
written consent of Landlord. Any aerial or antenna so installed by or on
behalf of Tenant without such written consent shall be subject to removal by
Landlord at any time without prior notice at the expense of Tenant, and
Tenant shall upon Landlord's demand pay a removal fee to Landlord of not less
than $200.00.
17. Landlord shall clean the Premises as provided in the Lease, and
except with the written consent of Landlord, no person or persons other than
those approved by Landlord will be permitted to enter the Building for that
purpose. Tenant shall not cause unnecessary labor by reason of Tenant's
carelessness and indifference in the preservation of good order and
cleanliness. All cardboard boxes must be "broken down", and all styrofoam
chips must be bagged or otherwise contained so as not to constitute a
nuisance.
18. Tenant shall see that the windows, transoms and doors of the
Premises are closed end securely locked before leaving the Building and
shall observe strict care not to leave windows open, if applicable, when it
rains. Tenant shall exercise extraordinary care and caution that all water
faucets or water apparatus are entirely shut off before Tenant or Tenant's
employees leave the Building, and that all electricity, gas or air shall
likewise be carefully shut off, so as to prevent waste or damage, and for
any default or carelessness Tenant shall make good all injuries sustained by
other tenants or occupants of the Building or Landlord.
19. All keys for the Premises shall be provided to Tenant by Landlord
and Tenant shall return to Landlord any of such keys so provided upon the
termination of the Lease. Tenant shall not change locks or install other
locks on doors of the Premises, without the prior written consent of
Landlord. In the event of loss of any keys furnished by Landlord for Tenant,
Tenant shall pay to Landlord the costs thereof. Upon termination of its
tenancy, Tenant shall deliver to Landlord all keys and access cards to the
Premises, the Building and Common Area.
20. No person shall enter or remain within the Project while
intoxicated or under the influence of liquor or drugs. Landlord shall have
the right to exclude or expel from the Project any person who, in the
absolute discretion of Landlord, is under the influence of liquor or drugs.
21. Tenant shall furnish and utilize masonite or plastic floor mats
so as to minimize carpet damage resulting from the use of rollers on chairs.
Tenant agrees to comply with all such Rules and Regulations. Should
Tenant not abide by these Rules and Regulations, Landlord or any "Operator,"
"Association" or "Declarant" under any Restrictions may serve a three (3) day
notice to correct the deficiencies. If Tenant has not corrected the
deficiencies by the end of the notice period, Tenant will be in default of
the Lease, and Landlord and/or its designee shall have the right, without
further notice, to cure the violation at Tenant's expense.
Landlord reserves the right to amend or supplement the foregoing Rules
and Regulations and to adopt and promulgate additional rules and
regulations applicable to the Premises. Notice of such rules and regulations
and amendments and supplements thereto, if any, shall be given to the Tenant.
Neither Landlord nor Landlord's Agents or any other person or entity
shall be responsible to Tenant or to any other person for the ignorance or
violation of these Rules and Regulations by any other tenant or other
person. Tenant shall be deemed to have read these Rules and Regulations and
to have agreed to abide by them as a condition precedent, waivable only by
Landlord, to Tenant's occupancy of the Premises.
G-2
<PAGE>
EXHIBIT L
CALCULATION OF TENANT'S SHARE
This Exhibit is attached to and made a part of that certain Standard Form
Lease dated May 29, 1998, by and between De Anza Plaza II, LLC as "Landlord",
and IMGIS, as "Tenant", for the Premises known as 10101 North De Anza
Boulevard, Suite 230, Cupertino, California.
The capitalized terms used and not otherwise defined herein shall have
the same definitions as set forth in the Lease. The provisions of this
Exhibit shall supersede any inconsistent or conflicting provisions of the
Lease.
BUILDING AND PROJECT:
Tenant understands that the Premises are a part of a multi-tenant
Building, and that the Building is part of a multi-building Project containing
as of the date of the Lease approximately 74,589 square feet of space.
CALCULATION OF TENANT'S SHARE:
Tenant's Share of various Operating Expenses under the Lease shall
be determined as a function of Project square footage. Tenant acknowledges
that the total square footage of the Project may change from time to time,
and that Tenant's Share may vary accordingly, effective on the first day of
the month after each such change occurs.
Set forth below is the initial Tenant's Share (i.e. calculated as of
the date of the Lease) with respect to Operating Expenses to be charged as a
function of the Project, as of the date of the Lease.
Tenant's Share of the Project: 5.4%
-1-
<PAGE>
ADDENDUM TO LEASE
This Addendum to Lease ("Addendum") is attached to and made a part of
that certain Standard Form Office Lease dated May 28, 1998, by and between DE
ANZA PLAZA II, LLC, a Delaware limited liability company, as "Landlord", and
IMGIS, a California corporation, as "Tenant", for the Premises known as 10101
North De Anza Boulevard, Suite 230, Cupertino, California. The capitalized
terms used and not otherwise defined herein shall have the same definitions
as set forth in the Lease. The provisions of this Addendum shall supersede
any inconsistent or conflicting provisions of the Lease.
1. PROJECT; BUILDING; PREMISES. The Premises are part of that certain
multi-building Project located in Cupertino, California, which Project is
commonly known as De Anza Plaza, and contains as of the date of the Lease
approximately 74,589 square feet of space. The Premises consist of a portion
of a building located within the Project, which portion is commonly known as
10101 North De Anza Boulevard, Suite 230 and consists of approximately 4,025
square feet. The Premises is shown as cross-hatched on EXHIBIT A attached to
the Lease. The term "Building" as used in the Lease (including this
Addendum) shall mean the building within which the Premises are located.
2. ADJUSTMENTS TO MONTHLY RENT. The Monthly Rent payable by Tenant
under the Lease during the Term shall be as follows:
<TABLE>
<CAPTION>
Months Monthly Rent
------ ------------
<S> <C>
01 - 12 $12,880.00 per month
13 - 24 $13,395.20 per month
25 - 36 $13,931.00 per month
37 - 48 $14,488.25 per month
49 - 60 $15,067.77 per month
</TABLE>
3. NOTICES TO LANDLORD. The address of Landlord shall be c/o
Insignia/ESG of California, Inc., 160 W. Santa Clara Street, Suite 1350, San
Jose, California 95113, Attn: Mr. Mark Schmidt, or such other place as
Landlord may designate in writing to Tenant from time to time. Copies of all
notices and communications from Tenant to Landlord shall be sent by Tenant to
Insignia/ESG of California, Inc., One Technology Drive, Building G, Irvine,
California 92618-2339, Attn: Mr. John Combs.
4. CONSTRUCTION MANAGEMENT FEE. With respect to any Alterations made
by or on behalf of Tenant during the Term, Tenant shall pay to Landlord, upon
demand, a construction management fee equal to five percent (5%) of the total
cost of the Alterations in question.
5. ADJUSTMENTS IN SECURITY DEPOSIT.
5.1 FIRST ADJUSTMENT. Provided that no Event of Default occurs
during the first twelve (12) months of the Term, Landlord shall apply
$13,395.20 of the Security Deposit toward the Monthly Rent payable by Tenant
for the thirtieth (13th) month of the Term. Upon such application, the
Security Deposit shall be deemed to be reduced to $43,519.25. Upon the
occurrence of any Event of Default during the first twelve (12) months of the
Term, this Section 5 shall automatically become null and void and be without
further force or effect, and the Security Deposit shall remain $56,914.45
for the balance of the Term, without further adjustments.
5.2 SECOND ADJUSTMENT. Provided that no Event of Default occurs
during the first twenty-four (24) months of the Term, Landlord shall apply
$13,931.00 of the Security Deposit (as reduced pursuant to Section 5.1 above)
toward the Monthly Rent
1
<PAGE>
payable by Tenant for the twenty-fifth (25th) month of the Term. Upon such
application, the Security Deposit shall be deemed to be further reduced to
$29,588.25. Upon the occurrence of any Event of Default during the period
from the thirteenth (13th) month of the Term and continuing until the end of
the twenty-fourth (24th) month of the Term, this Section 5.2 and Section 5.3
below shall automatically become null and void and be without further force
or effect, and the Security Deposit shall remain $43,519.25 for the balance
of the Term.
5.3 THIRD ADJUSTMENT. Provided that no Event of Default occurs
during the first thirty-six (36) months of the Term, Landlord shall apply
$14,488.25 of the Security Deposit (as reduced pursuant to Sections 5.1 and
5.2 above) toward the Monthly Rent payable by Tenant for the thirty-seventh
(37th) month of the Term. Upon such application, the Security Deposit shall
be deemed to be further reduced to $15,100.00. Upon the occurrence of any
Event of Default during the period from the twenty-fifth (25th) month of the
Term and continuing until the end of the thirty-sixth (36th) month of the
Term, this Section 5.3 shall automatically become null and void and be
without further force or effect, and the Security Deposit shall remain
$29,588.25 for the balance of the Term.
6. HAZARDOUS MATERIALS. The following is hereby added to the Lease as
Section 6.6:
6.6 Notwithstanding anything to the contrary contained in this
Article VI, Tenant shall only be liable with respect to Hazardous
Materials brought onto the Premises by Tenant, Tenant's Agents or persons
acting under the direction or control of Tenant or Tenant's Agents (e.g.,
a delivery person making a delivery to the Premises).
7. ASSIGNMENT AND SUBLETTING. The following is hereby added to the Lease
as Section 14.9:
14.9 TRANSFERS NOT REQUIRING LANDLORD'S CONSENT. Notwithstanding
the foregoing provisions of this Article XIV, Tenant may assign this
Lease or sublet the Premises or any portion of the Premises without the
necessity of Landlord's consent, to any corporation which controls, is
controlled by, or is under common control with Tenant, to any
corporation resulting from a merger or consolidation with Tenant, or to
any person or entity that acquires all of the assets of Tenant as a
going concern, if, and only if (i) Tenant provides Landlord with prior
written notice of such assignment or subletting and promptly
furnishes Landlord with the documents and information described in
Section 14.3 above, (ii) any such assignment or subletting is not a
subterfuge by Tenant to avoid its obligations under this Lease, and
(iii) in the case of a merger or consolidation or the acquisition of all
of the assets of Tenant as a going concern, the resulting entity or
transferee has a net worth at least equal to Tenant's net worth existing
as of Tenant's execution of this Lease, and such net worth of such
resulting entity or transferee does not decrease as a result of such
merger, consolidation or acquisition. All terms and conditions of this
Article XIV shall apply to any assignment or subletting permitted to be
made pursuant to this Section 14.9 without Landlord's consent
(including, without limitation, the terms and conditions of Section
14.2 above, but expressly excluding the terms of Sections 14.4(c) and
14.5 above), and, for purposes of such application, Tenant shall be
deemed to have requested Landlord's consent to, and Landlord shall be
deemed to
2
<PAGE>
have consented to, the assignment or subletting in question.
3
<PAGE>
Exhibit 10.10
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE (the "Amendment") is made and entered into
as of the 18th day of February, 1998 by and between TWO TOWN CENTER
ASSOCIATES, a joint venture of Anton Street Associates, a California
partnership, and The Prudential Insurance Company of America, a New Jersey
corporation ("Landlord"), and IMGIS CORPORATION, a California corporation
("Tenant"), with respect to the following:
RECITALS
A. Landlord and Tenant have entered into a certain written lease dated
December 20, 1996 (the "Lease"). The Lease covers certain premises commonly
known as Suite 400 (the "Premises"), 611 Anton Boulevard (the "Building"),
Costa Mesa, California.
B. Pursuant to the terms hereof, Landlord and Tenant desire to expand the
Premises to include Suite 475 (the "Additional Premises"), which Additional
Premises consists of 2,638 square feet of Rentable Area. The Additional
Premises shall be approximately as depicted on Exhibit "A" attached to this
Amendment. The parties also desire to extend the term of the Lease for the
Premises and the Additional Premises as provided below.
D. Landlord and Tenant desire to enter into this Amendment to set forth
the terms upon which the Additional Premises shall be added to the Premises. In
addition, Landlord and Tenant desire to set forth certain changes in the terms
of the Lease upon which Tenant shall hold and occupy the Premises and the
Additional Premises.
AGREEMENT
IN CONSIDERATION OF the foregoing recitals and the mutual promises and
covenants contained herein, Landlord and Tenant agree as follows:
1. EXPANSION OF PREMISES/TERM.
(a) Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord the Additional Premises, subject to all of the terms and conditions
of this Amendment and of the Lease. The term of the Lease with respect to
the Additional Premises shall commence on March 1, 1998 (the "Effective
Date") and shall thereafter be coterminous with the Lease term, as the term
is modified in subparagraph (b) hereof.
(b) The term of the Lease as to the Premises and Additional Premises
shall expire on February 28, 2004. There shall be no option to further extend
the term of the Lease.
2. RENT. Rent shall be as follows:
(a) From the Effective Date until and through February 28, 1999,
Basic Annual Rent for the Additional Premises shall be at the rate of $23.00 per
square foot of Rentable Area (approximately $1.92 per square foot per month).
Therefore, Basic Annual Rent for the Additional Premises during such period
shall be $60,674.00 ($5,056.17 per month).
-1-
<PAGE>
(b) Commencing on March 1, 1999 and continuing until the expiration
of the Lease term, Basic Annual Rent per Rentable Square Foot of the Premises
and Additional Premises shall be as follows:
<TABLE>
<S> <C>
Years 1-2: $25.00 ($321,425.00 per year) ($26,785.42 per month)
Year 3: $26.00 ($334,282.00 per year) ($27,856.83 per month)
Year 4: $27.00 ($347,139.00 per year) ($28,928.25 per month)
Year 5: $28.00 ($359,996.00 per year) ($29,999.67 per month)
</TABLE>
(c) Concurrently with execution of this Amendment, Tenant shall pay
to Landlord the following: (i) $25,758.79 as a security deposit which shall be
subject to the provisions of Paragraph 4 of the Lease; and (ii) $7,032.47 as the
first month's installment of Basic Annual Rent and Additional Rent for the
Additional Premises.
(d) In addition, Tenant shall continue to pay all Additional Rent
provided for in the Lease. To and until the Effective Date, Additional Rent
shall be based upon the Rentable Area of Premises, or 10,219 square feet and
utilizing the Building Expense Percentage of 3.7949% and Project Expense
Percentage of 1.5658%. From the Effective Date until the expiration of the term,
Additional Rent shall be based upon the Rentable Area of the Premises and
Additional Premises, or 12,857 square feet and utilizing the Building Expense
Percentage of 4.7746% and the Project Expense Percentage of 1.9700%.
3. IMPROVEMENTS TO ADDITIONAL PREMISES. Prior to delivery of the
Additional Space to Tenant, Landlord shall perform certain work of remodeling,
renovation or repair in the Premises and Additional Premises. Such work
("Landlord's Work") shall be performed and paid for in accordance with the
following:
(a) Landlord shall perform the following work at no cost to Tenant:
(i) Creation of an opening between the Premises and Additional
Premises as depicted on the Space Plan attached hereto as Exhibit "B," as well
as necessary adjustments to electrical, heating, ventilating and air
conditioning installations in the Premises and Additional Space required by the
above work.
(ii) Paint the wall in which the opening is created between the
Premises and Additional Premises.
(b) Landlord shall cause Landlord's contractor to commence Landlord's
Work and to diligently prosecute the same to completion. Landlord shall cause
Landlord's Work to be completed as promptly as practicable; however, nothing
herein shall require Landlord to utilize any overtime or special rate labor
unless Tenant pays the cost thereof.
(c) On the Effective Date, Landlord shall deliver the Additional
Premises to Tenant with the Landlord's Work substantially complete. The
Additional Premises shall be "broom clean" and with a heating, ventilating and
air conditioning system in working order as of the Effective Date. If Landlord
is unable to deliver possession of the Additional Premises on the Effective
Date, this Amendment shall not be void or voidable, nor shall Landlord be liable
for any loss or damage resulting therefrom, except to the extent caused by
Landlord's gross negligence or willful misconduct. Tenant's sole remedy shall be
that Basic Annual Rent and Additional Rent for the Additional Premises shall not
commence until delivery of the Additional Premises.
-2-
<PAGE>
(d) Tenant may undertake such additional improvements as Tenant may
desire at Tenant's sole expense subject to the terms and limitations of the
Lease.
4. TERMS AND CONDITIONS FOR THE ADDITIONAL PREMISES. From and after the
Effective Date, Tenant shall hold and occupy the Additional Premises upon all of
the terms and conditions of the Lease as amended by this Amendment and, in the
event of any inconsistency between the Lease and this Amendment, the provisions
of this Amendment shall control.
5. PARKING. Any new parking contracts for spaces in the Project Parking
Structure purchased by Tenant after the date of this Amendment and any contracts
purchased on or after March 1, 1999 shall be at the monthly rental rate
established from time to time by the Project Parking Structure operator. As of
the date of this Amendment, such monthly rental rates are $125.00 for reserved
parking contracts and $60.00 for unreserved parking contracts.
6. FINANCIAL STATEMENTS. Prior to or concurrently with delivery of
executed copies of this Amendment to Landlord, Tenant shall deliver to Landlord
copies of current audited financial statements of Tenant and such other
financial information concerning Tenant as may be requested by Landlord.
7. CONFIDENTIALITY. The parties hereto agree that the terms of this
Amendment are confidential and constitute proprietary information of the parties
hereto. Disclosure of the terms hereof could adversely affect the ability of
Landlord to negotiate with other tenants. Each of the parties hereto agrees
that it and its respective partners, officers, directors, employees and
attorneys shall not disclose the terms and conditions of this Amendment to any
other person without the prior written consent of the other party hereto except
pursuant to an order of a court of competent jurisdiction; provided, however,
that Landlord may disclose the terms hereof to any lender now or hereafter
having a lien on Landlord's interest in the Building, or any portion thereof,
and either party may disclose the terms hereof to its independent accountants
who review its financial statements or prepare its tax returns, to its counsel,
bankers, investment bankers, governmental agencies or other persons to whom
disclosure is required as a matter of law or a requirement of diligent inquiry
imposed by law and in any action which is brought to prevent the breach or
continued breach of the Lease or to seek damages or any other available remedy
for any breach or alleged breach.
8. BROKERS. Each of Landlord and Tenant represents and warrants to the
other that it has employed no broker, finder or real estate agent in connection
with this Amendment and the transactions provided for herein, and that there is
no broker, finder or real estate agent who is entitled to a fee or commission
from or through such indemnifying party in connection with this Amendment or the
transactions provided for herein. Each of Landlord and Tenant agrees to
indemnify, defend and hold the other harmless from and against all claims for a
fee or commission by any broker, finder or agent claiming through such
indemnifying party with respect to this Amendment or the transactions provided
for herein. Payment shall not be a condition precedent to recovery upon the
foregoing indemnification provision. The foregoing indemnification provision
shall be deemed to include a covenant by each indemnifying party to defend the
indemnified party against claims covered by such indemnification with legal
counsel reasonably satisfactory to the indemnified party.
9. COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10. DEFINED TERMS. All terms used in this Amendment with initial capital
letters and not defined herein shall have the meanings given to such terms in
the Lease.
-3-
<PAGE>
11. LEASE IN EFFECT. Landlord and Tenant acknowledge and agree that
the Lease, as amended by this Amendment, is in full force and effect in
accordance with its terms.
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
Amendment to Lease as of the day of actual receipt by Landlord.
TWO TOWN CENTER ASSOCIATES, IMGIS CORPORATION,
a joint venture a California corporation
By: ANTON STREET ASSOCIATES By: /s/ [ILLEGIBLE]
-------------------------------
By: South Coast Plaza Title: Chairman & Chief Executive
Officer
---------------------------
By: /s/ Jeanette E. Segerstrom By: /s/ John A. Tanner
---------------------------- -------------------------------
Title: Managing Partner Title: Chief Financial Officer
------------------------- ---------------------------
By: /s/ [ILLEGIBLE]
----------------------------
Title: Managing Partner
-------------------------
"TENANT"
By: THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: /s/ [ILLEGIBLE]
----------------------------
Title: V.P.
-------------------------
"LANDLORD"
Approved as to Form
Pillsbury Madison & Sutro LLP
By: /s/ [ILLEGIBLE]
----------------------------
-4-
<PAGE>
EXHIBIT "A"
Floor Plan of Additional Premises
[floor plan]
<PAGE>
Exhibit 10.11
IMGIS, INC.
611 ANTON BOULEVARD, SUITE 400
COSTA MESA, CA 91626
June 27, 1997
Mr. Charles W. Berger
15681 Kennedy Drive
Los Gatos, CA 95032
Dear Chuck,
Imgis, Inc. (the "Company") is pleased to offer and confirm your employment
on the following terms and conditions:
1. EMPLOYMENT AND ELECTION AS A DIRECTOR. You will serve as a
part-time consultant to the Company until July 28, 1997 when you will assume
the full-time position of Chief Executive Officer of the Company. As Chief
Executive Officer, you will report directly to the Board of Directors of the
Company (the "Board"). The Company agrees to take all action necessary to
nominate and elect you as a director and as Chairman of the Board as soon as
possible following your commencement of employment.
2. COMPENSATION. You will be paid a total annual compensation of
$250,000, payable in accordance with the Company's standard payroll practices
for salaried employees. You will also be eligible for other
performance-based bonuses at certain designated periods during your
employment as determined by the Company or the Board of Directors.
3. BENEFITS. As an employee of the Company, you will be entitled to
participate in the Company's health insurance, vacation, and employee benefit
plans that are currently offered to the Company's employees or will be available
to the Company's employees in the future.
4. OPTIONS. Subject to the approval of the Company's Board of Directors,
you will be granted an option to purchase 450,000 shares of the Company's Common
Stock at an exercise price per share of $0.25. The option will be subject to
the usual terms and conditions applicable to options granted under the Company's
1997 Stock Plan and will be evidenced by the Company's form stock option
agreement. The option will be immediately exercisable and the purchasable
shares will be subject to repurchase by the Company at the exercise price. The
Company's repurchase right will lapse and you will vest in 25% of the option
share after one year of service and the balance will vest monthly over the next
thirty-six months of service, as set forth in the applicable stock option
agreement. Your option begins to vest and the Company's repurchase right begins
to lapse on your hire date. Your stock option agreement will provide for full
vesting upon a Change in Control (as defined in your stock option agreement), if
your option is not assumed by the successor corporation. In addition, if your
option is assumed and your employment is involuntarily terminated or if you
resign for a Good Reason (defined in your stock option agreement to include
demotion, salary reduction or relocation) within 24 months after a Change in
Control, your option will become vested and the Company's repurchase right
<PAGE>
will lapse with respect to an additional number of shares, as if you served
for an additional 12 months of service. If the Company and the other party to
the transaction constituting a Change in Control agree that such transaction
is to be treated as a "pooling of interests" for financial reporting
purposes, and if such transaction in fact is so treated, then the
acceleration of vesting shall not occur to the extent that the Company's
independent public accountants and such other party's independent public
accountants separately determine in good faith that such acceleration would
preclude the use of "pooling of interests" accounting.
5. PROMISSORY NOTE. The Company will extend to you, as part of your
employment with the Company, a loan for the amount of the exercise price of your
shares. This loan shall be evidenced by a promissory note (the "Note") with a
term of four years at the Applicable Federal Rate. The Company will forgive
repayment of the principal balance of the Note in annual installments equal
to the portion of stock vested.
6. PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. As with all
Company employees, you will be required, as a condition to your employment
with the Company, to sign the Company's standard Proprietary Information and
Inventions Agreement, a copy of which is attached hereto as EXHIBIT A.
7. PERIOD OF EMPLOYMENT. Your employment with the Company will be "at
will," meaning that either you or the Company will be entitled to terminate
your employment at any time for any reason, with or without cause. Any
contrary representations which may have been made to you are superseded by
this offer. This is the full and complete agreement between you and the
Company on this term. Although your job duties, title, compensation and
benefits, as well as the Company's personnel policies and procedures, may
change from time to time, the "at will" nature of your employment may only be
changed in an express writing signed by you and approved by the Company's
Board of Directors.
8. OUTSIDE ACTIVITY. During the period that you render services to
the Company, you will not engage in any employment, business or activity that
is in any way competitive with the business or proposed business of the
Company, or any other gainful employment, business or activity, without the
written consent of the Company. You also will not assist any other person or
organization in competing with the Company or in preparing to engage in
competition with the business or proposed business of the Company.
9. ENTIRE AGREEMENT. This letter and all of the exhibits attached
hereto contain all of the terms of your employment with the Company and
supersede any prior representations or agreements, whether oral or written,
between you and the Company.
2
<PAGE>
We hope that you find the foregoing terms acceptable. You may indicate
your agreement with these terms and accept this offer by signing and dating
both the enclosed duplicate original of this letter and the enclosed
Proprietary Information and Inventions Agreement and returning them to me.
Very truly yours,
IMGIS, INC.
By: /s/ Chad Steelberg
---------------------------------
Chad Steelberg
President
I Have Read And Accept This Employment Offer:
/s/ Charles W. Berger
- -----------------------------------
Charles W. Berger
Dated: June 27, 1997
3
<PAGE>
Exhibit 10.12
[LOGO]
November 19, 1998
Mr. Eric Di Benedetto
Convergence Partners
3000 Sand Hill Road
Building 2, Suite 235
Menlo Park, CA 94025-7116
Re: SALARY CONTINUATION AND OPTION VESTING
Dear Eric:
This will confirm our agreement that notwithstanding any provision
in my offer letter dated June 27, 1997 to the contrary, if my employment is
involuntarily terminated by the Company other than for "cause" (defined to
include failure to follow the written directions of the Board, dishonesty,
gross misconduct, fraud or conviction of a felony), or if I resign for "good
reason" (defined to include demotion, salary reduction or relocation), I will
receive salary continuation at my current rate of salary and continuation of
my option or restricted stock vesting for a period of twelve months following
such termination.
Very truly yours,
/s/ Charles W. Berger
Charles W. Berger
AGREED AND ACCEPTED
IMGIS, INC.
By: /s/ Eric Di Benedetto
------------------------------
Date: 2-25-99
----------------------------
<PAGE>
Exhibit 10.13
[ADFORCE LOGO]
December 11, 1998
Harish Rao
605 Towle Way
Palo Alto, CA 94306
Dear Harish:
AdForce (the "Company") is pleased to offer employment to you on the following
terms and conditions:
1. POSITION. You will serve in a full-time capacity in the position
of Executive Vice President of Technology and Operations. Your primary
duties will be to bring structure, productivity and product strategy to the
Software Engineering and Operations Organizations (a more detailed
description of the duties will follow in a separate document) as well as
perform other duties typical and standard of an Executive Vice President of
Technology and Operations. You will report to Charles W. Berger, the Chief
Executive Officer and Chairman of the Board of the Company.
2. COMPENSATION. You will be paid an annual salary of $215,000
payable in accordance with the Company's standard payroll practices for
salaried employees. This salary will be subject to adjustment pursuant to the
Company's employee compensation policies in effect from time to time. Your
compensation will include a performance based bonus of $50,000 when mutually
agreed upon objectives have been met.
3. BENEFITS. As an employee of the Company, you will be entitled to
participate in the Company's health insurance, vacation, and employee benefit
plans. A copy of the ADFORCE benefit program is attached hereto as ATTACHMENT
1.
4. OPTIONS. Subject to the approval of the Company's Board of Directors,
you will be granted an option to purchase 360,000 shares of the Company's Common
Stock at a price per share equal to the fair market value per share on the date
the option is granted. The option will be subject to the usual terms and
conditions applicable to options granted under an option plan of the Company.
The option will be immediately exercisable and the purchasable shares will be
subject to repurchase by the Company at the exercise price. The Company's
repurchase right will lapse and you will vest in 33% of the option shares after
one year of service and the balance will vest monthly over the next twenty-four
months, as set forth in the applicable agreement. Options vested start date is
effective on employee's date of hire.
5. PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. As with all
Company employees, you will be required, as a condition to your employment with
the Company, to sign the Company's standard Proprietary Information and
Inventions Agreement, a copy of which is attached hereto as ATTACHMENT 2.
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6. PERIOD OF EMPLOYMENT. Your effective hire date will be January 11,
1999 or before, with a probationary period of 90 days. Your employment with the
Company will be "at will," meaning that either you or the Company will be
entitled to terminate your employment at any time for any reason, with or
without cause. Any contrary representations which may have been made to you are
superseded by this offer. This is the full and complete agreement between you
and the Company on this term. Although your job duties, title, compensation and
benefits, as well as the Company's personnel policies and procedures, may change
from time to time, the "at will" nature of your employment may only be changed
in an express writing signed by you and approved by the Company's Board of
Directors.
7. OUTSIDE ACTIVITIES. During the period that you render services to
the Company, you will not engage in any employment, business or activity that
is in any way competitive with the business or proposed business of the
Company, or any other gainful employment, business or activity, without the
written consent of the Company. You also will not assist any person or
organization in competing with the Company or in preparing to engage in
competition with the business or proposed business of the Company.
8. OTHER. This offer is contingent upon verification of acceptable
reference checks and expires on Friday, January 1, 1999.
9. ENTIRE AGREEMENT. This letter and all of the exhibits attached hereto
contain all the terms of your employment with the Company and supersede any
prior representations or agreements, whether oral or written, between you and
the Company.
We hope that you find the foregoing terms acceptable. You may indicate
your agreement with these terms and accept this offer by signing and dating
both the enclosed duplicate original of this letter and the enclosed Proprietary
Information and Inventions Agreement and returning them to me.
Very truly yours,
ADFORCE
By: /s/ Charles W. Berger
---------------------------------
Charles W. Berger
Chairman and C.E.O.
I Have Read And Accepted This Employment Offer:
/s/ Harish Rao
- --------------------------------------------------------
Name
Date: Dec 28, 1998
-------
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Exhibit 10.14
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of December 9, 1998
(the "Effective Date") by and between IMGIS, Inc. (dba "AdForce") a California
corporation (the "Company") and, John A. Tanner (the "Employee").
RECITALS
A. The Company desires to continue the employment of the Employee as the
Company's Vice President-Finance and Chief Financial Officer, and the Employee
desires to accept such continued employment. The employment of the Employee
pursuant to this Agreement is hereinafter sometimes referred to as the
"Employment"; and
B. The Company and the Employee hereby enter into this Agreement setting
forth each and all of the terms and conditions of the Employment.
NOW, THEREFORE, in consideration of the premises and the agreements,
representations and warranties contained in the Agreement, the Company and the
Employee hereby agree as follows:
1. DUTIES, TERM AND EXCLUSIVE EMPLOYMENT.
1.1 DUTIES AND RESPONSIBILITIES. Within the limitations
established by the Company's Bylaws, the Employee shall have each and all of the
duties and responsibilities of the Company's Chief Financial Officer. As such,
the Employee shall have general management responsibility and authority with
respect to the financial affairs of the Company, subject to the direction of the
Company's Chief Executive Officer.
1.2 TERM OF EMPLOYMENT. The Employment shall begin on the
Effective Date and, shall continue until terminated as provided in Paragraph 3
hereof, the Employment shall continue until midnight on the second anniversary
of the Effective Date.
1.3 NO OTHER EMPLOYMENT OR PRODUCTIVE ACTIVITIES. During the term
of the Employment, the Employee shall diligently and conscientiously devote all
of his working time and attention to discharging his duties to the Company and
shall not, without the express prior written consent of the Company, render to
any other person, corporation, partnership, firm, company, joint venture or
other entity any services of any kind for compensation or engage in any other
activity that would in any manner whatsoever interfere with the performance of
the Employee's duties on behalf of the Company. The foregoing notwithstanding,
nothing herein shall prevent the Employee from serving on boards of director of
other companies not in competition with the Company, engaging in charitable
activities or activities of professional associations or from managing on his
own personal time any personal investments in entities not in competition with
any actual or then proposed business of the Company; provided that nothing in
this Paragraph 1.3 shall prohibit the Employee from owning up to one percent
(1%) of the outstanding shares of any class of equity securities of a
corporation engaged in any such
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competition whose securities are listed on a national securities exchange or
quoted daily in the over-the-counter listings of THE WALL STREET JOURNAL
("Permitted Shares").
1.4 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. The Employee
acknowledges his obligations under the Employee Agreement Regarding
Confidentiality and Inventions dated as of November 3, 1997 (the
"Confidentiality and Inventions Agreement").
1.5 INDEMNITY AGREEMENT. The parties acknowledge their respective
obligations under the Officer and Director Indemnity Agreement between the
Employee and the Company attached as Exhibit B (the "Indemnity Agreement").
2. COMPENSATION. In full and complete consideration for the Employment
and each and all of the services to be rendered by the Employee to the Company
or any subsidiary or controlled affiliate of the Company (collectively, the
"AdForce Group"), the Employee shall receive compensation as follows, except as
otherwise provided in Paragraph 3 hereof:
2.1 BASE SALARY. The Employee shall receive from the Company a
base salary, at the initial rate of $175,000 per annum, payable in equal
semi-monthly installments during the term of Employment. The base salary
will be reviewed annually and may be increased (but not decreased) by the
Company, in the discretion of its Chief Executive Officer ("CEO") (or, if no
CEO then exists, in the discretion of the Board of Directors), based upon
such factors as the CEO (or, if no CEO then exists, in the discretion of the
Board of Directors) deems relevant, including the financial condition and
operating results of the Company. From each of the Employee's salary
payments the Company will withhold and pay to the proper governmental
authorities any and all amounts required by law to be withheld from the
Employee's salary. The Company will also deduct from the Employee's salary
payments those sums, if any, authorized by the Employee in writing and
approved by the Company. The Company will make all payments and
contributions that are required by law to be made by the Company for the
Employee's benefit without any deduction from the Employee's salary payments.
2.2 INCENTIVE BONUS PLAN. For each fiscal year of the Company
during the Employment, the Employee will be eligible to receive, in addition to
his base salary, annual incentive compensation at the Executive Officer level
(the "Annual Bonus") pursuant to the Company's incentive bonus plan (the "Bonus
Plan"), a summary of which is attached hereto as APPENDIX A, for so long as it
may be continued and as it may hereafter be amended from time to time. The
amount of the Annual Bonus, if any, for each year will be based on the
achievement of financial goals and performance objectives to be determined by
the Company in accordance with the Bonus Plan. Each Annual Bonus will be deemed
to be earned and will be payable at the time or times specified in the Bonus
Plan, as it may be amended from time to time.
2.3 STOCK OPTIONS.
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(a) The Employee is presently the holder of stock options
granted under the Company's Stock Plan, which options are subject to the
separate written Option Agreement (the "Existing Options").
(b) In the event of one or more of the following
transactions (a "Change of Control"), an additional one year of vesting in the
Existing Options will occur:
(i) a merger or acquisition in which the Company is
not the surviving entity (other than a reincorporation in another jurisdiction
or a merger in which the shares of the Company are converted into shares
representing a majority of the voting power of the surviving entity);
(ii) the sale, transfer or other disposition of all or
substantially all of the assets or stock of the Company;
(iii)
(iv) any other corporate reorganization or business
combination in which fifty percent (50%) or more of the Company's outstanding
voting stock is transferred to different holders in a single transaction or
series of related transactions.
(c) During the Employment, the Employee will be eligible for
the grant of additional options under the Stock Option Plan at the sole
discretion of the Company's Board of Directors, based upon such factors as it
deems relevant.
2.4
2.5 VACATION. The Employee shall be entitled to three (3) weeks
paid vacation per year. Unused vacation accruals will be subject to Company
policy in effect from time to time.
2.6 INSURANCE AND OTHER BENEFITS. The Employee shall be entitled
to participate in the life, medical, dental and/or disability insurance plans,
together with any supplemental insurance plans, offered by the Company to its
executive employees, generally from time to time during the Employment. The
Employee shall be eligible to participate in any other fringe benefits as may be
provided by the Company to its executive employees, generally, during the
Employment.
3. TERMINATION OF EMPLOYMENT. The Employment may be terminated prior to
the end of the term specified in Paragraph 1.2 hereof upon the occurrence of any
of the following:
3.1 DEATH AND DISABILITY. The Employment shall automatically
terminate upon the death of the Employee. The Company shall have the
unrestricted right, but not the obligation, to terminate the Employment at any
time following determination of the Employee's "permanent disability" (as deemed
in the Company's long-term disability insurance plan covering the Employee). In
the event of the Employee's death or permanent disability, the Employee or his
estate shall be entitled to receive (i) the Employee's base salary through the
date of termination of the Employment, plus (ii) any Annual Bonus earned by the
Employee and
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payable as of the date of termination of the Employment pursuant to Paragraph
2.2 hereof but not yet paid, plus (iii) any other benefits to which the Employee
is entitled pursuant to the plans described in Paragraph 2.6 hereof.
3.2 TERMINATION OF EMPLOYMENT BY THE COMPANY "FOR CAUSE". The
Company shall have the unrestricted right, but not the obligation, to terminate
the Employment at any time "For Cause" in the event of the Employee's (i)
conviction of a felony, (ii) commission of any act of theft or fraud against, or
involving the records of, the Company or any other member of the AdForce Group,
(iii) insubordination, or (iv) material breach of the Employee's obligations
under the Confidentiality and Inventions Agreement, which, if curable, is not
cured within thirty (30) days following the notice thereof by the Company. The
decision to terminate the Employment For Cause, to take other action or to take
no action in response to such occurrence shall be in the sole and exclusive
discretion of the Company. Upon any termination of the Employment by the
Company For Cause, the Employee shall be entitled to receive (A) the Employee's
base salary through the date of such termination, plus (B) any Annual Bonus
earned by the Employee and payable as of the date of termination of the
employment pursuant to Paragraph 2.2 hereof but not yet paid, plus (C) any other
benefits to which the Employee is entitled pursuant to the plans described in
Paragraph 2.6 hereof.
3.3 OTHER TERMINATION OF EMPLOYMENT BY THE COMPANY. The Company
shall have the right to terminate the Employment at any time. However, if the
Employment is terminated by the Company for any reason other than pursuant to
Paragraphs 3.1 or 3.2 hereof, the Employee shall be entitled to receive his base
salary through the date of termination of the Employment, plus an amount (the
"Severance Payment") equal to his then-current base salary for twelve (12)
months following the date of termination (The "Severance Period". The Severance
Payment shall be paid in equal, bi-weekly installments during the Severance
Period and shall be in lieu of any other severance pay to which the Employee
might otherwise be entitled. In addition, in the event of such a termination,
the Company will, to the extent its plans permit, continue to provide to the
Employee, at the current level of employee contribution by the Employee
prevailing at the date of termination, coverage under its life, medical, dental
and/or disability plans, as in effect on the date of termination, during the
Severance Period. If the Company's plans do not permit continued coverage for
the Employee under these circumstances, the Company shall pay or reimburse the
Employee for the cost of purchasing such coverage independently, subject to the
timely compliance by the Employee with any notification procedure required under
COBRA in order to obtain continued coverage. The Employee shall also be
entitled, upon any such termination, to receive (A) any Annual Bonus earned by
the Employee and payable as of the date of termination of the Employment
pursuant to Paragraph 2.2 hereof but not yet paid, plus (ii) any other benefits
to which the Employee is entitled pursuant to the plans described in Paragraph
2.6 hereof.
3.4 TERMINATION OF EMPLOYMENT BY THE EMPLOYEE FOR "GOOD REASON".
The Employee shall have the right to terminate the Employment at any time for
"Good Reason" in the event that, other than pursuant to Paragraphs 3.1 or 3.2
hereof, the Company, without the Employee's prior written consent, (i)
materially alters or reduces the Employee's duties, responsibilities and
authority from those which exist as of the Effective Date; (ii) changes the
Employee's job title to anything other than Vice President and Chief Financial
Officer; (iii)
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materially breaches the terms of this Agreement in respect to the payment of
compensation or benefits or in any other material respect and such breach is not
cured within ten (10) days after the Company receives notice thereof; or (iv)
requires the Employee, as a condition to the Employment, to perform illegal or
fraudulent acts or omissions. If the Employee voluntarily terminates the
Employment for Good Reason pursuant to this Paragraph 3.4, the Employee shall be
entitled to receive the payments and other benefits specified in Paragraph 3.3
hereof with respect to a termination by the Company other than For Cause.
3.5 TERMINATION OF EMPLOYMENT BY THE EMPLOYEE WITHOUT "GOOD
REASON". Upon any voluntary termination of the Employment by the Employee,
other than for Good Reason pursuant to Paragraph 3.4 hereof, the Employee shall
be entitled to receive (i) the Employee's base salary through the date of such
termination, plus (ii) any Annual Bonus earned by the Employee and payable as of
the date of termination of the Employment pursuant to Paragraph 2.2 hereof but
not yet paid, plus (iii) any other benefits to which the Employee is entitled
pursuant to the plans described in Paragraph 2.6 hereof.
4. EXPENSES. In addition to the payment or reimbursement of the
expenses specified in Paragraph 2.4 hereof, the Company will reimburse the
Employee for those customary, ordinary and necessary business expenses
incurred by him in the performance of his duties and activities on behalf of
the Company or any other member of the AdForce Group. Such expenses will be
reimbursed upon presentation by the Employee of appropriate documentation to
substantiate such expenses pursuant to the policies and procedures of the
Company governing reimbursement of business expenses to its executive
employees. The Employee shall present such documentation for any
unreimbursed expenses not later than thirty (30) days after the termination
of the Employment.
5. AUTHORITY: NONCOMPETITION. The Employee warrants and represents to
the Company that he has the full, complete and entire right and authority to
enter into the Employment and this Agreement, that he has no agreement, duty,
commitment or responsibility of any kind or nature whatsoever with any other
person, corporation, partnership, firm, company, joint venture or other entity
which would conflict in any manner whatsoever with any of his duties,
obligations or responsibilities to the Company or any other member of the
AdForce Group pursuant to the Employment and/or this Agreement, and that he is
fully ready, willing and able to perform each and all of such duties,
obligations and responsibilities. As a condition of the Employment and of the
Company's entering into this Agreement, the Employee hereby specifically agrees,
covenants, warrants and represents that, during the Employment, he will not,
without the Company's express prior written consent, accept any employment,
contractual or other relationship of any kind or nature whatsoever or engage in
any association or dealing of any kind or nature whatsoever with any person,
corporation, partnership, firm, company, joint venture, or other entity, in
competition with any business of the Company or any other member of the AdForce
Group currently conducted or conducted during that period; provided that nothing
in the Paragraph 5 shall prohibit the Employee from owning Permitted Shares.
6. DUTIES OF THE EMPLOYEE AFTER ANY NOTICE OF TERMINATION OF THE
EMPLOYMENT. Following any notice of termination of the Employment, the Employee
shall fully cooperate with the Company in all matters relating to the winding up
of the Employee's work on behalf of the
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Company and the orderly transfer of all pending work and of the Employee's
duties and responsibilities to such other person or persons as may be designated
by the Company in its sole discretion. Upon any termination of the Employment,
the Employee will immediately deliver to the company any and all of the property
of the Company or any other member of the AdForce Group of any kind or nature
whatsoever in the Employee's possession (except that the employee may keep in
his possession for a period of one year subsequent to the termination date any
laptop computer and related software and hardware), custody or control,
including, without limitation any and all Proprietary Information as that term
is defined in the Confidentiality and Inventions Agreement.
7. NO PREDATORY SOLICITATION. For one (1) year following any termination
of the Employment, the Employee will not, without having received the Company's
prior written permission to do so, directly of indirectly, on his own behalf or
in the service of others, interfere with or raid the officers, employees,
consultants, agents and/or independent contractors of the Company or any other
member of the AdForce Group or in any manner attempt to persuade any such person
to discontinue any relationship with such entity. The Employee and the Company
confirm that this Paragraph 7 is reasonable and necessary for the protection of
the trade secrets and proprietary information of the AdForce Group.
8. ARBITRATION. Except as otherwise expressly provided in this
Agreement, any controversy, dispute and/or claim in any manner arising out of
or relating to this Agreement or the Employment shall be fully and finally
resolved solely by binding arbitration conducted by the American Arbitration
Association in San Jose, California. Judgment on any decision rendered by
the arbitration may be entered in any court having jurisdiction. All costs
of the arbitration, including, without limitation, the costs of any record or
transcript of the arbitration proceedings, administrative fees, the fee of
the arbitrator, the fees and expenses of the attorneys for each party and all
other fees and costs shall be borne by the party not prevailing in the
arbitration, as determined by the arbitrator, or apportioned as the
arbitrator shall determine if, in the judgement of the arbitrator, neither
party prevails. Except as otherwise expressly provided in the Agreement, the
arbitration provisions set forth above in Paragraph 8 are intended by the
Employee and by the Company to be absolutely exclusive for all purposes
whatsoever and applicable to each and every controversy, dispute and/or claim
in any manner arising out of or relating to this Agreement, and the
Employment, the meaning, application and/or interpretation of this Agreement,
any breach or claimed breach hereof and/or any voluntary or involuntary
termination of this Agreement with or without cause, including without
limitation, any such controversy, dispute and/or claim which, if pursued
through any state or federal court or administrative agency, would arise at
law, in equity and/or pursuant to statutory, regulatory and/or common law
rules, regardless of whether such dispute, controversy and/or claim would
arise in and/or from contract, tort or any other legal and/or equitable
theory or basis. The arbitrator who hears and decides any controversy,
dispute and/or claim between the Company and the Employee shall, in
determining a remedy, have jurisdiction and authority only to award
compensatory damages to make whole a party suffering foreseeable economic
damages, and, other than foreseeable economic damages, the arbitrator shall
not have any authority or jurisdiction to make any award of any kind or
nature whatsoever as compensation for any damages and/or any award of damages
for pain and suffering, emotional distress or any other kind or form of
non-economic damages and/or non-foreseeable economic damages.
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Notwithstanding anything to the contrary contained in this Paragraph 8, the
Company shall at all times have and retain the full, complete and unrestricted
right to immediate and permanent injunctive and other relief as provided in
Paragraph 9 below.
9. THE COMPANY'S RIGHT TO INJUNCTIVE RELIEF. The Employee recognizes,
acknowledges and agrees that any breach of any threatened breach of any
Paragraph; term, provision or covenant of any of Paragraphs 5 or 7 of this
Agreement or of the Confidentiality and Inventions Agreement would cause
irreparable injury to the Company which could not be adequately compensable in
monetary damages and that the remedy at law for any such breach will be entirely
insufficient and inadequate to protect their legitimate interests. Therefore,
the Employee specifically recognizes, acknowledges and agrees that the Company
shall at any and all times be and remain fully entitled to seek and obtain
temporary, preliminary and permanent injunctive relief for any such breach or
threatened breach from any court of competent jurisdiction. The prevailing
party in any action instituted pursuant to Paragraph 8 hereof, shall be entitled
to recover from the other party its reasonable attorneys' fees and other
expenses incurred in such litigation.
10. SURVIVAL OF CERTAIN PROVISIONS OF THIS AGREEMENT. Except as may
otherwise be provided herein, each and all of the terms, provisions and
covenants of this Agreement shall, for any and all purposes whatsoever, survive
any termination of the Employment, subject to the limitations and conditions set
forth in each separate provision, regardless of whether such termination is by
the Employee, by the Company, by expiration or otherwise.
11. GENERAL.
11.1 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of and be binding upon the Company, the Employee and each
and all of their respective heirs, legal representatives, successors and
assigns. The duties, responsibilities and obligations of the Employee under
this Agreement shall be personal and not assignable or delegable by the Employee
in any manner whatsoever to any person, corporation, partnership, firm, company,
joint venture or other entity. The Employee may not assign, transfer, convey,
mortgage, pledge or in any other manner encumber the compensation or other
benefits to be received by him or any rights which he may have pursuant to the
terms and provisions of this Agreement.
11.2 WAIVER. No waiver of any breach of any warranty,
representation, agreement, promise, covenant, paragraph, term or provision of
this Agreement shall be deemed to be a waiver of any preceding or succeeding
breach of the same or any other warranty, representation, agreement, promise,
covenant, paragraph, term and/or provision of this Agreement. No extension of
the time for the performance of any obligation or other act required or
permitted by this Agreement shall be deemed to be an extension of the time for
the performance of any other obligation or any other act required or permitted
by this Agreement.
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11.3 SOLE AND ENTIRE AGREEMENT. This Agreement, the attachment
hereto and the other agreements referred herein, including the Company's bonus
and award plans and benefit plans, are the sole, complete and entire contract,
agreement and understanding between the Company and the Employee concerning the
Employment, the terms and conditions of the Employment, the duration of the
Employment, the termination of the Employment and the compensation and benefits
to be paid and provided by the Company to the Employee pursuant to the
Employment. Except as otherwise provided herein, this Agreement supersedes any
and all prior contracts, agreements, plans, agreements in principle,
correspondence, letters of intent, understandings, and negotiations, whether
oral or written, concerning the Employment, the terms and conditions of the
Employment, the duration of the Employment, the termination of the Employment
and the compensation and benefits to be paid by the Company to the Employee
pursuant to the Employment.
11.4 AMENDMENTS. No amendment, modification, waiver, or consent
relating to this Agreement will be effective unless and until it is embodied in
a written document signed by the Company and by the Employee.
11.5 ORIGINALS. This Agreement may be executed by the Company and
the Employee in counterparts, each of which shall be deemed an original and
which together shall constitute one instrument.
11.6 HEADINGS. Each and all of the headings contained in the
Agreement are for reference purposes only and shall not in any manner whatsoever
affect the construction or interpretation of this Agreement or be deemed as part
of this Agreement for any purpose whatsoever.
11.7 SAVINGS PROVISION. To the extent that any provision of this
Agreement or any Paragraph, term, provision, sentence, phrase, clause or word of
this Agreement shall be found to be illegal or unenforceable for any reason,
such Paragraph, term, provision, sentence, paragraph, clause or word shall be
modified or deleted in such a manner as to make this Agreement, as so modified,
legal and enforceable under applicable laws. The remainder of this Agreement
shall continue in full force and effect.
11.8 APPLICABLE LAW. This Agreement shall be governed in all
respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and to be performed within
California.
11.9 CONSTRUCTION. The language of this Agreement and of each and
every paragraph, term and provision of the Agreement shall, in all cases, for
any and all purposes, and in any and all circumstances whatsoever be construed
as a whole, according to its fair meaning, not strictly for or against the
Employee, the Company, and with no regard whatsoever to the identity or status
of any person or persons who drafted all or any portion of this Agreement.
11.10 NOTICES. Any notices to be given pursuant to this Agreement by
either party to the other party may be effected by personal delivery or by
registered or certified mail, postage
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prepaid and with return receipt requested. Mailed notices shall be addressed
to the parties at the addresses stated below, but each party may change its
or his address by written notice to the other in accordance with this
Paragraph 11.10. Notices delivered personally shall be deemed received on the
date of delivery. Notices delivered by mail shall be deemed received on the
third business day after the mailing thereof.
Mailed notices to the Employee shall be addressed as follows:
John A. Tanner
1224 Serene Valley Court
San Jose, California 95120
Mailed notices to the Company shall be addressed as follows:
IMGIS, Inc., (dba "AdForce")
10101 N. De Anza Boulevard
Suite 210
Cupertino, California 95014
Attention: Chief Executive Officer
IN WITNESS WHEREOF, the Company and the Employee have each duly
executed this Agreement as of the date set forth above.
IMGIS, Inc. (dba "AdForce")
By: /s/ Charles W. Berger
---------------------------------------
Charles W. Berger
Title: Chief Executive Officer
Chairman of the Board of Directors
/s/ John A. Tanner
-----------------------------------
John A. Tanner
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Exhibit 10.15
[ADFORCE LOGO]
January 21, 1999
Mr. Dee Cravens
17235 Deerpark Road
Los Gatos, CA 95032
Dear Dee:
AdForce (the "Company") is pleased to offer employment to you on the following
terms and conditions:
1. POSITION. You will serve in a full-time capacity in the position of
vice president of marketing. Your primary duties will be to perform duties
typical and standard of a vice president and report directly to me.
2. COMPENSATION. You will be paid an annual base salary of $185,000
payable in accordance with the Company's standard payroll practices for salaried
employees, plus a $25,000.00 (gross) hire-on bonus. If you terminate your
employment within twelve (12) months of your hire date, you will be expected to
pay back your bonus on a prorated basis. This total compensation package will
be subject to adjustment pursuant to the Company's employee compensation
policies in effect from time to time.
3. BENEFITS. As an employee of the Company, you will be entitled to
participate in the Company's health insurance, vacation, and employee benefit
plans. A copy of the ADFORCE benefit program is attached hereto as ATTACHMENT
1.
4. OPTIONS. Subject to the approval of the Company's Board of Directors,
you will be granted an option to purchase 175,000 shares of the Company's Common
Stock at a price per share equal to the fair market value per share on the date
the option is granted. The option will be subject to the usual terms and
conditions applicable to options granted under an option plan of the Company.
The option will be immediately exercisable and the purchasable shares will be
subject to repurchase by the Company at the exercise price. The Company's
repurchase right will lapse and you will vest in 25% of the option shares after
one year of service and the balance will vest monthly over the next thirty-six
months, as set forth in the applicable agreement. Options vested start date is
effective on employee's date of hire.
5. PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. As with all Company
employees, you will be required, as a condition to your employment with the
Company, to sign the Company's standard Proprietary Information and Inventions
Agreement, a copy of which is attached hereto as ATTACHMENT 2.
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6. PERIOD OF EMPLOYMENT. Your effective hire date will be February 1,
1999 or before, with a probationary period of 90 days. Your employment with the
Company will be "at will," meaning that either you or the Company will be
entitled to terminate your employment at any time for any reason, with or
without cause. Any contrary representations which may have been made to you are
superseded by this offer. This is the full and complete agreement between you
and the Company on this term. Although your job duties, title, compensation and
benefits, as well as the Company's personnel policies and procedures, may change
from time to time, the "at will" nature of your employment may only be changed
in an express writing signed by you and approved by the Company's Board of
Directors.
7. OUTSIDE ACTIVITIES. During the period that you render services to the
Company, you will not engage in any employment, business or activity that is in
any way competitive with the business or proposed business of the Company, or
any other gainful employment, business or activity, without the written consent
of the Company. You also will not assist any person or organization in
competing with the Company or in preparing to engage in competition with the
business or proposed business of the Company.
8. OTHER. This offer is contingent upon verification of acceptable
reference checks and expires on Monday, January 25, 1999.
9. ENTIRE AGREEMENT. This letter and all of the exhibits attached hereto
contain all the terms of your employment with the Company and supersede any
prior representations or agreements, whether oral or written, between you and
the Company.
We hope that you find the foregoing terms acceptable. You may indicate
your agreement with these terms and accept this offer by signing and dating both
the enclosed duplicate original of this letter and the enclosed Proprietary
Information and Inventions Agreement and returning them to me.
Very truly yours,
ADFORCE
By: Charles W. Berger
--------------------------------
Charles W. Berger
Chairman and C.E.O.
I Have Read And Accepted This Employment Offer:
/s/ Dee Cravens
- ---------------------------------------------------------
Dee Cravens
Date: 1-21, 1999
-----
2
<PAGE>
Exhibit 10.16
[ADFORCE LOGO]
December 28, 1998
December 31, 1998 (revised)
Mr. Anthony P. Glaves
1030 Parkinson Avenue
Palo Alto, CA 94301
Dear Tony:
AdForce (the "Company") is pleased to offer employment to you on the following
terms and conditions:
1. POSITION. You will serve in a full-time capacity in the position of
vice president of sales. Your primary duties will be to perform duties typical
and standard of a vice president and report directly to me.
2. COMPENSATION. You will be paid an annual base salary of $150,000
payable in accordance with the Company's standard payroll practices for salaried
employees. In addition, at the end of each quarter, you will receive a bonus
based on achievement of revenue goals and other management objectives that you
and I will agree to at the beginning of each quarter. The amount of bonus will
be $25,000 at 100% achievement, and will be paid proportionately based on
percentage of achievement. Your bonus for the first quarter of calendar 1999
will be guaranteed. This total compensation package will be subject to
adjustment pursuant to the Company's employee compensation policies in effect
from time to time.
3. BENEFITS. As an employee of the Company, you will be entitled to
participate in the Company's health insurance, vacation, and employee benefit
plans. A copy of the ADFORCE benefit program is attached hereto as ATTACHMENT
1.
4. OPTIONS. Subject to the approval of the Company's Board of Directors,
you will be granted an option to purchase 175,000 shares of the Company's Common
Stock at a price per share equal to the fair market value per share on the date
the option is granted. The option will be subject to the usual terms and
conditions applicable to options granted under an option plan of the Company.
The option will be immediately exercisable and the purchasable shares will be
subject to repurchase by the Company at the exercise price. The Company's
repurchase right will lapse and you will vest in 12.5% of the option shares
after six months of service and the balance will vest monthly over the next
forty-two months, as set forth in the applicable agreement. Options vested
start date is effective on employee's date of hire.
5. PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. As with all Company
employees, you will be required, as a condition to your employment with the
Company, to sign the Company's standard Proprietary Information and Inventions
Agreement, a copy of which is attached hereto as ATTACHMENT 2.
1
<PAGE>
6. PERIOD OF EMPLOYMENT. Your effective hire date will be January 18,
1999 or before, with a probationary period of 90 days. Your employment with the
Company will be "at will," meaning that either you or the Company will be
entitled to terminate your employment at any time for any reason, with or
without cause. Any contrary representations which may have been made to you are
superseded by this offer. This is the full and complete agreement between you
and the Company on this term. Although your job duties, title, compensation and
benefits, as well as the Company's personnel policies and procedures, may change
from time to time, the "at will" nature of your employment may only be changed
in an express writing signed by you and approved by the Company's Board of
Directors.
7. OUTSIDE ACTIVITIES. During the period that you render services to the
Company, you will not engage in any employment, business or activity that is in
any way competitive with the business or proposed business of the Company, or
any other gainful employment, business or activity, without the written consent
of the Company. You also will not assist any person or organization in
competing with the Company or in preparing to engage in competition with the
business or proposed business of the Company.
8. OTHER. This offer is contingent upon verification of acceptable
reference checks and expires on Sunday, January 3, 1999.
9. ENTIRE AGREEMENT. This letter and all of the exhibits attached hereto
contain all the terms of your employment with the Company and supersede any
prior representations or agreements, whether oral or written, between you and
the Company.
We hope that you find the foregoing terms acceptable. You may indicate
your agreement with these terms and accept this offer by signing and dating both
the enclosed duplicate original of this letter and the enclosed Proprietary
Information and Inventions Agreement and returning them to me.
Very truly yours,
ADFORCE
By: /s/ Charles W. Berger
--------------------------------
Charles W. Berger
Chairman and C.E.O.
I Have Read And Accepted This Employment Offer:
/s/ Anthony P. Glaves
- --------------------------------------------------------
Name
Date JAN 4 , 1999
---------
2
<PAGE>
Exhibit 10.17
IMGIS, INC.
10101 North DeAnza Blvd., Suite 210
Cupertino, CA 95014
July 22, 1998
Mr. Rex Jackson
60 MacKenzie Place
Danville, CA 94526
Dear Rex:
IMGIS, Inc. (the "Company") is pleased to offer employment to you an the
following terms and conditions:
1. POSITION. You will serve in a full-time capacity In the position
of Vice President and General Counsel. Your primary duties will be to
perform duties typical and standard of a general counsel and report to Mr.
John A. Tanner, Chief Financial Officer and Vice President of Finance.
2. COMPENSATION. You will be paid an annual salary of $150,000.00
payable in accordance with the Company's standard payroll practices for
salaried employees. This salary will be subject to adjustment pursuant to
the Company employee compensation policies in effect from time to time.
3. BENEFITS. As an employee of the Company, you will be entitled to
participate in the Company's health Insurance, vacation, and employee benefit
plans. A copy of the IMGIS benefit program is attached hereto as ATTACHMENT 1.
4. OPTIONS. Subject to the approval of the Company's Board of
Directors, you will be granted an option to purchase 180,000 shares of the
Company's Common Stock at a price per share equal to the fair market value
per share on the date the option is granted (not greater than $2.00 per
share). The option will be subject to the usual terms and conditions
applicable to options granted under an option plan of the Company. The
option will be immediately exercisable and the purchasable shares will be
subject to repurchase by the Company at the exercise price. The Company's
repurchase right will lapse and you will vest in 25% of the option shares
after one year of service and the balance will vest monthly over the next
thirty-six months, as set forth in the applicable agreement. Options vested
start date is effective on employee's date of hire.
5. PROPRIETARY INFORMATION AND INVENTIONS-AGREEMENT. As with all
Company employees. you will be required, as a condition to your employment
with the Company, to sign the Company's standard Proprietary Information and
INVENTIONS Agreement, a copy of which Is attached hereto as ATTACHMENT 2.
1
<PAGE>
6. PERIOD OF EMPLOYMENT- Your effective hire date will be July 23,
1998 or before, with a probationary period of 90 days. Your employment with
the Company will be "at will", meaning that either you or the Company will be
entitled to terminate your employment at any time for any reason, with or
without cause. Any contrary representations which may have been made to you
are superseded by this offer. This Is the full and complete agreement
between you and the Company on this term. Although your job duties, title,
compensation-saton and benefits, as well as the Company's personnel policies
and procedures, may change from time to time, the "at will" nature of your
employment may only be changed in an express writing signed by you and
approved by the Company's Board of Directors.
7. OUTSIDE ACTIVITIES. During the period that you render services to
the Company, you will not engage in any employment, business or activity
that is In any way competitive with the business or proposed business of the
Company. or any other gainful employment, business or activity, without the
written consent of the Company. You also will not assist any person or
organization in competing with the Company or in preparing to engage In
competition with the business or proposed business of the Company.
8. ENTIRE AGREEMENT. This letter and all of the exhibits attached hereto
contain all the terms of your employment with the Company and supersede any
prior representations or agreements, whether oral or written, between you and
the Company.
9. LAPSE OF REPURCHASE RIGHT. In the event the Company Is acquired
wherein the Company is not the surviving entity, then the Company's right to
repurchase any shares will be modified in a fashion similar to that described
by the offer letter to the current C.E.O. and C.F.O.
We hope that you find the foregoing terms acceptable. You may indicate
your agreement with these terms and accept this offer by signing and dating
both the enclosed duplicate original of this letter and the enclosed
Proprietary Information and Intentions Agreement and returning them to me.
Very truly yours,
IMGIS, INC.
By: /s/ John A. Tanner
-----------------------------
Tanner
Vice President of Finance and
Chief Financial Officer
I Have Read And Accepted This Employment Offer:
/s/ Rex Jackson
- --------------------------------------
Rex Jackson
Date: [illegible], 1998
2
<PAGE>
EXHIBIT 10.18
SETTLEMENT AGREEMENT AND RELEASE
THIS SETTLEMENT AGREEMENT AND RELEASE (hereafter "Agreement") is made and
entered into as of November 20, 1998 by and between Chad Steelberg (referred
to as "Employee") and IMGIS, Inc., a California corporation doing business as
AdForce (referred to as the "Company").
W I T N E S S E T H:
WHEREAS, Employee is an employee and shareholder of the Company;
WHEREAS, Employee and the Company desire to settle fully and finally all
differences between them;
NOW, THEREFORE, in consideration of the premises and mutual promises
herein contained and in consideration of the payment by the Company to
Employee of the Payment, it is agreed as follows:
1. Employee and the Company agree that effective as of the date of this
Agreement the Company's employment of Employee is terminated. Employee
resigns effective as of the date of this Agreement from any and all offices
as an officer of the Company, and the Company accepts such resignation.
2. Employee acknowledges that on or before the date of Employee's
execution hereof, the Company provided Employee a final paycheck for all
wages, salary, bonuses, reimbursable expenses, accrued vacation and any
similar payments due to Employee from Company as of the date of this
Agreement. By signing below, Employee acknowledges that Company does not owe
Employee any other amounts except as provided in Section 3 below.
3. Company agrees that Employee is not being terminated for cause, so
the Company shall pay to Employee, in lieu of the amounts otherwise payable
to Employee under the August 1998 Agreement (defined below), $225,000.00 (the
"Severance Payment"), which amount shall be paid promptly following the
execution and delivery by Employee and Company of this Agreement. Further,
all outstanding shares of Common Stock of the Company held by Employee on the
date hereof shall be deemed to be fully vested, and all options to purchase
Common Stock of the Company granted to Employee prior to the date hereof
shall terminate in full and not be exerciseable effective as of the date of
this Agreement.
4. Employee represents and warrants to Company that Employee has
returned to Company all real and/or intangible property or data of Company of
any type whatsoever, including but not limited to any planning data,
personnel data, compensation data, computer software and any and all
documents in hardcopy or electronic format, that has been in Employee's
possession or control.
5. Employee acknowledges that Employee is bound by the Employee
Proprietary Information and Inventions Agreement described in Section 7 below
and that, as a result of Employee's employment with Company, Employee has had
access to Company's Proprietary Information (as defined in the Employee
Proprietary Information and Inventions Agreement), that Employee will hold
all Proprietary Information in strictest confidence and that Employee will
not make use of such Proprietary Information on behalf of anyone. Employee
further confirms that Employee has delivered to
<PAGE>
Company all documents and data, in either hardcopy format or any form of
electronic format or any format that may be read visually, of any nature
containing or pertaining to such Proprietary Information and that Employee
has not taken with Employee any such documents or data or any reproduction
thereof.
6. Except for the matters, rights and obligations specified in paragraph
7 below, the Company and Employee, for themselves and on behalf of (as
applicable) their respective past, present and future directors, officers,
shareholders, agents, employees, attorneys, subsidiaries, spouse, heirs,
estate successors and assigns, hereby forever release and discharge each
other and each of their respective past, present and future directors,
officers, shareholders, agents, employees, attorneys, subsidiaries, spouse,
heirs, estate successors and assigns from all past, present and future
claims, demands, obligations and causes of action of any nature whatsoever,
whether in tort, contrast or any other theory of recovery in law or equity,
whether for compensatory or punitive damages, equitable relief or otherwise,
and whether now know or unknown, suspected or unsuspected, which are based
upon or arise out of or in connection with any matter, cause or thing
existing at any time prior to the date hereof or anything done, omitted or
suffered to be done or omitted at any time prior to the date hereof.
7. Notwithstanding the provisions of Section 6 of this Agreement,
however, any claims, demands, obligations and causes of action arising from
any of the following are not released by this Agreement:
a. Assignment Agreement, dated April 26, 1996, between Company,
Employee, Gary Steelberg and Ryan Steelberg.
b. Employment and Restriction Agreement, dated as of April 26, 1996,
between Company and Employee.
c. Employee Proprietary Information and Inventions Agreement, dated
November 25, 1996, between Company and Employee.
d. Letter of offer of employment, dated November 26, 1996, from
Company to Employee, as amended as of July 8, 1997.
e. Stock Repurchase Agreement, dated as of December 5, 1996, between
Company and Employee.
f. Restricted Common Stock Agreement, dated as of December 5, 1996,
between Company and Employee.
g. Amended and Restated First Refusal Agreement, dated as of July
15, 1998, among Company, Employee and certain other shareholders of Company.
h. Amended and Restated Founders' Co-Sale Agreement, dated as of
July 15, 1998, among Company, Employee and certain other shareholders of
Company.
i. Amended and Restated Voting Agreement, dated as of July 15, 1998,
among Company, Employee and certain other shareholders of Company.
-2-
<PAGE>
j. Letter, dated August 12, 1998, from Company to Employee and the
related letter, dated August 18, 1998, from Employee to Company (the "AUGUST
1998 AGREEMENT").
k. Each agreement, proxy, certificate and other document delivered
in connection with each agreement and letter described above in this
paragraph 7.
8. Employee and Company enter into this Agreement to resolve disputed
matters. This Agreement shall not in any way be construed as an admission or
concession by any party that such party acted wrongfully with respect to the
other party or any other person. Rather, the parties have entered into this
settlement to purchase peace, and to prevent litigation based upon disputed
claims between them.
9. Employee and Company agree that neither will disparage the other to
third parties.
10. Employee and the Company will promptly hereafter issue a joint press
release respecting the settlement hereby of the differences between Employee
and the Company. Such press release shall not be issued until the Company and
Employee have agreed to the content thereof, which agreement shall not be
unreasonably withheld.
11. Employee and Company each covenants and agrees never, individually or
with any person or entity, to commence, prosecute or cause or permit to be
commenced or prosecuted against any party released by him or it under this
Agreement, any action or other proceeding based upon any claim, demand, cause
of action, obligation, damage or liability which is the subject of Section 6
of this Agreement, and will not aid, assist or encourage any other person or
entity to pursue a claim of any kind against any party released by him or it
under Section 6 of this Agreement, except as required by law.
12. It is agreed that the benefits contained in this Agreement which flow
to each party are subject to termination, reduction or cancellation in the
event that the other party takes any action or engages in any conduct in
violation of this Agreement.
13. The provisions of this Agreement are severable, and if any part of it
is found to be unenforceable, the other paragraphs shall remain fully valid
and enforceable. This Agreement shall survive the termination of any
arrangements contained herein.
14. Each party represents and warrants that such party has not sold,
assigned, transferred, conveyed or otherwise disposed of any claim, demand,
obligation or cause of action relating to any matter covered by Section 6 of
this Agreement, and agrees to indemnify and hold harmless each party it
releases hereunder from any claim, demand, obligation or cause of action
which may be based upon or which may arise out of or in connection with any
such sale, assignment, transfer, conveyance or disposal.
15. Each party expressly waives any right or benefit available to such
party in any capacity under the provisions of Section 1542 of the Civil Code
of California.
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release,
-3-
<PAGE>
which if known by item must have materially affected his settlement with
the debtor."
16. Employee understands that various federal, state and local laws
prohibit age, sex, race, disability, benefits, pension, health and other
forms of discrimination and that these laws can be enforced through the U.S.
Equal Employment Opportunity Commission, California state and local human
rights agencies and federal and state courts. Employee has decided
voluntarily to enter into this Agreement, and waives the right to bring any
claim or recover any amounts to which he may have been entitled under such
laws.
17. Each party represents that neither such party nor anyone acting on
such party's behalf has fled any claim, action, suit, complaint or proceeding
against the other party in any agency, court or other forum or tribunal.
18. Each party is advised to consult with an attorney prior to executing
this Agreement. Each party has retained an attorney and represents and agrees
that such party fully understands such party's right to discuss all aspects
of this Agreement with such party's private attorney, that to the extent, if
any, such party desires, such party has availed such party of this right,
that such party has carefully read and fully understands all of the
provisions of this Agreement, and that such party is voluntarily entering
into this Agreement.
19. Employee agrees that, during the period beginning on the date of this
Agreement and ending two (2) years thereafter, Employee shall not, directly
or indirectly, either for himself or for any other person or entity, directly
or indirectly, solicit, induce or attempt to induce any employee or
consultant of the Company to terminate his, her or its employment or
consulting relationship with the Company.
20. In order to preserve, protect, secure and effectuate the full and
final settlement by the parties hereto of all their differences, Employee
hereby covenants and agrees with the Company that, at any regular or special
meeting of the shareholders of the Company, however called, and in any action
taken by written consent of the shareholders of the Company without a
meeting, Employee shall affirmatively vote (i) all the shares of capital
stock of Company owned by Employee as of the date hereof and (ii) any and all
other shares of capital stock of Company (or any company with which Company
merges or consolidates at any time after the date hereof) which Employee may
acquire after the date hereof (collectively, the "SUBJECT SHARES") in favor
of each and every action, agreement and transaction approved by a majority
of the Company's Board of Directors and submitted by the Company's Board of
Directors to the shareholders of the Company for their approval. The
preceding provisions of this Section shall termite upon the earlier of (i)
the tenth anniversary of the date of this Agreement or (ii) the closing of a
public offering pursuant to an effective registration statement filed under
the Securities Act of 1933, as amended, covering the offer and sale for the
account of the Company of the Company's Common Stock. The provisions of this
Section shall be binding upon the heirs, successors and assigns of Employee
(including any transferee of any of the Subject Shares).
Contemporaneously herewith, Employee will execute and deliver herewith to
the Company an irrevocable Proxy in the form attached hereto with respect to
all present and future shares of capital stock of the Company, which is
coupled with an interest in all such shares, and which shall be irrevocable
to the fullest extent permitted by law.
-4-
<PAGE>
21. This Agreement sets forth the entire agreement between the parties
hereto, and fully supersedes any and all written or oral agreement or
understandings between the parties hereto, or any corporate policies,
practices or procedures pertaining to the subject matter hereof, in each case
existing prior to the last date of execution hereof as set forth below. Any
amendments to this Agreement may only be made in writing, signed by both
parties.
22. Should it become necessary for either Employee or the Company to
commence litigation to enforce the terms of this Agreement, the prevailing
party in such litigation shall be entitled to recover from the other party
his or its reasonable costs of suit, including attorneys' fees.
23. This document may be executed in duplicate originals, each of which
is equally admissible in evidence, and each original shall fully bind each
party who executed it.
24. This Agreement is governed by, and is to be interpreted according to,
the laws of the State of California. If any term of this Agreement or
application thereof shall be invalid or unenforceable, the remainder of the
Agreement shall remain in full force and effect.
25. The parties hereto agree that for any litigation concerning or
arising from this Agreement, venue is proper in Santa Clara County,
California and each party hereby consents to jurisdiction there.
26. Employee and a representative of the Company have read this Agreement
and fully understand and agree to it.
27. Employee is not authorized to enter, and without the explicit prior
written consent of the Company's Chief Executive Officer will not gain or
attempt to gain entrance, into the Company's computer, information or data
systems or center. Employee is not authorized to enter, and without the
explicit prior written consent of the Company's Chief Executive Officer will
not gain or attempt to gain entrance, into the Company's premises.
28. Contemporaneously herewith, Company will execute and deliver herewith
to Employee a Waiver of Right of First Refusal and Co-Sale in the form
attached hereto, and the Company will use its good faith diligent efforts to
have such Waiver signed by such other shareholders of the Company as is
necessary to permit the transactions contemplated thereby.
PLEASE READ CAREFULLY. THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND
UNKNOWN CLAIMS.
/s/ Chad Steelberg
Imgis, Inc., a California corporation -----------------------------------
doing business as AdForce Chad Steelberg
By: /s/ Charles W. Berger
-------------------------------
Name: Charles W. Berger
-------------------------------
Title: Chairman & CEO
-------------------------------
Date Executed: 12 Jan 99 Date Executed: 1-13-99
----------------------- --------------------
-5-
<PAGE>
IRREVOCABLE PROXY
The undersigned shareholder of Imgis, Inc., a California corporation
("COMPANY"), hereby irrevocably (to the fullest extent permitted by law)
appoints and constitutes the then-current Chief Executive Officer of the
Company, and if there should not be a then-current Chief Executive Officer of
the Company, then the then-current Chief Financial Officer of the Company,
and each of them, the attorneys and proxies of the undersigned with full
power of substitution and resubstitution, to the full extent of the
undersigned's rights with respect to (i) all the shares of capital stock of
Company owned by the undersigned as of the date of this proxy and (ii) any
and all other shares of capital stock of Company (or any company with which
the Company merges or consolidates at any time after the date hereof) which
the undersigned may acquire at any time after the date hereof. (The shares of
the capital stock of Company referred to in clauses (i) and (ii) of the
immediately preceding sentence are collectively referred to herein as the
"SHARES.") Upon the execution hereof, all prior proxies given by the
undersigned with respect to any of the Shares are hereby revoked, and no
subsequent proxies will be given with respect to any of the Shares. This
proxy is irrevocable, is coupled with an interest in the Shares and is
granted in connection with the Settlement Agreement and Release, dated as of
November 20, 1998, between the Company and the undersigned (the "AGREEMENT").
The attorneys and proxies named above shall be empowered, and may exercise
this proxy, to vote all of the Shares at any time and from time to time at
any regular or special meeting of the shareholders of the Company, however
called, and in any action by written consent of shareholders of the Company
without a meeting in favor of each and every action, agreement and
transaction approved by at least a majority of the Company's Board of
Directors and submitted by the Company's Board of Directors to the
shareholders of the Company for their approval.
This proxy shall terminate upon the earlier of (i) November 20, 2008 or (ii)
the closing of a public offering pursuant to an effective registration
statement filed under the Securities Act of 1933, as amended, covering the
offer and sale for the account of the Company of the Company's Common Stock.
This proxy shall be binding upon the heirs, successors and assigns of the
undersigned (including any transferee of any of the Shares). This proxy shall
not otherwise affect the sale, transfer or other disposition by the
undersigned of any of the Shares.
Dated: November 20, 1998 /s/ Chad Steelberg
---------------------------------------
Chad Steelberg
<PAGE>
IMGIS, INC.
WAIVER OF RIGHT OF FIRST REFUSAL AND CO-SALE
This waiver is entered into by and among Imgis, Inc., a California
corporation doing business as AdForce (the "COMPANY"), and the undersigned
"Investors" and "Founders" as defined in that certain Amended and Restated
First Refusal Agreement, dated as of July 15, 1998, among the Company and
certain other individuals and entities (the "FIRST REFUSAL AGREEMENT") and/or
as separately defined in that certain Amended and Restated Founders' Co-Sale
Agreement, dated as of July 15, 1998, among the Company and certain other
individuals and entities (the "CO-SALE AGREEMENT"). The terms "Investor" and
"Founder" as used herein shall have the respective meanings ascribed thereto
in the First Refusal Agreement and Co-Sale Agreement, as applicable.
The undersigned Investors, Founders and Company hereby, effective as of the
date hereof, on behalf of themselves and all Investors and Founders and the
Company, and any successors or assignees thereof, waives, and amends the
First Refusal Agreement and the Co-Sale Agreement to waive, any notice
required, rights of first refusal, rights to purchase, Co-sale rights, rights
of participation or any other rights under Section 1 of the Investors
Agreement and Section 1 of the Co-Sale Agreement with respect to:
(1) the sale by Chad Steelberg ("STEELBERG") of up to an aggregate of 100,000
shares of the Company's Common Stock ("COMMON STOCK") held by Steelberg
on the date hereof in one or more transactions, at any price to any
person or entity so long as (i) such person or entity is not now or at
the time of such sale a competitor of the Company or an affiliate of
such a competitor (a "NON-COMPETITOR"), and (ii) such Non-Competitor
agrees in a writing delivered to the Company (x) that the First Refusal
Agreement (but not the Co-Sale Agreement) will continue to apply to any
resale or other transfer of the Common Stock by such Non-Competitor and
(y) to be bound by the provisions of Section 6 of the Restricted Common
Stock Agreement, dated as of December 5, 1996, between the Company and
Steelberg (the "RESTRICTED COMMON STOCK AGREEMENT");
(2) the grant by Steelberg of a security interest in up to an aggregate of
919,620 shares of Common Stock held by Steelberg on the date hereof as
collateral for a loan by a Non-Competitor to Steelberg so long as (i)
such Non-Competitor has full recourse against Steelberg for repayment in
full of such loan (and the transfer of such shares upon exercise of the
rights under such security interest) and (ii) such Non-competitor agrees
in a writing delivered to the Company (x) that the First Refusal
Agreement (but not the Co-Sale Agreement) will continue to apply to any
resale or other transfer of the Common Stock by such Non-Competitor and
(y) to be bound by the provisions of Section 6 of the Restricted Common
Stock Agreement; and
(3) (A) the grant by Steelberg of a security interest in up to an aggregate
of 919,620 shares of Common Stock held by Steelberg on the date hereof
as collateral for a loan by a Non-Competitor to Steelberg, whether or
not such loan is full recourse, so long as (i) the principal amount of
that loan divided by the number of shares of Common Stock subject to
such security interest is equal to or less than the fair market value
per share of Common Stock on the date that such security interest is
granted as determined in good faith by the Company's Board of Directors
(and the transfer of such shares upon exercise of the rights under such
security interest) and (ii) such Non-Competitor agrees in a writing
delivered to the Company (x) that the First Refusal Agreement (but not
the Co-Sale Agreement) will continue to apply to any resale or other
transfer of the Common Stock by such Non-Competitor and (y) to be bound
by the provisions of Section 6 of the Restricted Common Stock Agreement
and (B) in connection with such loan, the grant by Steelberg to such
Non-Competitor of an option to purchase up to a number of shares of
Common Stock held by Steelberg on the date hereof as is equal to the
principal amount of that loan divided by the exercise price per share of
such option
<PAGE>
(and the transfer of such shares upon exercise of such option) so long
as such Non-Competitor agrees in a writing delivered to the Company (x)
that the First Refusal Agreement (but not the Co-Sale Agreement) will
continue to apply to any resale or other transfer of the Common Stock by
such Non-Competitor and (y) to be bound by the provisions of Section 6
of the Restricted Common Stock Agreement.
Whenever in this waiver there is a reference to a specific number of shares
of Common Stock, then, upon the occurrence of any subdivision, combination or
stock dividend of Common Stock, the specific number of shares so referenced
in this waiver shall automatically be proportionally adjusted to reflect the
effect on the outstanding shares of Common Stock by such subdivision,
combination or stock dividend. This waiver is given with respect to only the
matters set forth above, in this waiver and not with respect to any other
offer, sale, pledge, transfer or purchase of securities of the Company
respecting which the Company or any of the Investors may have rights under
Section 1 of the First Refusal Agreement and/or Section 1 of the Co-Sale
Agreement.
This waiver may be executed in two or more counterparts, each of which shall
be deemed an original, but all of which together should constitute one and
the same waiver.
Dated as of December 15, 1998
INVESTOR:
If an individual, please sign here: If a corporation, please sign here:
- ------------------------------------- --------------------------------------
Please PRINT Investor's Name Please PRINT Investor's Name
By:
- ------------------------------------- -----------------------------------
Please SIGN Investor's Name Name:
---------------------------------
Title:
--------------------------------
FOUNDER
Chad Steelberg
- -------------------------------------
Please PRINT Founder's Name
/s/ Chad Steelberg
- -------------------------------------
Please SIGN Founder's Name
Imgis, Inc., a California corporation
By: /s/ Charles W. Berger
---------------------------------
Name: Charles W. Berger
-------------------------------
Title: Chairman
------------------------------
(SIGNATURE PAGE TO
WAIVER OF RIGHT OF FIRST REFUSAL AND CO-SALE)
-2-
<PAGE>
Exhibit 10.19
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOAN AGREEMENT
Dated as of March 26, 1997
between
IMGIS, INC.
as Borrower,
and
VENTURE LENDING & LEASING, INC.,
as Lender
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 - DEFINITIONS...........................................................................................1
ARTICLE 2 - THE COMMITMENT AND LOANS..............................................................................4
2.1 THE COMMITMENT.......................................................................................4
2.2 LIMITATION ON LOANS..................................................................................5
2.3 NOTES EVIDENCING LOANS; REPAYMENT....................................................................5
2.4 PROCEDURES FOR BORROWING.............................................................................5
2.5 INTEREST.............................................................................................6
2.6 TERMINAL PAYMENT.....................................................................................6
2.7 INTEREST RATE CALCULATION............................................................................6
2.8 DEFAULT INTEREST.....................................................................................6
2.9 LENDER'S RECORDS.....................................................................................6
2.10 SECURITY............................................................................................6
2.11 ISSUANCE OF WARRANT TO LENDER.......................................................................6
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES........................................................................7
3.1 DUE ORGANIZATION.....................................................................................7
3.2 AUTHORIZATION, VALIDITY AND ENFORCEABILITY...........................................................7
3.3 COMPLIANCE WITH APPLICABLE LAWS......................................................................7
3.4 COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES.........................................................7
3.5 NO CONFLICT..........................................................................................7
3.6 NO LITIGATION, CLAIMS OR PROCEEDINGS.................................................................8
3.7 CORRECTNESS OF FINANCIAL STATEMENTS..................................................................8
3.8 NO SUBSIDIARIES......................................................................................8
3.9 NO EVENT OF DEFAULT..................................................................................8
3.10 FULL DISCLOSURE.....................................................................................8
ARTICLE 4 - CONDITIONS PRECEDENT..................................................................................8
4.1 CONDITIONS TO FIRST LOAN.............................................................................8
4.2 CONDITIONS TO ALL LOANS..............................................................................9
ARTICLE 5 - AFFIRMATIVE COVENANTS.................................................................................9
5.1 NOTICE TO LENDER.....................................................................................9
5.2 FINANCIAL STATEMENTS................................................................................10
5.3 MANAGERIAL ASSISTANCE FROM LENDER...................................................................11
5.4 EXISTENCE...........................................................................................11
5.5 INSURANCE...........................................................................................11
5.6 ACCOUNTING RECORDS..................................................................................11
5.7 COMPLIANCE WITH LAWS................................................................................11
5.8 TAXES AND OTHER LIABILITIES.........................................................................12
5.9 USE OF PROCEEDS.....................................................................................12
ARTICLE 6 - NEGATIVE COVENANTS...................................................................................12
6.1 INDEBTEDNESS........................................................................................12
6.2 LIENS...............................................................................................12
6.3 DIVIDENDS...........................................................................................12
6.4 CHANGES/MERGERS.....................................................................................12
6.5 SALES OF ASSETS.....................................................................................13
6.6 LOANS/INVESTMENTS...................................................................................13
6.7 TRANSACTIONS WITH RELATED PERSONS...................................................................13
ARTICLE 7 - EVENTS OF DEFAULT....................................................................................13
7.1 EVENTS OF DEFAULT...................................................................................13
</TABLE>
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<TABLE>
<S> <C>
ARTICLE 8 - GENERAL PROVISIONS...................................................................................14
8.1 NOTICES.............................................................................................14
8.2 BINDING EFFECT......................................................................................15
8.3 NO WAIVER...........................................................................................15
8.4 RIGHTS CUMULATIVE...................................................................................15
8.5 UNENFORCEABLE PROVISIONS............................................................................15
8.6 ACCOUNTING TERMS....................................................................................15
8.7 INDEMNIFICATION; EXCULPATION........................................................................15
8.8 REIMBURSEMENT.......................................................................................16
8.9 EXECUTION IN COUNTERPARTS...........................................................................16
8.10 ENTIRE AGREEMENT...................................................................................16
8.11 GOVERNING LAW AND JURISDICTION.....................................................................16
8.12 WAIVER OF JURY TRIAL...............................................................................17
</TABLE>
LIST OF EXHIBITS
Exhibit "A" Form of Note
Exhibit "B" Form of Borrowing Request
Exhibit "C" Security Agreement
Exhibit "D" Form of Warrant
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LOAN AGREEMENT
This LOAN AGREEMENT is entered into as of March 26, 1997,
between IMGIS, INC., a California corporation ("Borrower"), and VENTURE LENDING
& LEASING, INC., a Maryland corporation ("VLLI" or "Lender").
WHEREAS, Lender has agreed to make available to Borrower a
term loan facility upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements,
provisions and covenants contained herein, the parties agree as follows:
ARTICLE 1 - DEFINITIONS
The definitions appearing in this Agreement or any supplement
or addendum to this Agreement, shall be applicable to both the singular and
plural forms of the defined terms:
"AFFILIATE" means any Person which directly or indirectly
controls, is controlled by, or is under common control with Borrower. "Control,"
"controlled by" and "under common control with" mean direct or indirect
possession of the power to direct or cause the direction of management or
policies (whether through ownership of voting securities, by contract or
otherwise); provided, that control shall be conclusively presumed when any
Person or affiliated group directly or indirectly owns ten percent (10%) or more
of the securities having ordinary voting power for the election of directors of
a corporation.
"AGREEMENT" means this Loan Agreement as it may be amended or
supplemented from time to time.
"BANKRUPTCY CODE" means the Federal Bankruptcy Reform Act of
1978 (11 U.S.C. ss.101, eT Seq.), as amended.
"BASIC INTEREST" means the fixed rate of interest payable on
the outstanding balance of each Loan at the applicable Designated Rate.
"BORROWING DATE" means the Business Day on which the proceeds
of a Loan are disbursed by Lender.
"BORROWING REQUEST" means a written request from Borrower in
substantially the form of EXHIBIT "B" hereto, requesting the funding of one or
more Loans on a particular Borrowing Date.
"BUSINESS DAY" means any day other than a Saturday, Sunday or
other day on which commercial banks in New York City or San Francisco are
authorized or required by law to close.
"CLOSING DATE" means the date of this Agreement.
"COLLATERAL" has the meaning ascribed thereto in the Security
Agreement.
"COMMITMENT" means the obligation of Lender to make Loans to
Borrower in an aggregate, original principal amount not exceeding Two Million
Dollars ($2,000,000). The Commitment shall be divided into two parts. The
Initial Availability (the "Initial Availability") shall be for the original
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principal amount of a loan or loans not exceeding $1,000,000. The Remaining
("Remaining Availability") amount shall be for an additional principal amount of
$1,000,000 and shall automatically become available, subject to section 4.2 of
this Agreement, upon the closing of additional venture capital equity financing
of at least $1,000,000.
"DEFAULT" means an event which with the giving of notice,
passage of time, or both would constitute an Event of Default.
"DEFAULT RATE" is defined in SECTION 2.8.
"DESIGNATED RATE" means a fixed rate of interest per annum of
nine and 75/100 percent (9.75%) applicable to a Loan.
"ENVIRONMENTAL LAWS" means all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes, together
with all administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any governmental
authorities, in each case relating to environmental, health, or safety matters.
"EVENT OF DEFAULT" means any event described in Article 7.
"GAAP" means generally accepted accounting principles and
practices consistent with those principles and practices promulgated or adopted
by the Financial Accounting Standards Board and the Board of the American
Institute of Certified Public Accountants, their respective predecessors and
successors. Each accounting term used but not otherwise expressly defined herein
shall have the meaning given it by GAAP.
"INDEBTEDNESS" of any Person means at any date, without
duplication and without regard to whether matured or unmatured, absolute or
contingent: (i) all obligations of such Person for borrowed money; (ii) all
obligations of such Person evidenced by bonds, debentures, notes, or other
similar instruments; (iii) all obligations of such Person to pay the deferred
purchase price of property or services, except trade accounts payable arising in
the ordinary course of business; (iv) all obligations of such Person as lessee
under capital leases; (v) all obligations of such Person to reimburse or prepay
any bank or other Person in respect of amounts paid under a letter of credit,
banker's acceptance, or similar instrument, whether drawn or undrawn; (vi) all
obligations of such Person to purchase securities which arise out of or in
connection with the sale of the same or substantially similar securities; (vii)
all obligations of such Person to purchase, redeem, exchange, convert or
otherwise acquire for value any capital stock of such Person or any warrants,
rights or options to acquire such capital stock, now or hereafter outstanding,
except to the extent that such obligations remain performable solely at the
option of such Person; (viii) all obligations to repurchase assets previously
sold (including any obligation to repurchase any accounts or chattel paper under
any factoring, receivables purchase, or similar arrangement); (ix) obligations
of such Person under interest rate swap, cap, collar or similar hedging
arrangements; and (x) all obligations of others of any type described in CLAUSE
(I) through CLAUSE (IX) above guaranteed by such Person.
"INSOLVENCY PROCEEDING" means (a) any case, action or
proceeding before any court or other governmental authority relating to
bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution,
winding-up or relief of debtors, or (b) any general assignment for the benefit
of creditors, composition, marshalling of assets for creditors, or other,
similar
2
<PAGE>
arrangement in respect of its creditors generally or any substantial portion of
its creditors, undertaken under U.S. Federal, state or foreign law, including
the Bankruptcy Code.
"LIEN" means any voluntary or involuntary security interest,
mortgage, pledge, claim, charge, encumbrance, title retention agreement, or
third party interest, covering all or any part of the property of Borrower or
any other Person.
"LOAN" means an extension of credit by Lender under SECTION 2
of this Agreement.
"LOAN DOCUMENTS" means, individually and collectively, this
Agreement, each Note, the Security Agreement and any other security or pledge
agreement(s), and all other contracts, instruments, addenda and documents
executed in connection with this Agreement or the extensions of credit which are
the subject of this Agreement.
"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" means
(a) a material adverse change in, or a material adverse effect upon, the
operations, business, properties, or condition (financial or otherwise) of
Borrower; (b) a material impairment of the ability of Borrower to perform under
any Loan Document; or (c) a material adverse effect upon the legality, validity,
binding effect or enforceability against Borrower of any Loan Document.
"MATURITY DATE" means, with regard to a Loan, the earlier of
(i) its maturity by reason of acceleration, or (ii) its stated maturity date,
which is the first day of the 42nd full month after the Borrowing Date of such
Loan; and is the date on which payment of all outstanding principal, accrued
interest, and the Terminal Payment with respect to such Loan is due.
"NOTE" means a promissory note substantially in the form of
EXHIBIT "A" hereto, executed by Borrower evidencing each Loan.
"OBLIGATIONS" means all advances, debts, liabilities,
obligations, covenants and duties arising under any Loan Document, owing by
Borrower to Lender, whether direct or indirect (including those acquired by
assignment), absolute or contingent, liquidated or unliquidated, due or to
become due, now existing or hereafter arising.
"PERMITTED LIEN" means
(A) Involuntary Liens which, in the aggregate, would
not have a Material Adverse Effect and which in any event would not
exceed One-Hundred Thousand Dollars ($100,000);
(B) Liens for current taxes or other governmental or
regulatory assessments which are not delinquent, or which are contested
in good faith by the appropriate procedures and for which appropriate
reserves are maintained;
(C) Purchase money security interests on any property
held or acquired by Borrower in the ordinary course of business
securing Indebtedness incurred or assumed for the purpose of financing
all or any part of the cost of acquiring such property; PROVIDED, that
such Lien attaches solely to the property acquired with such
Indebtedness and that the principal amount of such Indebtedness does
not exceed one hundred percent (100%) of the cost of such property; and
FURTHER PROVIDED, that
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<PAGE>
such property is not equipment with respect to which a Loan has been
made hereunder.
(D) Liens in favor of Lender;
(E) bankers' liens, rights of setoff and similar
Liens incurred on deposits made in the ordinary course of business;
(F) materialmen's, mechanics', repairmen's,
employees' or other like Liens arising in the ordinary course of
business and which are not delinquent for more than 45 days or are
being contested in good faith by appropriate proceedings;
(G) any judgment, attachment or similar Lien, unless
the judgment it secures has not been discharged or execution thereof
effectively stayed and bonded against pending appeal within 30 days of
the entry thereof;
(H) licenses or sublicenses of Patents, Patent
Licenses, Trademarks or Trademark Licenses permitted under the
Trademark Collateral Assignment or the Patent Collateral Assignment
(all as defined in the Security Agreement); and.
(I) Liens which have been approved by Lender prior to
the Closing Date and disclosed on SCHEDULE 6.2 to this Agreement.
"PERSON" means any individual or entity.
"QUALIFIED PUBLIC OFFERING" means the closing of a firmly
underwritten public offering of Borrower's common stock with aggregate proceeds
of not less than $12,500,000 (prior to underwriting expenses and commissions).
"RELATED PERSON" means any Affiliate of Borrower, or any
officer, employee, director or equity security holder of Borrower or any
Affiliate.
"SECURITY AGREEMENT" means the Security Agreement
substantially in the form of EXHIBIT "C" hereto, executed by Borrower.
"TERMINAL PAYMENT" means, with respect to each Loan, an amount
payable on the Maturity Date of such Loan in an amount equal to fifteen percent
(15%) of the original principal amount of such Loan.
"TERMINATION DATE" means the earlier of: (a) the date Lender
may terminate making loans or extending credit pursuant to the rights of Lender
under Article 7, or (b) December 31, 1997.
"UCC" means the Uniform Commercial Code as enacted in the
applicable jurisdiction, in effect on the Closing Date and as amended from time
to time.
ARTICLE 2 - THE COMMITMENT AND LOANS
2.1 THE COMMITMENT. Subject to the terms and conditions of
this Agreement, Lender agrees to make term loans to Borrower from time to time
from the Closing Date and to, but not including, the Termination Date in an
aggregate principal amount not exceeding the Commitment. The Commitment is
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<PAGE>
not a revolving credit commitment, and Borrower shall not have the right to
repay and reborrow hereunder.
2.2 LIMITATION ON LOANS.
(A) Each Loan shall be in an amount not to exceed one
hundred percent (100%) of the amount paid or payable by Borrower to a
non-affiliated manufacturer, vendor or dealer for an item of equipment
as shown on an invoice therefor (excluding any commissions and any
portion of the payment which relates to the servicing of the equipment
and sales taxes payable by Borrower upon acquisition, and delivery
charges).
(B) Lender shall not be obligated to make any Loan
under its Commitment if at the time of or after giving effect to the
proposed Loan Lender would no longer qualify as: (A) a "venture capital
operating company" under U.S. Department of Labor Regulations Section
2510.3-101(d), Title 29 of the Code of Federal Regulations, as amended;
and (B) a "business development company" under the provisions of
federal Investment Company Act of 1940, as amended; and (C) a
"regulated investment company" under the provisions of the Internal
Revenue Code of 1986, as amended. Each Loan requested by Borrower to be
made on a single Business Day shall be for a minimum principal amount
of Fifty Thousand Dollars ($50,000), except to the extent the remaining
Commitment is a lesser amount.
2.3 NOTES EVIDENCING LOANS; REPAYMENT. Each Loan shall be
evidenced by a separate Note payable to the order of Lender substantially in the
form of EXHIBIT "A" to this Agreement, in the total principal amount of the
Loan. Each Note shall be payable as follows: Principal and Basic Interest shall
be paid in forty two (42) equal and successive monthly payments, in advance,
beginning on the Borrowing Date and continuing on the first Business Day of each
month thereafter; provided, that the first and last such amortization
installment payments shall be paid in advance on the Borrowing Date. If the
Borrowing Date is not the first day of a month, then the 42-month amortization
period shall commence on the first day of the next month following the Borrowing
Date, and interest only shall accrue and be payable for the period from the
Borrowing Date to the first day of the next month. Borrower shall pay to Lender,
in advance, on the Borrowing Date a payment of Basic Interest on the amount of
any Loan that is not made on the first day of the month for interest that will
accrue on such Loan from the Borrowing Date through the last day of the same
month. The payment of amortization installments of principal of and interest on
a Loan in advance results in a higher effective rate of interest than the stated
Designated Rate applicable to such Loan. The full amount of the Terminal Payment
with respect to each Loan shall be due and payable on the Maturity Date of such
Loan.
2.4 PROCEDURES FOR BORROWING.
(A) Borrower shall give Lender, at least five (5)
Business Days' prior to a proposed Borrowing Date, written notice of
any request for borrowing hereunder (a "Borrowing Request"). Each
Borrowing Request shall be in substantially the form of EXHIBIT "B"
hereto, shall be executed by the chief financial or accounting officer
of Borrower, and shall state how much is requested, and shall be
accompanied by such information and documentation as Lender may deem
reasonably necessary to determine whether the proposed borrowing will
comply with the limitations in SECTION 2.2.
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(B) No later than 1:00 p.m. Pacific Standard Time on
the Borrowing Date, if Borrower has satisfied the conditions precedent
in Article 4, Lender shall make the Loan available to Borrower in
immediately available funds.
2.5 INTEREST. Basic Interest on the outstanding principal
balance of the each Loan shall accrue daily at the Designated Rate from the
Borrowing Date until the Maturity Date.
2.6 TERMINAL PAYMENT. Borrower shall pay the Terminal Payment
with respect to each Loan on the Maturity Date of such Loan.
2.7 INTEREST RATE CALCULATION. Basic Interest, along with
charges and fees under this Agreement and any Loan Document, shall be calculated
for actual days elapsed on the basis of a 360-day year, which results in higher
interest, charge or fee payments than if a 365-day year were used. In no event
shall Borrower be obligated to pay Lender interest, charges or fees at a rate in
excess of the highest rate permitted by applicable law from time to time in
effect.
2.8 DEFAULT INTEREST. Any unpaid payments of principal or
interest or the Terminal Payment with respect to any Loan shall bear interest
from their respective maturities, whether scheduled or accelerated, at the
Designated Rate for such Loan PLUS five percent (5.00%) per annum, until paid in
full, whether before or after judgment (the "Default Rate"). Borrower shall pay
such interest on demand.
2.9 LENDER'S RECORDS. Principal, Basic Interest, Terminal
Payments and all other sums owed under any Loan Document shall be evidenced by
entries in records maintained by Lender for such purpose. Each payment on and
any other credits with respect to principal, Basic Interest, Terminal Payments
and all other sums outstanding under any Loan Document shall be evidenced by
entries in such records. Absent manifest error, Lender's records shall be
conclusive evidence thereof.
2.10 SECURITY. As security for all Obligations to Lender,
Borrower shall grant concurrently to Lender, or ensure that Lender is
concurrently granted, perfected security interests in all Collateral pursuant to
the Security Agreement and such other Lien documentation satisfactory in form
and substance to Lender, subject only to Permitted Liens.
2.11 ISSUANCE OF WARRANTS TO LENDER. As additional
consideration for its Commitment and obligations under this Agreement, and as a
condition to funding the initial Loan, Lender and its broker (Robert A.
Kingsbook) shall be entitled to receive one or more warrants to purchase a
number of shares of preferred stock of Borrower ("Warrant Shares") with an
aggregate value equal to seven percent (7%) of the Commitment. The Warrant
Shares shall vest in two equal parts. The first 50% shall vest upon the closing
of this commitment at $2.51 per share. The remaining 50% shall vest upon the
borrowing of any portion of the Remaining Availability at a price determined by
1) if any part of the Remaining Availability is borrowed prior to the closing of
an additional round of venture capital or corporate partner equity financing of
at least $3,000,000 ("Round C"), $2.51 per share, 2) if none of the Remaining
Availability is borrowed prior to the closing of Round C, the per share price of
preferred stock issued in Round C. The warrant issued under this Agreement shall
be in substantially the form attached hereto as EXHIBIT "D"; shall be
transferable by Lender, subject to compliance with applicable securities laws;
shall expire on December 31, 2002 or earlier as described in the warrant; and
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<PAGE>
shall include piggy-back registration rights, "net issuance" provisions, and
anti-dilution protections reasonably satisfactory to Lender and its counsel.
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that as of the Closing Date
and each Borrowing Date, except as set forth on a Schedule of Exceptions
("Schedule of Exceptions") to be amended from time to time:
3.1 DUE ORGANIZATION. Borrower is a corporation duly organized
and validly existing in good standing under the laws of California, and is duly
qualified to conduct business and is in good standing in each other jurisdiction
in which its business is conducted or its properties are located, except where
the failure to be so qualified would not reasonably be expected to have a
Material Adverse Effect.
3.2 AUTHORIZATION, VALIDITY AND ENFORCEABILITY. The execution,
delivery and performance of all Loan Documents executed by Borrower are within
Borrower's powers, have been duly authorized, and are not in conflict with
Borrower's articles of incorporation or by-laws, or the terms of any charter or
other organizational document of Borrower, as amended from time to time; and all
such Loan Documents constitute valid and binding obligations of Borrower,
enforceable in accordance with their terms (except as may be limited by
bankruptcy, insolvency and similar laws affecting the enforcement of creditors'
rights in general, and subject to general principles of equity).
3.3 COMPLIANCE WITH APPLICABLE LAWS. To Borrower's knowledge,
Borrower has complied with all licensing, permit and fictitious name
requirements necessary to lawfully conduct the business in which it is engaged,
and to any sales, leases or the furnishing of services by Borrower, including
without limitation those requiring consumer or other disclosures, the
noncompliance with which would have a Material Adverse Effect.
3.4 COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES.
(A) To Borrower's knowledge, Borrower owns or is
licensed or otherwise has the right to use all of the patents,
trademarks, service marks, trade names, copyrights, contractual
franchises, authorizations and other similar rights that are reasonably
necessary for the operation of its business, without conflict with the
rights of any other Person.
(B) To Borrower's knowledge, no slogan or other
advertising device, product, process, method, substance, part or other
material now employed, or now contemplated to be employed, by Borrower
infringes upon any rights held by any other Person.
(C) To Borrower's knowledge, no claim or litigation
regarding any of the foregoing is pending or threatened, and no patent,
invention, device, application, principle or any statute, law, rule,
regulation, standard or code is pending or proposed which, in either
case, could reasonably be expected to have a Material Adverse Effect.
3.5 NO CONFLICT. The execution, delivery, and performance by
Borrower of all Loan Documents are not in conflict with any law, rule,
regulation, order or directive, or any indenture, agreement, or undertaking to
which Borrower is a party or by which Borrower may be bound or affected.
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3.6 NO LITIGATION, CLAIMS OR PROCEEDINGS. There is no
litigation, tax claim or proceeding pending, or, to the knowledge of Borrower,
threatened against Borrower or its property.
3.7 CORRECTNESS OF FINANCIAL STATEMENTS. Borrower's financial
statements which have been delivered to Lender fairly and accurately reflect
Borrower's financial condition as of December 31, 1996; and, since that date
there has been no Material Adverse Change. All indebtedness to IBL Corporation,
Aurelius Ltd., and Washington Holdings, L.P. has been canceled either by payment
or exchange of debt for equity.
3.8 NO SUBSIDIARIES. Borrower is not a majority owner of or in
a control relationship with any other business entity.
3.9 NO EVENT OF DEFAULT. No Default or Event of Default has
occurred and is continuing.
3.10 FULL DISCLOSURE. None of the representations or
warranties made by Borrower in the Loan Documents as of the date such
representations and warranties are made or deemed made, and none of the
statements contained in any exhibit, report, statement or certificate furnished
by or on behalf of Borrower in connection with the Loan Documents (including
disclosure materials delivered by or on behalf of Borrower to Lender prior to
the Closing Date), when taken together, contains any untrue statement of a
material fact or omits any material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they are made, not misleading as of the time when made or delivered.
ARTICLE 4 - CONDITIONS PRECEDENT
4.1 CONDITIONS TO FIRST LOAN. The obligation of Lender to make
its first Loan hereunder is, in addition to the conditions precedent specified
in SECTION 4.2, subject to the fulfillment of the following conditions and to
the receipt by Lender of the documents described below, duly executed and in
form and substance reasonably satisfactory to Lender and its counsel:
(A) RESOLUTIONS. A certified copy of the resolutions
of the Board of Directors of Borrower authorizing the execution,
delivery and performance by Borrower of the Loan Documents.
(B) INCUMBENCY AND SIGNATURES. A certificate of the
secretary of Borrower certifying the names of the officer or officers
of Borrower authorized to sign the Loan Documents, together with a
sample of the true signature of each such officer.
(C) OPINION OF COUNSEL. The opinion of Gunderson
Dettmer Stough Villeneuve Franklin & Hachigian, LLP, counsel for
Borrower, together with any opinions, certificates and other matters on
which such opinion relies.
(D) ARTICLES AND BY-LAWS. Certified copies of the
Articles of Incorporation and By-Laws of Borrower, as amended through
the Closing Date.
(E) THIS AGREEMENT. A counterpart of this Agreement
with all schedules completed and attached thereto, and disclosing such
information as is acceptable to Lender.
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(F) SECURITY AGREEMENT; FINANCING STATEMENTS. A
Security Agreement executed by Borrower, substantially in the form of
EXHIBIT "C", together with filing copies (or other evidenced of filing
satisfactory to Lender and its counsel) of such Uniform Commercial Code
financing statements, collateral assignments and termination
statements, with respect to the Collateral as Lender shall request.
(G) LIEN SEARCHES. Uniform Commercial Code lien,
judgment, bankruptcy and tax lien searches of Borrower from the
California Secretary of State, and such other jurisdictions as Lender
may reasonably request, all as of a date reasonably satisfactory to
Lender and its counsel.
(H) GOOD STANDING CERTIFICATE. A Certificate of Good
Standing as of a date acceptable to Lender with respect to Borrower
from the California Secretary of State.
(I) WARRANT. A warrant issued by Borrower to Lender
exercisable for the Warrant Shares, as described in SECTION 2.11
hereof.
4.2 CONDITIONS TO ALL LOANS. The obligation of Lender to make
its initial Loan and each subsequent Loan is subject to the following further
conditions precedent that:
(A) NO DEFAULT. No Default or Event of Default has
occurred and is continuing or will result from the making of any such
Loan, and the representations and warranties of Borrower contained in
Article 3 of this Agreement are true and correct as of the Borrowing
Date of such Loan.
(B) NO MATERIAL ADVERSE CHANGE. No Material Adverse
Change shall have occurred since the date of the most recent financial
statements submitted to Lender.
(C) BORROWING REQUEST. Borrower shall have delivered
to Lender a Borrowing Request for such Loan.
(D) NOTE. Borrower shall have delivered an executed
Note evidencing such Loan, in form and substance satisfactory to
Lender.
(E) SUPPLEMENTAL LIEN FILINGS. Borrower shall have
executed and delivered such amendments or supplements to the Security
Agreement and financing statements as Lender may reasonably request in
connection with the proposed Loan, in order to create or perfect or to
maintain the perfection of Lender's Liens on the Collateral.
(F) VCOC LIMITATION. The making of the Loan will not
result in a violation of the condition applicable to Lender described
in SECTION 2.2(B).
ARTICLE 5 - AFFIRMATIVE COVENANTS
During the term of this Agreement and until its performance of
all obligations to Lender, Borrower will:
5.1 NOTICE TO LENDER. Promptly give written notice to Lender
of:
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(A) Any litigation or administrative or regulatory
proceeding affecting Borrower where the amount claimed against Borrower
is Fifty Thousand Dollars ($50,000) or more, or where the granting of
the relief requested could reasonably have a Material Adverse Effect.
(B) The occurrence of any Default or any Event of
Default where the Borrower has knowledge of such Default or Event of
Default.
(C) Any change in the location of Borrower's
principal place of business or the Collateral at least thirty (30) days
in advance of such change.
(D) Any default by Borrower under any joint venture,
partnering, distribution, cross-licensing, strategic alliance,
collaborative research or manufacturing, license or similar agreement
which could reasonably be expected to have a Material Adverse Effect.
(E) Any other matter which has resulted or might
reasonably result in a Material Adverse Change, of which the Borrower
is aware.
5.2 FINANCIAL STATEMENTS. Deliver to each Lender or cause to
be delivered to Lender, in form and detail satisfactory to Lender the following
financial information, which Borrower warrants shall be accurate and complete in
all material respects:
(A) QUARTERLY FINANCIAL STATEMENTS. As soon as
available but no later than thirty (45) days after the end of each
quarter, Borrower's balance sheet as of the end of such period, and
Borrower's income statement for such period and for that portion of
Borrower's financial reporting year ending with such period, prepared
and attested by a responsible financial officer of Borrower as being
complete and correct and fairly presenting Borrower's financial
condition and the results of Borrower's operations. After a Qualified
Public Offering, the foregoing interim financial statements shall be
delivered no later than 45 days after each fiscal quarter and for the
quarter-annual fiscal period then ended.
(B) YEAR-END FINANCIAL STATEMENTS. As soon as
available but no later than one hundred (100) days after and as of the
end of each financial reporting year, a complete copy of Borrower's
audit report, which shall include balance sheet, income statement,
statement of changes in equity and statement of cash flows for such
year, prepared and certified by an independent certified public
accountant selected by Borrower and reasonably satisfactory to Lender
(the "Accountant"). The Accountant's certification shall not be
qualified or limited due to a restricted or limited examination by the
Accountant of any material portion of Borrower's records or otherwise.
(D) GOVERNMENT REQUIRED REPORTS; PRESS RELEASES.
Within thirty (30) days after sending, issuing, making available, or
filing, copies of all statements released by Borrower to any news media
for publication, all reports, proxy statements, and financial
statements that Borrower sends or makes available to its stockholders,
and, not later than thirty (30) days after actual filing, all
registration statements and reports that Borrower files or is required
to file with the Securities and Exchange Commission, or any other
governmental or regulatory authority.
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(E) OTHER INFORMATION. Such other statements, lists
of property and accounts, budgets, forecasts, reports, or other
information as Lender may from time to time reasonably request.
5.3 MANAGERIAL ASSISTANCE FROM LENDER. Permit Lender, as a
"venture capital operating company" to participate in, and influence the conduct
of management of Borrower through the exercise of "management rights," as such
terms are defined in 29 C.F.R. ss. 2510.3-101(d), and:
(A) Permit Lender to make available to Borrower, at
no cost to Borrower, "significant managerial assistance", as defined in
Section 2(a)(47) of the Investment Company Act of 1940, as amended,
either in the form of: (i) consulting arrangements with Lender or any
of its officers, directors, employees or affiliates, (ii) Borrower's
allowing Lender to provide recommendations of prospective candidates
for election to Borrower's Board of Directors, or (iii) Lender, at
Borrower's request, seeking the services of third-party consultants to
aid Borrower with respect to its management and operations;
(B) Permit Lender to make available consulting and
advisory services to officers of Borrower regarding Borrower's
equipment acquisition and financing plans, and such other matters
affecting the business, financial condition and prospects of Borrower
as Lender shall reasonably deem relevant; and
(C) If Lender reasonably believes that financial or
other developments affecting Borrower have impaired or are likely to
impair Borrower's ability to perform its obligations under this
Agreement, permit Lender reasonable access to Borrower's management
and/or Board of Directors and opportunity to present Lender's views
with respect to such developments.
5.4 EXISTENCE. Maintain and preserve Borrower's existence and
all rights and privileges necessary or desirable in the normal course of its
business; and keep all Borrower's property in good working order and condition,
ordinary wear and tear excepted.
5.5 INSURANCE. Obtain and keep in force insurance in such
amounts and types as is usual in the type of business conducted by Borrower,
with insurance carriers having a policyholder rating of not less than "A" and
financial category rating of Class VII in "Best's Insurance Guide," unless
otherwise approved by Lender. Such insurance policies must be in form and
substance satisfactory to Lender, and shall list Lender as an additional insured
or loss payee, as applicable, on endorsement(s) in form reasonably acceptable to
Lender. Borrower shall furnish to Lender such endorsements, and upon Lender's
request, copies of any or all such policies.
5.6 ACCOUNTING RECORDS. Maintain adequate books, accounts and
records, and prepare all financial statements in accordance with GAAP, and in
compliance with the regulations of any governmental or regulatory authority
having jurisdiction over Borrower or Borrower's business; and permit employees
or agents of Lender at such reasonable times as Lender may request, to inspect
Borrower's properties, and to examine, and make copies and memoranda of
Borrower's books, accounts and records. Such examination shall be at Lender's
expense, as long as Borrower is not in Default.
5.7 COMPLIANCE WITH LAWS. Comply with all laws (including
Environmental Laws), rules, regulations applicable to, and all orders and
directives of any governmental or regulatory authority having jurisdiction
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over, Borrower or Borrower's business, and with all material agreements to which
Borrower is a party, except where the failure to so comply would not have a
Material Adverse Effect.
5.8 TAXES AND OTHER LIABILITIES. Pay all Borrower's
obligations when due; pay all taxes and other governmental or regulatory
assessments before delinquency or before any penalty attaches thereto, except as
may be contested in good faith by the appropriate procedures and for which
Borrower shall maintain appropriate reserves; and timely file all required tax
returns.
5.9 USE OF PROCEEDS. Use the proceeds of Loans only as set
forth in Article 2 of this Agreement; and not directly or indirectly to purchase
or carry any margin stock, as defined from time to time by the Board of
Governors of the Federal Reserve System in Federal Regulation U.
ARTICLE 6 - NEGATIVE COVENANTS
During the term of this Agreement and until the performance of
all obligations to Lender, Borrower will not (without Lender's prior written
consent):
6.1 INDEBTEDNESS. Be indebted for borrowed money or the
deferred purchase price of property, or become liable as a surety, guarantor,
accommodation party or otherwise for or upon the obligation of any other Person,
except:
(A) Indebtedness incurred for the acquisition of
supplies or inventory on normal trade credit, including a working
capital credit line with a bank; and other indebtedness incurred
pursuant to one or more transactions permitted under SECTION 6.4;
(B) Indebtedness not to exceed Seven Hundred Fifty
Thousand Dollars ($750,000) in aggregate principal amount outstanding
at any time secured by purchase money security interests covered by
clause (c) of the definition of Permitted Lien;
(C) Indebtedness of Borrower under this Agreement;
and
(D) Any Indebtedness approved by Lender prior to the
Closing Date.
6.2 LIENS. Create, incur, assume or permit to exist any Lien,
or grant any other Person a negative pledge, on any of Borrower's property,
except Permitted Liens. Borrower and Lender agree that this covenant is not
intended to constitute a lien, deed of trust, equitable mortgage, or security
interest of any kind on any of Borrower's real property, and this Agreement
shall not be recorded or recordable.
6.3 DIVIDENDS. Except after a Qualified Public Offering, pay
any dividends or purchase, redeem or otherwise acquire or make any other
distribution with respect to any of Borrower's capital stock, except dividends
or other distributions solely of capital stock of Borrower or repurchases of
unvested shares, at the original purchase price, held by employees.
6.4 CHANGES/MERGERS. Liquidate or dissolve, or enter into any
consolidation, merger, partnership, joint venture or other combination that
would constitute a Material Adverse Change.
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6.5 SALES OF ASSETS. Sell, transfer, lease or otherwise
dispose of any of Borrower's assets except for fair consideration or where such
sale, transfer, lease or other disposition of assets would not constitute a
Material Adverse Change.
6.6 LOANS/INVESTMENTS. Make or suffer to exist any loans,
guaranties, advances, or investments, except:
(A) Accounts receivable in the ordinary course of
Borrower's business;
(B) Investments in domestic certificates of deposit
issued by, and other domestic investments with, financial institutions
organized under the laws of the United States or a state thereof,
having One Hundred Million Dollars ($100,000,000) in capital and a
rating of at least "investment grade" or "A" by Moody's or any
successor rating agency;"
(C) Investments in marketable obligations of the
United States of America and in open market commercial paper given the
highest credit rating by a national credit agency and maturing not more
than one year from the creation thereof; and
(D) Temporary advances to cover incidental expenses
to be incurred in the ordinary course of business.
6.7 TRANSACTIONS WITH RELATED PERSONS. Directly or indirectly
enter into any transaction with or for the benefit of a Related Person on terms
more favorable to the Related Person than would have been obtainable in an
"arms' length" dealing. This Section 6.7 shall not apply to any equity financing
transactions with the Company's existing venture capital investors.
ARTICLE 7 - EVENTS OF DEFAULT
7.1 EVENTS OF DEFAULT. Upon the occurrence and during the
continuation of any Default, the obligation of Lender to make any additional
Loan shall be suspended. The occurrence of any of the following shall terminate
any obligation of Lender to make any additional Loan; and shall, at the option
of Lender (1) make all sums of Basic Interest and principal, all Terminal
Payments, and any other amounts owing under any Loan Documents immediately due
and payable without notice of default, presentment or demand for payment,
protest or notice of nonpayment or dishonor or any other notices or demands, and
(2) give Lender the right to exercise any other right or remedy provided by
contract or applicable law:
(A) Borrower shall fail to pay any principal,
interest or Terminal Payment under this Agreement, or fail to pay any
fees or other charges when due under any Loan Document, and such
failure continues for five (5) Business Days or more after the same
first becomes due; or an Event of Default as defined in any other Loan
Document shall have occurred.
(B) Any representation or warranty made, or financial
statement, certificate or other document provided, by Borrower under
any Loan Document shall prove to have been false or misleading in any
material respect when made or deemed made herein.
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(C) Borrower shall fail to pay its debts generally as
they become due or shall commence any Insolvency Proceeding with
respect to itself; an involuntary Insolvency Proceeding shall be filed
against Borrower, or a custodian, receiver, trustee, assignee for the
benefit of creditors, or other similar official, shall be appointed to
take possession, custody or control of the properties of Borrower, and
such involuntary Insolvency Proceeding, petition or appointment is
acquiesced to by Borrower or is not dismissed within sixty (60) days;
or the dissolution or termination of the business of Borrower.
(D) Borrower shall be in default beyond any
applicable period of grace or cure under any other agreement involving
the borrowing of money, the purchase of property, the advance of credit
or any other monetary liability of any kind to Lender or to any Person
which results in the acceleration of payment of such obligation in an
amount in excess of Fifty Thousand Dollars ($50,000).
(E) Any governmental or regulatory authority shall
take any judicial or administrative action, that would have a Material
Adverse Effect, and which cannot be cured by Borrower within thirty
days of such action.
(F) Any sale, transfer or other disposition of all or
a substantial or material part of the assets of Borrower, including
without limitation to any trust or similar entity, shall occur where
such sale, transfer, lease or other disposition of assets would
constitute a Material Adverse Change.
(G) Any judgment(s) singly or in the aggregate in
excess of Fifty Thousand Dollars ($50,000) shall be entered against
Borrower which remain unsatisfied, unvacated or unstayed pending appeal
for thirty (30) or more days after entry thereof.
(H) Borrower shall fail to perform or observe any
covenant contained in this Agreement or any other Loan Document (other
than a covenant which is dealt with specifically elsewhere in this
Article 7) and the breach of such covenant is not cured within 30 days
after the sooner to occur of Borrower's receipt of notice of such
breach from Lender or the date on which such breach first becomes known
to any officer of Borrower; PROVIDED, HOWEVER that if such breach is
not capable of being cured within such 30-day period and Borrower
timely notifies Lender of such fact and Borrower diligently pursues
such cure, then the cure period shall be extended to the date requested
in Borrower's notice but in no event more than 90 days from the initial
breach; PROVIDED, FURTHER, that such additional 60-day opportunity to
cure shall not apply in the case of any failure to perform or observe
any covenant which has been the subject of a prior failure within the
preceding 180 days or which is a willful and knowing breach by
Borrower.
ARTICLE 8 - GENERAL PROVISIONS
8.1 NOTICES. Any notice given by any party under any Loan
Document shall be in writing and personally delivered, sent by overnight
courier, or United States mail, postage prepaid, or sent by facsimile, to be
promptly confirmed in writing, or other authenticated message, charges prepaid,
to the other party's or parties' addresses shown on the signature pages hereto.
Each party may change the address or facsimile number to which notices, requests
and other communications are to be sent by giving written
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notice of such change to each other party. Notice given by hand delivery shall
be deemed received on the date delivered; if sent by overnight courier, on the
next business day after delivery to the courier service; if by first class mail,
on the third business day after deposit in the U.S. Mail; and if by telecopy, on
the date of transmission.
8.2 BINDING EFFECT. The Loan Documents shall be binding upon
and inure to the benefit of Borrower and Lender and their respective successors
and assigns; provided, however, that Borrower may not assign or transfer
Borrower's rights or obligations under any Loan Document without Lender's prior
written consent except in connection with a consolidation, merger or other
transaction in compliance with Section 6.4 of this Agreement. Lender reserves
the right to sell, assign, transfer, negotiate or grant participations in all or
any part of, or any interest in, Lender's rights and obligations under the Loan
Documents. In connection with any of the foregoing, Lender may disclose all
documents and information which Lender now or hereafter may have relating to the
Loans, Borrower, or its business; provided that any person who receives such
information shall have agreed in writing in advance to maintain the
confidentiality of such information on terms reasonably acceptable to Borrower.
8.3 NO WAIVER. Any waiver, consent or approval by Lender of
any Event of Default or breach of any provision, condition, or covenant of any
Loan Document must be in writing and shall be effective only to the extent set
forth in writing. No waiver of any breach or default shall be deemed a waiver of
any later breach or default of the same or any other provision of any Loan
Document. No failure or delay on the part of Lender in exercising any power,
right, or privilege under any Loan Document shall operate as a waiver thereof,
and no single or partial exercise of any such power, right, or privilege shall
preclude any further exercise thereof or the exercise of any other power, right
or privilege. Lender has the right at its sole option to continue to accept
interest and/or principal payments due under the Loan Documents after default,
and such acceptance shall not constitute a waiver of said default or an
extension of the Maturity Date unless Lender agrees otherwise in writing.
8.4 RIGHTS CUMULATIVE. All rights and remedies existing under
the Loan Documents are cumulative to, and not exclusive of, any other rights or
remedies available under contract or applicable law.
8.5 UNENFORCEABLE PROVISIONS. Any provision of any Loan
Document executed by Borrower which is prohibited or unenforceable in any
jurisdiction, shall be so only as to such jurisdiction and only to the extent of
such prohibition or unenforceability, but all the remaining provisions of any
such Loan Document shall remain valid and enforceable.
8.6 ACCOUNTING TERMS. Except as otherwise provided in this
Agreement, accounting terms and financial covenants and information shall be
determined and prepared in accordance with GAAP.
8.7 INDEMNIFICATION; EXCULPATION. Borrower shall pay and
protect, defend and indemnify Lender and Lender's employees, officers,
directors, shareholders, affiliates, correspondents, agents and representatives
(other than Lender, collectively "Agents") against, and hold Lender and each
such Agent harmless from, all claims, actions, proceedings, liabilities,
damages, losses, expenses (including, without limitation, attorneys' fees and
costs) and other amounts incurred by Lender and each such Agent, arising from
(i) the matters contemplated by this Agreement or any other Loan Documents, (ii)
financing statement of record outstanding at the time of this Agreement, or
(iii) any contention that Borrower has failed to
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<PAGE>
comply with any law, rule, regulation, order or directive applicable to
Borrower's business; PROVIDED, HOWEVER, that this indemnification shall not
apply to any of the foregoing incurred solely as the result of Lender's or any
Agent's gross negligence or willful misconduct. This indemnification shall
survive the payment and satisfaction of all of Borrower's Obligations to Lender.
8.8 REIMBURSEMENT. Borrower shall reimburse Lender for all
costs and expenses, including without limitation reasonable attorneys' fees and
disbursements expended or incurred by Lender in any arbitration, mediation,
judicial reference, legal action or otherwise in connection with (a) the
preparation and negotiation of the Loan Documents, $1,000, (b) the amendment,
interpretation and enforcement of the Loan Documents, including without
limitation during any workout, attempted workout, and/or in connection with the
rendering of legal advice as to Lender's rights, remedies and obligations under
the Loan Documents, (c) collecting any sum which becomes due Lender under any
Loan Document, (d) any proceeding for declaratory relief, any counterclaim to
any proceeding, or any appeal, or (e) the protection, preservation or
enforcement of any rights of Lender. For the purposes of this section,
attorneys' fees shall include, without limitation, fees incurred in connection
with the following: (1) contempt proceedings; (2) discovery; (3) any motion,
proceeding or other activity of any kind in connection with an Insolvency
Proceeding; (4) garnishment, levy, and debtor and third party examinations; and
(5) postjudgment motions and proceedings of any kind, including without
limitation any activity taken to collect or enforce any judgment. All of the
foregoing costs and expenses shall be payable upon demand by Lender, and if not
paid within forty-five (45) days of presentation of invoices shall bear interest
at the highest applicable Default Rate.
8.9 EXECUTION IN COUNTERPARTS. This Agreement may be executed
in any number of counterparts which, when taken together, shall constitute but
one agreement.
8.10 ENTIRE AGREEMENT. The Loan Documents are intended by the
parties as the final expression of their agreement and therefore contain the
entire agreement between the parties and supersede all prior understandings or
agreements concerning the subject matter hereof. This Agreement may be amended
only in a writing signed by Borrower and Lender.
8.11 GOVERNING LAW AND JURISDICTION.
(A) THIS AGREEMENT AND THE LOAN DOCUMENTS SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF CALIFORNIA.
(B) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS
OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN,
CENTRAL OR SOUTHERN DISTRICT OF CALIFORNIA, AND BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, EACH OF BORROWER AND LENDER CONSENTS, FOR
ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE
JURISDICTION OF THOSE COURTS. EACH OF BORROWER AND LENDER IRREVOCABLY
WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR
BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH
JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED
HERETO. BORROWER AND LENDER EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS,
COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS
PERMITTED BY CALIFORNIA LAW.
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8.12 WAIVER OF JURY TRIAL. BORROWER AND LENDER EACH WAIVES ITS
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR
ANY PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT
CLAIMS, OR OTHERWISE. BORROWER AND LENDER EACH AGREES THAT ANY SUCH CLAIM OR
CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING
THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL
BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR
OTHER PROCEEDING WHICH SEEMS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION
HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
IN WITNESS WHEREOF, Borrower and Lender have executed this
Agreement as of the date set forth in the preamble.
ADDRESSES FOR NOTICES: IMGIS, INC.
IMGIS, Inc.
611 Anton Boulevard, Suite 400 By: /s/ Chad Steelberg
Costa Mesa, CA 92626 -----------------------------
Attn: CFO Name: Chad Steelberg
Fax No. 714-755-3677 Its: President
Venture Lending & Leasing, Inc. VENTURE LENDING & LEASING, INC.
2010 North First Street, Suite 310
San Jose, CA 95131
Attn: Salvador O. Gutierrez By: /s/ Ronald W. Swenson
Chief Financial Officer -----------------------------
Fax No. 408-435-8625 Name: Ronald W. Swenson
Its: Chief Executive Officer
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SCHEDULE OF EXCEPTIONS
To Loan Agreement Dated March 26, 1997, by and between
Imgis, Inc. (the "Company") and Venture Lending and Leasing, Inc.
1. Article 3, Section 3.6 The Company is currently in negotiations with Anne
Doremus d'oa Catalyst Communications ("Catalyst") regarding a Project
Consultancy Agreement dated June 12, 1996 (the "Consultancy Agreement");
pursuant to which Catalyst has filed a complaint in the Superior Court, State
of California, Orange County for various relief including damages for
$17,277.65 plus interest from the date of the Consultancy Agreement.
2. Article 3, Section 3.6. The Company has received correspondence from a
former employee, Jason Goldstein, requesting payment of $60,000.00 under an
agreement dated May 22, 1996 for compensation due for services performed to
the Company. Although no litigation or proceeding regarding this matter is
pending, the Company may elect to dispute such claim through settlement
negotiations, arbitration, litigation proceedings, or otherwise.
<PAGE>
Exhibit 10.20
VENTURE LENDING & LEASING AGREEMENT
LOAN AND SECURITY AGREEMENT
(EQUIPMENT)
DATED AS OF DECEMBER 16, 1997
BETWEEN
IMGIS INC.,
A CALIFORNIA CORPORATION
AS "BORROWER",
AND
VENTURE LENDING & LEASING, INC.,
A MARYLAND CORPORATION
AS "LENDER"
<PAGE>
LOAN AND SECURITY AGREEMENT
(EQUIPMENT)
The Borrower and Lender identified on the cover page of this
document have entered or anticipate entering into one or more transactions
pursuant to which Lender agrees to make available to Borrower an equipment
loan facility governed by the terms and conditions set forth in this document
and one or more Supplements executed by Borrower and Lender which incorporate
this document by reference. Each Supplement constitutes a supplement to and
forms part of this document, and will be read and construed as one with this
document, so that this document and the Supplement constitute a single
agreement between the parties (collectively referred to as this "Agreement").
Accordingly, the parties agree as follows:
ARTICLE 1 - INTERPRETATION
1.1 DEFINITIONS. The terms defined in Article 10 and in the Supplement
will have the meanings therein specified for purposes of this Agreement.
1.2 INCONSISTENCY. In the event of any inconsistency between the
provisions of any Supplement and this document, the provisions of the
Supplement will be controlling for the purpose of all relevant transactions.
ARTICLE 2 - THE COMMITMENT AND LOANS
2.1 THE COMMITMENT. Subject to the terms and conditions of this
Agreement, Lender agrees to make term loans to Borrower from time to time
from the Closing Date and to, but not including, the Termination Date in an
aggregate principal amount not exceeding the Commitment. The Commitment is
not a revolving credit commitment, and Borrower does not have the right to
repay and reborrow hereunder. Each Loan requested by Borrower to be made on a
single Business Day shall be for a minimum principal amount set forth in the
Supplement except to the extent the remaining commitment is a lesser amount.
2.2 NOTES EVIDENCING LOANS; REPAYMENT. Each Loan shall be evidenced by a
separate Note payable to the order of Lender, in the total principal amount
of the Loan. Principal and interest of each Loan shall be payable at the
times and in the manner set forth in the Note.
2.3 PROCEDURES FOR BORROWING.
(a) Borrower shall give Lender, at least five (5) Business Days' prior
to a proposed Borrowing Date, written notice of any request for borrowing
hereunder (a "Borrowing Request"). Each Borrowing Request shall be in
substantially the form of EXHIBIT "B" hereto, shall be executed by the chief
financial officer or accounting officer of Borrower, and shall state how much
is requested, and shall be accompanied by such information and documentation
as Lender may deem reasonably necessary to determine whether the proposed
borrowing will comply with the limitations in the Supplement.
(b) No later than 1:00 p.m. Pacific Standard Time on the Borrowing Date,
if Borrower has satisfied the conditions precedent in Article 4, Lender shall
make the Loan available to Borrower in immediately available funds.
2.4 INTEREST. Basic Interest on the outstanding principal balance of the
each Loan shall accrue daily at the Designated Rate from the Borrowing Date
until the Maturity Date.
2.5 TERMINAL PAYMENT. Borrower shall pay the Terminal Payment with
respect to each Loan on the Maturity Date of such Loan.
2.6 INTEREST RATE CALCULATION. Basic Interest, along with charges and
fees under this Agreement and any Loan Document, shall be calculated for
actual days elapsed on the basis of a 360-day year, which results in higher
interest, charge or fee payments than if a 365-day year were used. In no
event shall Borrower be obligated to pay Lender interest, charges or fees at
a rate in excess of the highest rate permitted by applicable law from time to
time in effect.
2.7 DEFAULT INTEREST. Any unpaid payments of principal or interest or
the Terminal Payment with respect to any Loan shall bear interest from their
respective maturities, whether scheduled or accelerated, at the Designated
Rate for such Loan PLUS
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five percent (5.00%) per annum, until paid in full, whether before or after
judgment (the "Default Rate"). Borrower shall pay such interest on demand.
2.8 LATE CHARGES. If Borrower is late in making any payment of
principal or interest or Terminal Payment under this Agreement by more five
(5) days, Borrower agrees to pay a late charge of five percent (5%) of the
installment due, but not less than fifty dollars ($50.00) for any one such
delinquent payment. This late charge may be charged by Lender for the purpose
of defraying the expenses incidental to the handling of such delinquent
amounts. Borrower acknowledges that such late charge represents a reasonable
sum considering all of the circumstances existing on the date of this
Agreement and represents a fair and reasonable estimate of the costs that
will be sustained by Lender due to the failure of Borrower to make timely
payments. Borrower further agrees that proof of actual damages would be
costly and inconvenient. Such late charge shall be paid without prejudice to
the right of Lender to collect any other amounts provided to be paid or to
declare a default under this Agreement or any of the other Loan Documents or
from exercising any other rights and remedies of Lender.
2.9 LENDER'S RECORDS. Principal, Basic Interest, Terminal Payments
and all other sums owed under any Loan Document shall be evidenced by entries
in records maintained by Lender for such purpose. Each payment on and any
other credits with respect to principal, Basic Interest, Terminal Payments
and all other sums outstanding under any Loan Document shall be evidenced by
entries in such records. Absent manifest error, Lender's records shall be
conclusive evidence thereof.
2.10 GRANT OF SECURITY INTERESTS. To secure the timely payment and
performance of all of Borrower's Obligations to Lender, Borrower hereby
grants to Lender continuing security interests in all of the Collateral an
such other Lien documentation satisfactory in form and substance to Lender,
subject only to Permitted Liens.
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that, except as set forth in the Supplement
or any schedule of exceptions executed by the parties, as of the Closing
Date and each Borrowing Date:
3.1 DUE ORGANIZATION. Borrower is a corporation duly organized and
validly existing in good standing under the laws of the jurisdiction of its
incorporation, and is duly qualified to conduct business and is in good
standing in each other jurisdiction in which its business is conducted or its
properties are located, except where the failure to be so qualified would not
reasonably be expected to have a Material Adverse Effect.
3.2 AUTHORIZATION, VALIDITY AND ENFORCEABILITY. The execution,
delivery and performance of all Loan Documents executed by Borrower are
within Borrower's powers, have been duly authorized, and are not in conflict
with Borrower's articles or certificate of incorporation or by-laws, or the
terms of any charter or other organizational document of Borrower, as amended
from time to time; and all such Loan Documents constitute valid and binding
obligations of Borrower, enforceable in accordance with their terms (except
as may be limited by bankruptcy, insolvency and similar laws affecting the
enforcement of creditors' rights in general, and subject to general
principles of equity).
3.3 COMPLIANCE WITH APPLICABLE LAWS. To Borrower's knowledge, Borrower
has complied with all licensing, permit and fictitious name requirements
necessary to lawfully conduct the business in which it is engaged, and to any
sales, leases or the furnishing of services by Borrower, including without
limitation those requiring consumer or other disclosures, the noncompliance
with which would have a Material Adverse Effect.
3.4 NO CONFLICT. The execution, delivery, and performance by Borrower
of all Loan Documents are not in conflict with any law, rule, regulation,
order or directive, or any indenture, agreement, or undertaking to which
Borrower is a party or by which Borrower may be bound or affected.
3.5 NO LITIGATION, CLAIMS OR PROCEEDINGS. There is no litigation, tax
claim or proceeding pending or, to the knowledge of Borrower, threatened
against Borrower or its property.
3.6 CORRECTNESS OF FINANCIAL STATEMENTS. Borrower's financial
statements which have been delivered to Lender fairly and accurately reflect
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Borrower's financial condition as of the latest date of such financial
statements; and, since that date there has been no Material Adverse Change.
3.7 NO SUBSIDIARIES. Borrower is not a majority owner of or in a
control relationship with any other business entity.
3.8 NO EVENT OF DEFAULT. No Default or Event of Default has occurred
and is continuing.
3.9 FULL DISCLOSURE. None of the representations or warranties made
by Borrower in the Loan Documents as of the date such representations and
warranties are made or deemed made, and none of the statements contained in
any exhibit, report, statement or certificate furnished by or on behalf of
Borrower in connection with the Loan Documents (including disclosure
materials delivered by or on behalf of Borrower to Lender prior to the
Closing Date), when taken together contains any untrue statement of a
material fact or omits any material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they are made, not misleading as of the time when made or
delivered.
3.10 SPECIFIC REPRESENTATIONS REGARDING COLLATERAL.
(a) TITLE. Except for the security interests created by this
Agreement and Permitted Liens, (i) Borrower is and will be the unconditional
legal and beneficial owner of the Collateral, and (ii) the Collateral is
genuine and subject to no Liens, rights or defenses of others.
(b) LOCATION OF COLLATERAL. Borrower's chief executive office,
Records, Equipment, and any other offices or places of business are located
at the address(es) shown on the Supplement.
(c) BUSINESS NAMES. Other than its full corporate name, Borrower has
not conducted business using any trade names or fictitious business names
except as shown on the Supplement.
ARTICLE 4 - CONDITIONS PRECEDENT
4.1 CONDITIONS TO FIRST LOAN. The obligation of Lender to make its
first Loan hereunder is, in addition to the conditions precedent specified in
SECTION 4.2, subject to the fulfillment of the following conditions and to the
receipt by Lender of the documents described below, duly executed and in form
and substance reasonably satisfactory to Lender and its counsel:
(a) RESOLUTIONS. A certified copy of the resolutions of the Board of
Directors of Borrower authorizing the execution, delivery and performance by
Borrower of the Loan Documents.
(b) INCUMBENCY AND SIGNATURES. A certificate of the secretary of
Borrower certifying the names of the officer or officers of Borrower
authorized to sign the Loan Documents, together with a sample of the true
signature of each such officer.
(c) LEGAL OPINION. The opinion of legal counsel for Borrower as to
such matters as Lender may reasonably request, including the matters covered
by Sections 3.1, 3.2, 3.4 and 3.5 hereof.
(d) ARTICLES AND BY-LAWS. Certified copies of the Articles or
Certificate of Incorporation and By-Laws of Borrower, as amended through the
Closing Date.
(e) THIS AGREEMENT. A counterpart of this Agreement and an initial
Supplement, with all schedules completed and attached thereto, and disclosing
such information as is acceptable to Lender.
(f) FINANCING STATEMENTS. Filing copies (or other evidenced of filing
satisfactory to Lender and its counsel) of such Uniform Commercial Code
financing statements, collateral assignments and termination statements, with
respect to the Collateral as Lender shall request.
(g) LIEN SEARCHES. Uniform Commercial Code lien, judgment, bankruptcy
and tax lien searches of Borrower from such jurisdictions or offices as
Lender may reasonably request, all as of a date reasonably satisfactory to
Lender and its counsel.
(h) GOOD STANDING CERTIFICATE. A Certificate of status or good
standing of Borrower as of a date acceptable to Lender from the jurisdiction
of Borrower's organization and any foreign jurisdictions where Borrower is or
should be qualified to do business.
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(i) WARRANT. A warrant issued by Borrower to Lender exercisable for
such number, type and class of shares of Borrower's capital stock, and for an
initial exercise price as is specified in the Supplement.
4.2 CONDITIONS TO ALL LOANS. The obligation of Lender to make its
initial Loan and each subsequent Loan is subject to the following further
conditions precedent that:
(a) NO DEFAULT. No Default or Event of Default has occurred and is
continuing or will result from the making of any such Loan, and the
representations and warranties of Borrower contained in Article 3 of this
Agreement and in any Supplement are true and correct as of the Borrowing Date
of such Loan.
(b) NO ADVERSE MATERIAL CHANGE. No Material Adverse Change shall have
occurred since the date of the most recent financial statements submitted to
Lender.
(c) BORROWING REQUEST. Borrower shall have delivered to Lender a
Borrowing Request for such Loan.
(d) NOTE. Borrower shall have delivered an executed Note evidencing
such Loan, in form and substance satisfactory to Lender.
(e) SUPPLEMENTAL LIEN FILINGS. Borrower shall have executed and
delivered such amendments or supplements to the this Agreement and such
financing statements as Lender may reasonably request in connection with the
proposed Loan, in order to create or perfect or to maintain the perfection of
Lender's Liens on the Collateral.
(f) VCOC LIMITATION. Lender shall not be obligated to make any Loan
under its Commitment if at the time of or after giving effect to the proposed
Loan Lender would no longer qualify as: (A) a "venture capital operating
company" under U.S. Department of Labor Regulations Section 2510.3-101(d),
Title 29 of the Code of Federal Regulations, as amended; and (B) a "business
development company" under the provisions of federal Investment Company Act
of 1940, as amended; and (C) a "regulated investment company" under the
provisions of the Internal Revenue Code of 1986, as amended.
ARTICLE 5 - AFFIRMATIVE COVENANTS
During the term of this Agreement and until its performance of all
obligations to Lender, Borrower will:
5.1 NOTICE TO LENDER. Promptly give written notice to Lender of:
(a) Any litigation or administrative or regulatory proceeding
affecting Borrower where the amount claimed against Borrower is at the
Threshold Amount or more, or where the granting of the relief requested could
have a Material Adverse Effect.
(b) The occurrence of any Default or any Event of Default where the
Borrower has knowledge of such Default or Event of Default.
(c) Any change in the location of any of Borrower's places of
business or Collateral at least thirty (30) days in advance of such change.
(d) Any default by Borrower under any joint venture, partnering,
distribution, cross-licensing, strategic alliance, collaborative research
or manufacturing, license or similar agreement which could reasonably be
expected to have a Material Adverse Effect.
(e) Any other matter which has resulted or might reasonably result in
a Material Adverse Change of which the Borrower is aware.
5.2 FINANCIAL STATEMENTS. Deliver to each Lender or cause to be
delivered to Lender, in form and detail satisfactory to Lender the following
financial information, which Borrower warrants shall be accurate and complete
in all material respects:
(a) QUARTERLY FINANCIAL STATEMENTS. As soon as available but no later
than forty five (45) days after the end of each quarter, Borrower's balance
sheet as of the end of such period, and Borrower's income statement for such
period and for that portion of Borrower's financial reporting year ending
with such period, prepared and attested by a responsible financial officer of
Borrower as being complete and correct and fairly presenting Borrower's
financial condition and the results of Borrower's operations. After a
Qualified Public Offering, the foregoing interim financial statements shall
be delivered no later than 45 days after
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each fiscal quarter and for the quarter-annual fiscal period then ended.
(b) YEAR-END FINANCIAL STATEMENTS. As soon as available but no later
than one hundred (100) days after and as of the end of each financial
reporting year, a complete copy of Borrower's audit report, which shall
include balance sheet, income statement, statement of changes in equity and
statement of cash flows for such year, prepared and certified by an
independent certified public accountant selected by Borrower and
satisfactory to Lender (the "Accountant"). The Accountant's certification
shall not be qualified or limited due to a restricted or limited examination
by the Accountant of any material portion of Borrower's records or otherwise.
(c) GOVERNMENT REQUIRED REPORTS; PRESS RELEASES. Within thirty
(30) days after sending, issuing, making available, or filing, copies of all
statements released by Borrower to any news media for publication, all
reports, proxy statements, and financial statements that Borrower sends or
makes available to its stockholders, and, not later than thirty (30) days
after actual filing all registration statements and reports that Borrower
files or is required to file with the Securities and Exchange Commission, or
any other governmental or regulatory authority.
(d) OTHER INFORMATION. Such other statements, lists of property
and accounts, budgets, forecasts, reports, or other information as Lender may
from time to time reasonably request.
5.3 MANAGERIAL ASSISTANCE FROM LENDER. Permit Lender, as a "venture
capital operating company" to participate in, and influence the conduct of
management of Borrower through the exercise of "management rights," as such
terms are defined in 29 C.F.R. SECTION 2510.3 -101(d), and:
(a) Permit Lender to make available to Borrower, at no cost to
Borrower, "significant managerial assistance", as defined in Section 2(a)(47)
of the Investment Company Act of 1940, as amended, either in the form of: (i)
consulting arrangements with Lender or any of its officers, directors,
employees or affiliates, (ii) Borrower's allowing Lender to provide
recommendations of prospective candidates for election to Borrower's Board of
Directors, or (iii) Lender, at Borrower's request, seeking the services of
third-party consultants to aid Borrower with respect to its management and
operations;
(b) Permit Lender to make available consulting and advisory services
to officers of Borrower regarding Borrower's equipment acquisition and
financing plans, and such other matters affecting the business, financial
condition and prospects of Borrower as Lender shall reasonably deem relevant;
and
(c) If Lender reasonably believes that financial or other
developments affecting Borrower have impaired or are likely to impair
Borrower's ability to perform its obligations under this Agreement, permit
Lender reasonable access to Borrower's management and/or Board of Directors
and opportunity to present Lender's views with respect to such developments.
5.4 EXISTENCE. Maintain and preserve Borrower's existence and all
rights and privileges necessary or desirable in the normal course of its
business; and keep all Borrower's property in good working order and
condition, ordinary wear and tear excepted.
5.5 INSURANCE. Obtain and keep in force insurance in such amounts
and types as is usual in the type of business conducted by Borrower, with
insurance carriers having a policyholder rating of not less than "A" and
financial category rating of Class VII in "Best's Insurance Guide," unless
otherwise approved by Lender. Such insurance policies must be in form and
substance satisfactory to Lender, and shall list Lender as an additional
insured or loss payee, as applicable, on endorsement(s) in form reasonably
acceptable to Lender. Borrower shall furnish to Lender such endorsements,
and upon Lender's request, copies of any or all such policies.
5.6 ACCOUNTING RECORDS. Maintain adequate books, accounts and
records, and prepare all financial statements in accordance with GAAP, and in
compliance with the regulations of any governmental or regulatory authority
having jurisdiction over Borrower or Borrower's business; and permit
employees or agents of Lender at such reasonable times as Lender may request,
to inspect Borrower's properties, and to examine, and make copies and
memoranda of Borrower's books, accounts and records. Such examination shall
be at Lender's expense, as long as Borrower is not in Default.
5.7 COMPLIANCE WITH LAWS. Comply with all laws (including
Environmental Laws), rules, regulations applicable to, and all orders and
directives of any governmental or regulatory authority having
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jurisdiction over, Borrower or Borrower's business, and with all material
agreements to which Borrower is a party, except where the failure to so
comply would not have a Material Adverse Effect.
5.8 TAXES AND OTHER LIABILITIES. Pay all Borrower's obligations when
due; pay all taxes and other governmental or regulatory assessments before
delinquency or before any penalty attaches thereto, except as may be
contested in good faith by the appropriate procedures and for which Borrower
shall maintain appropriate reserves; and timely file all required tax returns.
5.9 SPECIAL COLLATERAL COVENANTS.
(a) MAINTENANCE OF COLLATERAL; INSPECTION. Do all things reasonably
necessary to maintain, preserve, protect and keep all Collateral in good
working order and salable condition, ordinary wear and tear excepted, deal
with the Collateral in all ways as are considered good practice by owners of
like property, and use the Collateral lawfully and only as permitted by
Borrower's insurance policies. Borrower hereby authorizes Lender's
officers, employees, representatives and agents upon reasonable notice, at
reasonable times and with reasonable frequency to inspect the Collateral and
to discuss the Collateral and the Records relating thereto with Borrower's
officers and employees.
(b) FINANCING STATEMENTS AND OTHER ACTIONS. Execute and deliver to
Lender and file or record at Borrowers, expense all financing statements,
notices and other documents from time to time reasonably requested by any
Lender to maintain a first perfected security interest in the Collateral in
favor of Lender all in form and substance satisfactory to Lender; perform
such other acts, and execute and deliver to Lender such additional
conveyances, assignments, agreements and instruments, as Lender may at any
time reasonably request in connection with the administration and enforcement
of this Agreement or Lender's rights, powers and remedies hereunder.
(c) LIENS. Not create, incur, assume or permit to exist any Lien on
any Collateral, except Permitted Liens.
(d) DOCUMENTS OF TITLE. Not sign or authorize the signing of any
financing statement or other document naming Borrower as debtor or obligor,
except those which do not relate to the Collateral or which, with respect to
the Collateral are permitted under this Agreement, or acquiesce or cooperate
in the issuance of any warehouse receipt or other document of title with
respect to any Collateral, except those negotiated to Lender, or those naming
Lender as Lender.
(e) DISPOSITION OF COLLATERAL. Not sell, transfer, lease or otherwise
dispose of any Collateral.
(f) CHANGE IN LOCATION OR NAME. If and to the extent the same would
in any manner impair the creation, perfection or priority of Lender's
security interest in the Collateral, (a) maintain items of Collateral,
Records, its chief executive office or residence, or a place of business at a
location other than specified in the supplement; or (b) change its name,
mailing address, or its legal structure.
(g) DECALS, MARKINGS. At the request of Lender, firmly affix a decal,
stencil or other marking to designated items of Equipment, indicating thereon
the security interest of Lender.
(h) AGREEMENT WITH REAL PROPERTY OWNER/LANDLORD. Obtain and
maintain such acknowledgments, consents, waivers and agreements from the
owner, lienholder, mortgagee and landlord with respect to any real property
on which Equipment is located as Lender may require, all in form and
substance satisfactory to Lender.
ARTICLE 6 - NEGATIVE COVENANTS
During the term of this Agreement and until the performance of all
obligations to Lender, Borrower will not (without Lender's prior written
consent):
6.1 INDEBTEDNESS. Be indebted for borrowed money or the deferred
purchase price of property, or become liable as a surety, guarantor,
accommodation party or otherwise for or upon the obligation of any other
Person, except:
(a) Indebtedness incurred for the acquisition of supplies or
inventory on normal trade credit, including a working capital credit line
with a bank; and other indebtedness incurred pursuant to one or more
transactions permitted under SECTION 6.4;
(b) Indebtedness not to exceed Seven Hundred Fifty Thousand Dollars
($750,000) in
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aggregate principal amount outstanding at any time secured by purchase money
security interests covered by clause (c) of the definition of Permitted Lien;
(c) Indebtedness of Borrower under this Agreement; and
(d) Any Indebtedness approved by Lender prior to the Closing Date.
6.2 LIENS. Create, incur, assume or permit to exist any Lien, or
grant any other Person a negative pledge, on any of Borrower's property,
except Permitted Liens. Borrower and Lender agree that this covenant is not
intended to constitute a lien, deed of trust, equitable mortgage, or security
interest of any kind on any of Borrower's real property, and this Agreement
shall not be recorded or recordable.
6.3 DIVIDENDS. Except after a Qualified Public Offering, pay any
dividends or purchase, redeem or otherwise acquire or make any other
distribution with respect to any of Borrower's capital stock, except
dividends or other distributions solely of capital stock of Borrower or
repurchases of unvested shares, at the original purchase price, held by
employees.
6.4 CHANGES/MERGERS. Liquidate or dissolve, or enter into any
consolidation, merger, partnership, joint venture or other combination that
would constitute a Material Adverse Change.
6.5 SALES OF ASSETS. Sell, transfer, lease or otherwise dispose of
any of Borrower's assets except for fair consideration or where such sale,
transfer, lease or other disposition of assets would not constitute a
Material Adverse Change.
6.6 LOANS/INVESTMENTS. Make or suffer to exist any loans,
guaranties, advances, or investments, except:
(a) Accounts receivable in the ordinary course of Borrower's
business;
(b) Investments in domestic certificates of deposit issued by, and
other domestic investments with, financial institutions organized under the
laws of the United States or a state thereof, having One Hundred Million
Dollars ($100,000,000) in capital and a rating of at least "investment grade"
or "A" by Moody's or any successor rating agency;"
(c) Investments in marketable obligations of the United States of
America and in open market commercial paper given the highest credit rating
by a national credit agency and maturing not more than one year from the
creation thereof; and
(d) Temporary advances to cover incidental expenses to be incurred
in the ordinary course of business.
6.7 TRANSACTIONS WITH RELATED PERSONS. Directly or indirectly
enter into any transaction with or for the benefit of a Related Person on
terms more favorable to the Related Person than would have been obtainable in
an "arms' length" dealing. This Section 6.7 shall not apply to any equity
financing transactions with the Company's existing venture capital investors.
ARTICLE 7 - EVENTS OF DEFAULT
7.1 EVENTS OF DEFAULT; ACCELERATION. Upon the occurrence and during
the continuation of any Default, the obligation of Lender to make any
additional Loan shall be suspended. The occurrence of any of the following
shall terminate any obligation of Lender to make any additional Loan; and
shall, at the option of Lender (1) make all sums of Basic Interest and
principal, all Terminal Payments, and other amounts owing under any Loan
Documents immediately due and payable without notice of default, presentment
or demand for payment, protest or notice of nonpayment or dishonor or any
other notices or demands, and (2) give Lender the right to exercise any other
right or remedy provided by contract or applicable law:
(a) Borrower shall fail to pay any principal, interest or Terminal
Payment under this Agreement, or fail to pay any fees or other charges when
due under any Loan Document, and such failure continues for five (5) Business
Days or more after the same first becomes due; or an Event of Default as
defined in any other Loan Document shall have occurred.
(b) Any representation or warranty made, or financial statement,
certificate or other document provided, by Borrower under any Loan Document
shall prove to have been false or misleading in any material respect when
made or deemed made herein.
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(c) Borrower shall fail to pay its debts generally as they become due
or shall commence any Insolvency Proceeding with respect to itself; an
involuntary Insolvency Proceeding shall be filed against Borrower, or a
custodian, receiver, trustee, assignee for the benefit of creditors, or other
similar official, shall be appointed to take possession, custody or control
of the properties of Borrower, and such involuntary Insolvency Proceeding,
petition or appointment is acquiesced to by Borrower or is not dismissed
within sixty (60) days; or the dissolution or termination of the business of
Borrower.
(d) Borrower shall be in default beyond any applicable period of
grace or cure under any other agreement involving the borrowing of money, the
purchase of property, the advance of credit or any other monetary liability
of any kind to Lender or to any Person which results in the acceleration of
payment of such obligation in an amount in excess of the Threshold Amount.
(e) Any governmental or regulatory authority shall take any judicial
or administrative action that would have a Material Adverse Effect and which
cannot be cured by Borrower within thirty days of such action.
(f) Any sale, transfer or other disposition of all or a substantial
or material part of the assets of Borrower, including without limitation to
any trust or similar entity, shall occur where such sale, transfer, lease or
other disposition of assets would constitute a Material Adverse Change.
(g) Any judgment(s) singly or in the aggregate in excess of the
Threshold Amount shall be entered against Borrower which remain unsatisfied,
unvacated or unstayed pending appeal for thirty (30) or more days after entry
thereof.
(h) Borrower shall fail to perform or observe any covenant contained
in this Agreement or any other Loan Document (other than a covenant which is
dealt with specifically elsewhere in this Article 7) and the breach of such
covenant is not cured within 30 days after the sooner to occur of Borrower's
receipt of notice of such breach from Lender or the date on which such breach
first becomes known to any officer of Borrower; PROVIDED, HOWEVER that if
such breach is not capable of being cured within such 30-day period and
Borrower timely notifies Lender of such fact and Borrower diligently pursues
such cure, then the cure period shall be extended to the date requested in
Borrower's notice but in no event more than 90 days from the initial breach;
PROVIDED, FURTHER, that such additional 60-day opportunity to cure shall not
apply in the case of any failure to perform or observe any covenant which has
been the subject of a prior failure within the preceding 180 days or which is
a willful and knowing breach by Borrower.
7.2 REMEDIES UPON DEFAULT. Upon the occurrence and during the
continuance of an Event of Default, Lender shall be entitled to, at its
option, exercise any or all of the rights and remedies available to a Lender
under the Uniform Commercial Code or any other applicable law, and exercise
any or all of its rights and remedies provided for in this Agreement and in
any other Loan Document. The obligations of Borrower under this Agreement
shall continue to be effective or be reinstated, as the case may be, if at
any time any payment of any Obligations is rescinded or must otherwise be
returned by Lender upon, on account of, or in connection with, the
insolvency, bankruptcy or reorganization of Borrower or otherwise, all as
though such payment had not been made.
7.3 SALE OF COLLATERAL. After the occurrence and during the
continuance of an Event of Default, Lender may sell all or any part of the
Collateral, at public or private sales, to itself, a wholesaler, retailer or
investor, for cash, upon credit or for future delivery, and at such price or
prices as Lender may deem commercially reasonable. To the extent permitted by
law, Borrower hereby specifically waives all rights of redemption and any
rights of stay or appraisal which it has or may have under any applicable law
in effect from time to time. Any such public or private sales shall be held
at such times and at such place(s) as Lender may determine. In case of the
sale of all or any part of the Collateral on credit or for future delivery,
the Collateral so sold may be retained by Lender until the selling price is
paid by the purchaser, but Lender shall not incur any liability in case of
the failure of such purchaser to pay for the Collateral and, in case of any
such failure, such Collateral may be resold. Lender may, instead of
exercising its power of sale, proceed to enforce its security interest in the
Collateral by seeking a judgment or decree of a court of competent
jurisdiction.
7.4 BORROWER'S OBLIGATIONS UPON DEFAULT. Upon the request of Lender
after the occurrence of an Event of Default, Borrower will:
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(a) Assemble and make available to Lender the Collateral at such
place(s) as Lender shall designate, segregating all Collateral so that each
item is capable of identification; and
(b) Subject to the rights of any previous lessor, permit Lender, by
Lender's officers, employees, agents and representatives, to enter any
premises where any Collateral is located, to take possession of the
Collateral and to remove the Collateral, or to conduct any public or private
sale of the Collateral, all without any liability of Lender for rent or other
compensation for the use of Borrower's premises.
ARTICLE 8 - SPECIAL COLLATERAL PROVISIONS
8.1 PERFORMANCE OF BORROWER'S OBLIGATIONS. Without having any
obligation to do so, upon reasonable prior notice to Borrower, Lender may
perform or pay any obligation which Borrower has agreed to perform or pay
under this Agreement, including, without limitation, the payment or discharge
of taxes or Liens levied or placed on or threatened against the Collateral.
In so performing or paying, Lender shall determine the action to be taken and
the amount necessary to discharge such obligations. Borrower shall reimburse
Lender on demand for any amounts paid by Lender pursuant to this Section,
which amounts shall constitute Indebtedness secured by the Collateral and
shall bear interest from the date of demand at the rate applicable to overdue
payments under this Loan Agreement.
8.2 POWER OF ATTORNEY. For the purpose of protecting, preserving and
enforcing the Collateral and Lender's rights under this Agreement, Borrower
hereby irrevocably appoints Lender, with full power of substitution, as its
attorney-in-fact with full power and authority to do any act which Borrower
is obligated to do or Lender has the right to do, hereunder; to exercise such
rights with respect to the Collateral as Borrower might exercise; to use such
Equipment, Fixtures or other property as Borrower might use; to enter
Borrower's premises; to give notice of Lender's security interest in, and to
collect the Collateral and the proceeds; and to execute and file in
Borrower's name any financing statements, amendments and continuation
statements necessary or desirable to perfect or continue the perfection of
Lender's security interests in the Collateral. Borrower hereby ratifies all
that Lender shall lawfully do or cause to be done by virtue of this
appointment.
8.3 AUTHORIZATION FOR LENDER TO TAKE CERTAIN ACTION. The power of
attorney created in Section 8.2 is a power coupled with an interest and shall
be irrevocable. The powers conferred on Lender hereunder are solely to
protect its interests in the Collateral and shall not impose any duty upon
Lender to exercise such powers. Lender shall be accountable only for amounts
that it actually receives as a result of the exercise of such powers and in
no event shall Lender or any of its directors, officers, employees, agents or
representatives be responsible to Borrower for any act or failure to act,
except for gross negligence or willful misconduct. After the occurrence and
during the continuance of an Event of Default, Lender may exercise this power
of attorney without notice to or assent of Borrower, in the name of Borrower,
or in Lender's own name, from time to time in Lender's sole discretion and at
Borrower's expense. To further carry out the terms of this Agreement, Lender
may upon the occurrence and during the continuance of an Event of Default:
(a) Sign and endorse any invoices, freight or express bills, bills of
lading, storage or warehouse receipts; drafts, certificates and statements
under any commercial or standby letter of credit relating to Collateral; or
any other documents relating to the Collateral, including without limitation
the Records.
(b) Use or operate Collateral or any other property of Borrower for
the purpose of preserving or liquidating Collateral.
(c) File any claim or take any other action or proceeding in any
court of law or equity or as otherwise deemed appropriate by Lender for the
purpose of collecting any and all monies due or securing any performance to
be rendered with respect to the Collateral.
(d) Commence, prosecute or defend any suits, actions or proceedings
or as otherwise deemed appropriate by Lender for the purpose of protecting or
collecting the Collateral. In furtherance of this right, upon the occurrence
and during the continuance of an Event of Default, Lender may apply for the
appointment of a receiver or similar official to operate Borrower's business.
9
<PAGE>
(e) Prepare, adjust, execute, deliver and receive payment under
insurance claims, and collect and receive payment of and endorse any
instrument in payment of loss or returned premiums or any other insurance
refund or return, and apply such amounts at Lender's sole discretion, toward
repayment of the Indebtedness or replacement of the Collateral.
8.4 APPLICATION OF PROCEEDS. Any Proceeds and other monies or
property received by Lender pursuant to the terms of this Agreement or any
Loan Document may be applied by Lender first to the payment of expenses of
collection, including without limitation reasonable attorneys' fees, and then
to the payment of the Indebtedness in such order of application as Lender may
elect.
8.5 DEFICIENCY. If the Proceeds of any sale of the Collateral are
insufficient to cover all costs and expenses of such sale and the payment in
full of all the Indebtedness, plus all other sums required to be expended or
distributed by Lender, then Borrower shall be liable for any such deficiency.
8.6 LENDER TRANSFER. Upon the transfer of all or any part of the
Indebtedness, Lender may transfer all or any part of its interest in the
Collateral and shall be fully discharged thereafter from all liability and
responsibility with respect to such interest in the Collateral so
transferred, and the transferee shall be vested with all the rights and
powers of Lender hereunder with respect to such interest in the Collateral so
transferred.
8.7 LENDER'S DUTIES.
(a) Lender shall use reasonable care in the custody and preservation
of any Collateral in its possession. Without limitation on other conduct
which may be considered the exercise of reasonable care, Lender shall be
deemed to have exercised reasonable care in the custody and preservation of
such Collateral if such Collateral is accorded treatment substantially equal
to that which Lender accords its own property; or taking any necessary steps
to preserve any rights against any Person with respect to any Collateral.
Under no circumstances shall Lender be responsible for any injury or loss to
the Collateral, or any part thereof, arising from any cause beyond the
reasonable control of Lender.
(b) Neither Lender, nor any of its directors, officers, employees,
agents, attorneys or any other person affiliated with or representing Lender
shall be liable for any claims, demands, losses or damages, of any kind
whatsoever, made, claimed, incurred or suffered by Borrower or any other
party through the ordinary negligence of Lender, or any of its directors,
officers, employees, agents, attorneys or any other person affiliated with or
representing Lender.
8.8 TERMINATION OF SECURITY INTERESTS. Upon the payment in full of
the Obligations and if Lender has no further obligations under its
Commitment, the security interest granted hereby shall terminate and all
rights to the Collateral shall revert to Borrower. Upon any such termination,
the Lender shall, at Borrower's expense, execute and deliver to Borrower such
documents as Borrower shall reasonably request to evidence such termination.
ARTICLE 9 - GENERAL PROVISIONS
9.1 NOTICES. Any notice given by any party under any Loan Document
shall be in writing and personally delivered, sent by overnight courier, or
United States mail, postage prepaid, or sent by facsimile, to be promptly
confirmed in writing, or other authenticated message, charges prepaid, to the
other party's or parties' addresses shown on the Supplement. Each party may
change the address or facsimile number to which notices, requests and other
communications are to be sent by giving written notice of such change to each
other party. Notice given by hand delivery shall be deemed received on the
date delivered; if sent by overnight courier, on the next business day after
delivery to the courier service; if by first class mail, on the third
business day after deposit in the U.S. Mail; and if by telecopy, on the date
of transmission.
9.2 BINDING EFFECT. The Loan Documents shall be binding upon and
inure to the benefit of Borrower and Lender and their respective successors
and assigns; provided, however, that Borrower may not assign or transfer
Borrower's rights or obligations under any Loan Document without Lender's
prior written consent except in connection with a consolidation, merger or
other transaction in compliance with Section 6.4 of this Agreement. Lender
reserves the right to sell, assign, transfer, negotiate or grant
participations in all or any part of, or any interest in, Lender's rights and
obligations under the Loan Documents. In connection with any of the
foregoing, Lender may disclose all documents and information which Lender now
or
10
<PAGE>
hereafter may have relating to the Loans, Borrower, or its business; provided
that any person who receives such information shall have agreed in writing in
advance to maintain the confidentiality of such information on terms
reasonably acceptable to Borrower.
9.3 NO WAIVER. Any waiver, consent or approval by Lender of any
Event of Default or breach of any provision, condition, or covenant of any
Loan Document must be in writing and shall be effective only to the extent
set forth in writing. No waiver of any breach or default shall be deemed a
waiver of any later breach or default of the same or any other provision of
any Loan Document. No failure or delay on the part of Lender in exercising
any power, right, or privilege under any Loan Document shall operate as a
waiver thereof, and no single or partial exercise of any such power, right,
or privilege shall preclude any further exercise thereof or the exercise of
any other power, right or privilege. Lender has the right at its sole option
to continue to accept interest and/or principal payments due under the Loan
Documents after default, and such acceptance shall not constitute a waiver of
said default or an extension of the Maturity Date unless Lender agrees
otherwise in writing.
9.4 RIGHTS CUMULATIVE. All rights and remedies existing under the
Loan Documents are cumulative to, and not exclusive of, any other rights or
remedies available under contract or applicable law.
9.5 UNENFORCEABLE PROVISIONS. Any provision of any Loan Document
executed by Borrower which is prohibited or unenforceable in any
jurisdiction, shall be so only as to such jurisdiction and only to the extent
of such prohibition or unenforceability, but all the remaining provisions of
any such Loan Document shall remain valid and enforceable.
9.6 ACCOUNTING TERMS. Except as otherwise provided in this Agreement,
accounting terms and financial covenants and information shall be determined
and prepared in accordance with GAAP.
9.7 INDEMNIFICATION; EXCULPATION. Borrower shall pay and protect,
defend and indemnify Lender and Lender's employees, officers, directors,
shareholders, affiliates, correspondents, agents and representatives (other
than Lender, collectively "Agents") against, and hold Lender and each such
Agent harmless from, all claims, actions, proceedings, liabilities, damages,
losses, expenses (including, without limitation, attorneys' fees and costs)
and other amounts incurred by Lender and each such Agent, arising from (i)
the matters contemplated by this Agreement or any other Loan Documents or
(ii) financing statement or record outstanding at the time of this Agreement,
or (iii) any contention that Borrower has failed to comply with any law,
rule, regulation, order or directive applicable to Borrower's business;
provided, however, that this indemnification shall not apply to any of the
foregoing incurred solely as the result of Lender's or any Agent's gross
negligence or willful misconduct. This indemnification shall survive the
payment and satisfaction of all of Borrower's Obligations to Lender.
9.8 REIMBURSEMENT. Borrower shall reimburse Lender for all costs and
expenses, including without limitation reasonable attorneys' fees and
disbursements expended or incurred by Lender in any arbitration, mediation,
judicial reference, legal action or otherwise in connection with (a) the
preparation and negotiation of the Loan Documents, (b) the amendment,
interpretation and enforcement of the Loan Documents, including without
limitation during any workout, attempted workout, and/or in connection with
the rendering of legal advice as to Lender's rights, remedies and obligations
under the Loan Documents, (c) collecting any sum which becomes due Lender
under any Loan Document, (d) any proceeding for declaratory relief, any
counterclaim to any proceeding, or any appeal, or (e) the protection,
preservation or enforcement of any rights of Lender. For the purposes of this
section, attorneys' fees shall include, without limitation, fees incurred in
connection with the following: (1) contempt proceedings; (2) discovery; (3)
any motion, proceeding or other activity of any kind in connection with an
Insolvency Proceeding; (4) garnishment, levy, and debtor and third party
examinations; and (5) postjudgment motions and proceedings of any kind,
including without limitation any activity taken to collect or enforce any
judgment. All of the foregoing costs and expenses shall be payable upon
demand by Lender, and if not paid within forty-five (45) days of presentation
of invoices shall bear interest at the highest applicable Default Rate.
9.9 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
any number of counterparts which, when taken together, shall constitute but
one agreement.
11
<PAGE>
9.10 ENTIRE AGREEMENT. The Loan Documents are intended by the
parties as the final expression of their agreement and therefore contain the
entire agreement between the parties and supersede all prior understandings
or agreements concerning the subject matter hereof. This Agreement may be
amended only in a writing signed by Borrower and Lender.
9.11 GOVERNING LAW AND JURISDICTION.
(a) THIS AGREEMENT AND THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF
CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA,
AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF BORROWER AND LENDER
CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE
JURISDICTION OF THOSE COURTS.
EACH OF BORROWER AND LENDER IRREVOCABLY WAIVES ANY OBJECTION,
INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF
ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT
OR ANY DOCUMENT RELATED HERETO. BORROWER AND LENDER EACH WAIVE PERSONAL
SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY
OTHER MEANS PERMITTED BY CALIFORNIA LAW.
9.12 WAIVER OF JURY TRIAL. BORROWER AND LENDER EACH WAIVES ITS
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES
AGAINST ANY OTHER PARTY OR ANY PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT
TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. BORROWER AND LENDER EACH
AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL
WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE
THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS
SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEMS, IN
WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS
AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF.
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
ARTICLE 10 - DEFINITIONS
The definitions appearing in this Agreement or any Supplement shall
be applicable to both the singular and plural forms of the defined terms:
"AFFILIATE" means any Person which directly or indirectly controls, is
controlled by, or is under common control with Borrower. "Control,"
"controlled by" and "under common control with" mean direct or indirect
possession of the power to direct or cause the direction of management or
policies (whether through ownership of voting securities, by contract or
otherwise); provided, that control shall be conclusively presumed when any
Person or affiliated group directly or indirectly owns ten percent (10%) or
more of the securities having ordinary voting power for the election of
directors of a corporation.
"AGREEMENT" means this Loan and Security Agreement and each Supplement
thereto, as each may be amended or supplemented from time to time.
"BANKRUPTCY CODE" means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C.
Section 101, ET SEQ.), as amended.
"BASIC INTEREST" means the fixed rate of interest payable on the outstanding
balance of each Loan at the applicable Designated Rate.
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<PAGE>
"BORROWING DATE" means the Business Day on which the proceeds of a Loan are
disbursed by Lender.
"BORROWING REQUEST" means a written request from Borrower in substantially
the form of Exhibit "B" to the Supplement, requesting the finding of one or
more Loans on a particular Borrowing Date.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other day on
which commercial banks in New York City or San Francisco are authorized or
required by law to close.
"CLOSING DATE" means the date of this Agreement.
"COLLATERAL" means all Borrower's Equipment and Fixtures now owned or
hereafter acquired, wherever located, and whether held by Borrower or any
third party, and all proceeds and products thereof, including all insurance
and condemnation proceeds ("Proceeds"), and all monies now or at any time
hereafter in the possession or under the control of Lender or a bailee or
affiliate of Lender, including any cash collateral in any cash collateral or
other account, and all Records relating or useful to, or used in connection
with any of the foregoing.
"COMMITMENT" means the obligation of Lender to make Loans to Borrower up to
the aggregate principal amount set forth in the Supplement.
"DEFAULT" means an event which with the giving of notice, passage of time, or
both would constitute an Event of Default.
"DEFAULT RATE" is defined in Section 2.7.
"DESIGNATED RATE" means the rate of interest per annum described in the
Supplement as being applicable to an outstanding Loan from time to time.
"ENVIRONMENTAL LAWS" means all federal, state or local laws, statutes, common
law duties, rules, regulations, ordinances and codes, together with all
administrative orders, directed duties, requests, licenses, authorizations
and permits of, and agreements with, any governmental authorities, in each
case relating to environmental, health, or safety matters.
"EQUIPMENT" means all of Borrower's specific equipment identified and
described on SCHEDULE 1 attached to this Agreement and incorporated herein by
this reference (as such Schedule may be amended or supplemented from time to
time), all replacements, parts, accessions and additions thereto, and all
proceeds thereof arising from the sale, lease, rental or other use or
disposition thereof, including all rights to payment with respect to
insurance or condemnation, returned premiums, or any cause of action relating
to any of the foregoing.
"EVENT OF DEFAULT" means any event described in Section 7.1.
"FIXTURES" means all items of Equipment that are so related to the real
property upon which they are located that an interest in them arises under
real property law, and all proceeds thereof arising from the sale, lease,
rental or other use or disposition thereof.
"GAAP" means generally accepted accounting principles and practices
consistent with those principles and practices promulgated or adopted by the
Financial Accounting Standards Board and the Board of the American Institute
of Certified Public Accountants, their respective predecessors and
successors. Each accounting term used but not otherwise expressly defined
herein shall have the meaning given it by GAAP.
"INDEBTEDNESS" of any Person means at any date, without duplication and
without regard to whether matured or unmatured, absolute or contingent: (i)
all obligations of such Person for borrowed money; (ii) all obligations of
such Person evidenced by bonds, debentures, notes, or other similar
instruments; (iii) all obligations of such Person to pay the deferred
purchase price of property or services, except trade accounts payable arising
in the ordinary course of business; (iv) all obligations of such Person as
lessee under capital leases; (v) all obligations of such Person to reimburse
or prepay any bank or other Person in respect of amounts paid under a letter
of credit, banker's acceptance, or similar instrument, whether drawn or
undrawn; (vi) all obligations of such Person to purchase securities which
arise out of or in connection with the sale of the same or substantially
similar securities; (vii) all obligations of such Person to purchase, redeem,
exchange, convert or otherwise acquire for value any capital stock of such
Person or any warrants, rights or options to acquire such capital stock, now
or hereafter outstanding, except to the extent that such obligations remain
performable solely at the option of such Person; (viii) all obligations to
repurchase assets previously sold (including any obligation to repurchase any
accounts or chattel paper
13
<PAGE>
under any factoring, receivables purchase. or similar arrangement); (ix)
obligations of such Person under interest rate swap, cap, collar or similar
hedging arrangements; and (x) all obligations of others of any type described
in clause (i) through clause (ix) above guaranteed by such Person.
"INSOLVENCY PROCEEDING" means (a) any case, action or proceeding before any
court or other governmental authority relating to bankruptcy, reorganization,
insolvency, liquidation, receivership, dissolution, winding-up or relief of
debtors, or (b) any general assignment for the benefit of creditors,
composition, marshaling of assets for creditors, or other, similar
arrangement in respect of its creditors generally or any substantial portion
of its creditors, undertaken under U.S. Federal, state or foreign law,
including the Bankruptcy Code.
"LIEN" means any voluntary or involuntary security interest, mortgage,
pledge, claim, charge, encumbrance, title retention agreement, or third
party interest, covering all or any part of the property of Borrower or any
other Person.
"LOAN" means an extension of credit by Lender under Section 2 of this
Agreement.
"LOAN DOCUMENTS" means, individually and collectively, this Loan and
Security Agreement, each Supplement, each Note, and any other security or
pledge agreement(s), any Warrants issued by Borrower to Lender in connection
with this Agreement, and all other contracts, instruments, addenda and
documents executed in connection with this Agreement or the extensions of
credit which are the subject of this Agreement.
"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" means (a) a material
adverse change in, or a material adverse effect upon, the operations,
business, properties, or condition (financial or otherwise) of Borrower; (b)
a material impairment of the ability of Borrower to perform under any Loan
Document; or (c) a material adverse effect upon the legality, validity,
binding effect or enforceability against Borrower of any Loan Document.
"MATURITY DATE" means, with regard to a Loan, the earlier of (i) its maturity
by reason of acceleration, or (ii) its stated maturity date; and is the date
on which payment of all outstanding principal, accrued interest, and the
Terminal Payment with respect to such Loan is due.
"NOTE" means a promissory note substantially in the form attached to the
Supplement as EXHIBIT "A", executed by Borrower evidencing each Loan.
"OBLIGATIONS" means all advances, debts, liabilities, obligations, covenants
and duties arising under any Loan Document, owing by Borrower to Lender,
whether direct or indirect (including those acquired by assignment), absolute
or contingent, liquidated or unliquidated, due or to become due, now
existing or hereafter arising.
"PERMITTED LIEN" means
(a) Involuntary Liens which, in the aggregate, would not have a
Material Adverse Effect and which in any event would not exceed One-Hundred
Thousand Dollars ($100,000);
(b) Liens for current taxes or other governmental or regulatory
assessments which are not delinquent, or which are contested in good faith by
the appropriate procedures and for which appropriate reserves are maintained;
(c) Purchase Money security interests on any property held or
acquired by Borrower in the ordinary course of business securing Indebtedness
incurred or assumed for the purpose of financing all or any part of the cost
of acquiring such property; PROVIDED, that such Lien attaches solely to the
property acquired with such Indebtedness and that the principal amount of
such Indebtedness does not exceed one hundred percent (100%) of the cost of
such property; and FURTHER PROVIDED, that such property is not equipment with
respect to which a Loan has been made hereunder.
(d) Liens in favor of Lender;
(e) bankers' liens, rights of setoff and similar Liens incurred on
deposits made in the ordinary course of business;
(f) materialmen's, mechanics', repairmen's, employees' or other like
Liens arising in the ordinary course of business and which are not delinquent
for more than 45 days or are being contested in good faith by appropriate
proceedings;
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<PAGE>
(g) any judgment, attachment or similar Lien, unless the judgment it
secures has not been discharged or execution thereof effectively stayed and
bonded against pending appeal within 30 days of the entry thereof:
(h) licenses or sublicenses of Patents, Patent Licenses, Trademarks
or Trademark Licenses permitted under the Trademark Collateral Assignment or
the Patent Collateral Assignment; and,
(i) Liens which have been approved by Lender in writing prior to the
Closing Date and disclosed in Schedule 6.2 of this Agreement.
"PERSON" means any individual or entity.
"QUALIFIED PUBLIC OFFERING" means the closing of a firmly underwritten public
offering of Borrower's common stock with aggregate proceeds of not less than
$12,500,000 (prior to underwriting expenses and commissions).
"RECORDS" means all Borrower's computer programs, software, hardware, source
codes and data processing information, all written documents, books,
invoices, ledger sheets, financial information and statements, and all other
writings concerning Borrower's Equipment.
"RELATED PERSON" means any Affiliate of Borrower, or any officer, employee,
director or equity security holder of Borrower or any Affiliate.
"TERMINAL PAYMENT" means, with respect to each Loan, an amount payable on the
Maturity Date of such Loan in an amount equal to that percentage of the
original principal amount of such Loan specified in the Supplement.
"TERMINATION DATE" has the meaning specified in the Supplement.
"THRESHOLD AMOUNT" has the meaning specified in the Supplement.
"UCC" means the Uniform Commercial Code as enacted in the applicable
jurisdiction, in effect on the Closing Date and as amended from time to time.
15
<PAGE>
SUPPLEMENT
TO THE
LOAN AND SECURITY AGREEMENT (EQUIPMENT)
DATED AS OF DECEMBER 16, 1997
BETWEEN
IMGIS, INC. ("BORROWER")
AND
VENTURE LENDING & LEASING, INC. ("LENDER")
- -------------------------------------------------------------------------------
This is a Supplement identified in the document entitled Loan and
Security Agreement (Equipment) dated as of December 16, 1997 between Borrower
and Lender. All capitalized terms used in this Supplement and not otherwise
defined in this Supplement have the meanings ascribed to them in Section 10
of the Loan and Security Agreement, which is incorporated in its entirety
into this Supplement. In the event of any inconsistency between the
provisions of that document and this Supplement, this Supplement is
controlling. Execution of this Supplement by the Lender and Borrower shall
constitute execution of the Loan and Security Agreement.
In addition to the provisions of the Loan and Security Agreement, the
parties agree as follows:
1. - ADDITIONAL DEFINITIONS:
"COMMITMENT": Lender commits to make loans to Borrower up to the
aggregate, original principal amount of One Hundred Fifty Thousand Dollars
($150,000).
"DESIGNATED RATE": The Designated Rate is nine and 75/100 percent
(9.75%) per annum.
"TERMINAL PAYMENT": Each Terminal Payment shall be an amount equal to
fifteen percent (15%) of the original principal amount of the associated Loan.
"TERMINATION DATE": The Termination Date is the earlier of (a) the date
Lender may terminate making Loans or extending other credit pursuant to the
rights of Lender under Article 7 of the Agreement, or (b) December 31, 1997.
"THRESHOLD AMOUNT": Fifty Thousand Dollars ($50,000.00).
2. ADDITIONAL TERMS AND CONDITIONS:
ISSUANCE OF WARRANT TO LENDER. As additional consideration for the
making of the Loans under the Agreement, upon the making of, and as a
condition to, the initial Loan, Lender shall be entitled to receive a warrant
to purchase 2,220 shares of preferred stock of Borrower ("Warrant Shares")
with an aggregate initial exercise price of $10,500.60 determined on the
basis of a per share exercise price of $4.73. The warrant issued under this
Agreement shall be in substantially the form attached hereto as EXHIBIT "C";
shall be transferable by Lender, subject to compliance with applicable
securities laws; shall expire not earlier than December 31, 2002; and shall
include piggy-back registration rights, "net issuance" provisions, and
anti-dilution protections reasonably satisfactory to Lender and its counsel.
<PAGE>
LIMITATION ON REIMBURSEMENT OF DOCUMENTATION COSTS. Notwithstanding
anything to the contrary in Section 9.8 of the Loan and Security Agreement,
Borrower's obligation to reimburse Lender its attorneys' fees and costs of
documenting this transaction shall not exceed $150.00.
LIMITATION ON EQUIPMENT LOANS. Each Loan shall be in an amount not to
exceed one hundred percent (100%) of the amount paid or payable by Borrower
to a non-affiliated manufacturer, vendor or dealer for an item of equipment
as shown on an invoice therefor (excluding any commissions and any portion of
the payment which relates to the servicing of the equipment and sales taxes
payable by Borrower upon acquisition, and delivery charges). Lender has the
right to approve individual items of Equipment for funding. Each Loan
requested by Borrower to be made on a single Business Day shall be for a
minimum principal amount of Fifteen Thousand Dollars ($15,000) except to the
extent the remaining Commitment is a lesser amount.
3. -ADDITIONAL REPRESENTATIONS:
Borrower represents and warrants that as of the Closing Date:
<TABLE>
<S> <C>
Its chief executive office is located at: 10101 North DeAnza Blvd., Suite 210
Cupertino, CA 95014
Its Equipment is located at: 10101 North DeAnza Blvd., Suite 210
Cupertino, CA 95014
and
611 Anton Blvd., Suite 400
Costa Mesa, CA 92626
Its Records are located at: 10101 North DeAnza Blvd., Suite 210
Cupertino, CA 95014
In addition to its chief executive office, Borrower maintains offices or operates its
business at the following locations:
None
Other than its full corporate name, Debtor has conducted business using the following
trade names or fictitious business names:
None
4. -ADDITIONAL LOAN DOCUMENTS:
Form of Note Exhibit "A"
Form of Borrowing Request Exhibit "B"
Form of Warrant Exhibit "C"
</TABLE>
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Supplement as of
the date first above written.
<TABLE>
<S> <C>
BORROWER: LENDER:
IMGIS, INC. VENTURE LENDING & LEASING, INC.
By: /s/ John A. Tanner By: /s/ R W Swenson
------------------- ---------------------
Name: John A. Tanner Name: R W Swenson
Title: Chief Financial Title: CEO
Officer
Address for Notices: Attn: Chief Financial Officer Attn: Chief Financial Officer
10101 North DeAnza Blvd. Ste 210 2010 North First Street, Suite 310
Cupertino, CA 95014 San Jose, CA, 95131
Fax # (408) 873-3693 Fax # (408)436-8625
</TABLE>
<PAGE>
VENTURE LENDING & LEASING II AGREEMENT
EXHIBIT 10.21
LOAN AND SECURITY AGREEMENT
(EQUIPMENT)
DATED AS OF DECEMBER 16, 1997
BETWEEN
IMGIS, INC.,
A CALIFORNIA CORPORATION
AS "BORROWER",
AND
VENTURE LENDING & LEASING II, INC.,
A MARYLAND CORPORATION
AS "LENDER"
<PAGE>
LOAN AND SECURITY AGREEMENT
(EQUIPMENT)
The Borrower and Lender identified on the cover page of this document
have entered or anticipate entering into one or more transactions pursuant to
which Lender agrees to make available to Borrower an equipment loan facility
governed by the terms and conditions set forth in this document and one or more
Supplements executed by Borrower and Lender which incorporate this document by
reference. Each Supplement constitutes a supplement to and forms part of this
document, and will be read and construed as one with this document, so that this
document and the Supplement constitute a single agreement between the parties
(collectively referred to as this "Agreement").
Accordingly, the parties agree as follows:
ARTICLE 1 - INTERPRETATION
1.1 DEFINITIONS. The terms defined in Article 10 and in the Supplement
will have the meanings therein specified for purposes of this Agreement.
1.2 INCONSISTENCY. In the event of any inconsistency between the
provisions of any Supplement and this document, the provisions of the Supplement
will be controlling for the purpose of all relevant transactions.
ARTICLE 2 - THE COMMITMENT AND LOANS
2.1 THE COMMITMENT. Subject to the terms and conditions of this Agreement,
Lender agrees to make term loans to Borrower from time to time from the Closing
Date and to, but not including, the Termination Date in an aggregate principal
amount not exceeding the Commitment. The Commitment is not a revolving credit
commitment, and Borrower does not have the right to repay and reborrow
hereunder. Each Loan requested by Borrower to be made on a single Business Day
shall be for a minimum principal amount set forth in the Supplement except to
the extent the remaining commitment is a lesser amount.
2.2 NOTES EVIDENCING LOANS; REPAYMENT. Each Loan shall be evidenced by
a separate Note payable to the order of Lender, in the total principal amount of
the Loan. Principal and interest of each Loan shall be payable at the times and
in the manner set forth in the Note.
2.3 PROCEDURES FOR BORROWING.
(a) Borrower shall give Lender, at least five (5) Business Days' prior to
a proposed Borrowing Date, written notice of any request for borrowing hereunder
(a "Borrowing Request"). Each Borrowing Request shall be in substantially the
form of EXHIBIT "B" hereto, shall be executed by the chief financial officer or
accounting officer of Borrower, and shall state how much is requested, and shall
be accompanied by such information and documentation as Lender may deem
reasonably necessary to determine whether the proposed borrowing will comply
with the limitations in the Supplement.
(b) No later than 1:00 p.m. Pacific Standard Time on the Borrowing Date,
if Borrower has satisfied the conditions precedent in Article 4, Lender shall
make the Loan available to Borrower in immediately available funds.
2.4 INTEREST. Basic Interest on the outstanding principal balance of the
each Loan shall accrue daily at the Designated Rate from the Borrowing Date
until the Maturity Date.
2.5 TERMINAL PAYMENT. Borrower shall pay the Terminal Payment with respect
to each Loan on the Maturity Date of such Loan.
2.6 INTEREST RATE CALCULATION. Basic Interest, along with charges and fees
under this Agreement and any Loan Document, shall be calculated for actual days
elapsed on the basis of a 360-day year, which results in higher interest, charge
or fee payments than if a 365-day year were used. In no event shall Borrower be
obligated to pay Lender interest, charges or fees at a rate in excess of the
highest rate permitted by applicable law from time to time in effect,
2.7 DEFAULT INTEREST. Any unpaid payments of principal or interest or the
Terminal Payment with respect to any Loan shall bear interest from their
respective maturities, whether scheduled or accelerated, at the Designated
Rate for such Loan PLUS
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five percent (5.00%) per annum, until paid in full, whether before or after
judgment (the "Default Rate"). Borrower shall pay such interest on demand.
2.8 LATE CHARGES. If Borrower is late in making any payment of principal
or interest or Terminal Payment under this Agreement by more five (5) days,
Borrower agrees to pay a late charge of five percent (5%) of the installment
due, but not less than fifty dollars ($50.00) for any one such delinquent
payment. This late charge may be charged by Lender for the purpose of defraying
the expenses incidental to the handling of such delinquent amounts. Borrower
acknowledges that such late charge represents a reasonable sum considering all
of the circumstances existing on the date of this Agreement and represents a
fair and reasonable estimate of the costs that will be sustained by Lender due
to the failure of Borrower to make timely payments. Borrower further agrees
that proof of actual damages would be costly and inconvenient. Such late charge
shall be paid without prejudice to the right of Lender to collect any other
amounts provided to be paid or to declare a default under this Agreement or any
of the other Loan Documents or from exercising any other rights and remedies of
Lender.
2.9 LENDER'S RECORDS. Principal, Basic Interest, Terminal Payments and all
other sums owed under any Loan Document shall be evidenced by entries in records
maintained by Lender for such purpose. Each payment on and any other credits
with respect to principal, Basic Interest, Terminal Payments and all other sums
outstanding under any Loan Document shall be evidenced by entries in such
records. Absent manifest error, Lender's records shall be conclusive evidence
thereof.
2.10 GRANT OF SECURITY INTERESTS. To secure the timely payment and
performance of all of Borrower's Obligations to Lender, Borrower hereby grants
to Lender continuing security interests in all of the Collateral an such other
Lien documentation satisfactory in form and substance to Lender, subject only to
Permitted Liens.
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that, except as set forth in the
Supplement or any schedule of exceptions executed by the parties, as of the
Closing Date and each Borrowing Date:
3.1 DUE ORGANIZATION. Borrower is a corporation duly organized and validly
existing in good standing under the laws of the jurisdiction of its
incorporation, and is duly qualified to conduct business and is in good standing
in each other jurisdiction in which its business is conducted or its properties
are located, except where the failure to be so qualified would not reasonably be
expected to have a Material Adverse Effect.
3.2 AUTHORIZATION, VALIDITY AND ENFORCEABILITY. The execution, delivery and
performance of all Loan Documents executed by Borrower are within Borrower's
powers, have been duly authorized, and are not in conflict with Borrower's
articles or certificate of incorporation or by-laws, or the terms of any charter
or other organizational document of Borrower, as amended from time to time; and
all such Loan Documents constitute valid and binding obligations of Borrower,
enforceable in accordance with their terms (except as may be limited by
bankruptcy, insolvency and similar laws affecting the enforcement of creditors'
rights in general, and subject to general principles of equity).
3.3 COMPLIANCE WITH APPLICABLE LAWS. To Borrower's knowledge, Borrower has
complied with all licensing, permit and fictitious name requirements necessary
to lawfully conduct the business in which it is engaged, and to any sales,
leases or the furnishing of services by Borrower, including without limitation
those requiring consumer or other disclosures, the noncompliance with which
would have a Material Adverse Effect.
3.4 NO CONFLICT. The execution, delivery, and performance by Borrower of
all Loan Documents are not in conflict with any law, rule, regulation, order or
directive, or any indenture, agreement, or undertaking to which Borrower is a
party or by which Borrower may be bound or affected.
3.5 NO LITIGATION, CLAIMS OR PROCEEDINGS. There is no litigation, tax
claim or proceeding pending or, to the knowledge of Borrower, threatened against
Borrower or its property.
3.6 CORRECTNESS OF FINANCIAL STATEMENTS. Borrower's financial statements
which have been delivered to Lender fairly and accurately reflect
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Borrower's financial condition as of the latest date of such financial
statements; and, since that date there has been no Material Adverse Change.
3.7 NO SUBSIDIARIES. Borrower is not a majority owner of or in a control
relationship with any other business entity.
3.8 NO EVENT OF DEFAULT. No Default or Event of Default has occurred and
is continuing.
3.9 FULL DISCLOSURE. None of the representations or warranties made by
Borrower in the Loan Documents as of the date such representations and
warranties are made or deemed made, and none of the statements contained in any
exhibit, report, statement or certificate furnished by or on behalf of Borrower
in connection with the Loan Documents (including disclosure materials delivered
by or on behalf of Borrower to Lender prior to the Closing Date), when taken
together contains any untrue statement of a material fact or omits any material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they are made, not misleading
as of the time when made or delivered.
3.10 SPECIFIC REPRESENTATIONS REGARDING COLLATERAL.
(a) TITLE. Except for the security interests created by this Agreement
and Permitted Liens, (i) Borrower is and will be the unconditional legal and
beneficial owner of the Collateral, and (ii) the Collateral is genuine and
subject to no Liens, rights or defenses of others.
(b) LOCATION OF COLLATERAL. Borrower's chief executive office, Records,
Equipment, and any other offices or places of business are located at the
address(es) shown on the Supplement.
(c) BUSINESS NAMES. Other than its full corporate name, Borrower has not
conducted business using any trade names or fictitious business names except as
shown on the Supplement.
ARTICLE 4 - CONDITIONS PRECEDENT
4.1 CONDITIONS TO FIRST LOAN. The obligation of Lender to make its first
Loan hereunder is, in addition to the conditions precedent specified in SECTION
4.2, subject to the fulfillment of the following conditions and to the receipt
by Lender of the documents described below, duly executed and in form and
substance reasonably satisfactory to Lender and its counsel:
(a) RESOLUTIONS. A certified copy of the resolutions of the Board of
Directors of Borrower authorizing the execution, delivery and performance by
Borrower of the Loan Documents.
(b) INCUMBENCY AND SIGNATURES. A certificate of the secretary of Borrower
certifying the names of the officer or officers of Borrower authorized to sign
the Loan Documents, together with a sample of the true signature of each such
officer.
(c) LEGAL OPINION. The opinion of legal counsel for Borrower as to such
matters as Lender may reasonably request, including the matters covered by
Sections 3.1, 3.2, 3.4 and 3.5 hereof.
(d) ARTICLES AND BY-LAWS. Certified copies of the Articles or Certificate
of Incorporation and By-Laws of Borrower, as amended through the Closing Date.
(e) THIS AGREEMENT. A counterpart of this Agreement and an initial
Supplement, with all schedules completed and attached thereto, and disclosing
such information as is acceptable to Lender.
(f) FINANCING STATEMENTS. Filing copies (or other evidenced of filing
satisfactory to Lender and its counsel) of such Uniform Commercial Code
financing statements, collateral assignments and termination statements, with
respect to the Collateral as Lender shall request.
(g) LIEN SEARCHES. Uniform Commercial Code lien, judgment, bankruptcy
and tax lien searches of Borrower from such jurisdictions or offices as Lender
may reasonably request, all as of a date reasonably satisfactory to Lender and
its counsel.
(h) GOOD STANDING CERTIFICATE. A Certificate of status or good standing
of Borrower as of a date acceptable to Lender from the jurisdiction of
Borrower's organization and any foreign jurisdictions where Borrower is or
should be qualified to do business.
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(i) WARRANT. A warrant issued by Borrower to Lender exercisable for such
number, type and class of shares of Borrower's capital stock, and for an initial
exercise price as is specified in the Supplement.
4.2 CONDITIONS TO ALL LOANS. The obligation of Lender to make its initial
Loan and each subsequent Loan is subject to the following further conditions
precedent that:
(a) NO DEFAULT. No Default or Event of Default has occurred and is
continuing or will result from the making of any such Loan, and the
representations and warranties of Borrower contained in Article 3 of this
Agreement and in any Supplement are true and correct as of the Borrowing Date of
such Loan.
(b) NO ADVERSE MATERIAL CHANGE. No Material Adverse Change shall have
occurred since the date of the most recent financial statements submitted to
Lender.
(c) BORROWING REQUEST. Borrower shall have delivered to Lender a Borrowing
Request for such Loan.
(d) NOTE. Borrower shall have delivered an executed Note evidencing such
Loan, in form and substance satisfactory to Lender.
(e) SUPPLEMENTAL LIEN FILINGS. Borrower shall have executed and delivered
such amendments or supplements to the this Agreement and such financing
statements as Lender may reasonably request in connection with the proposed
Loan, in order to create or perfect or to maintain the perfection of Lender's
Liens on the Collateral.
(f) VCOC LIMITATION. Lender shall not be obligated to make any Loan under
its Commitment if at the time of or after giving effect to the proposed Loan
Lender would no longer qualify as: (A) a "venture capital operating company"
under U.S. Department of Labor Regulations Section 2510.3-101(d), Title 29 of
the Code of Federal Regulations, as amended; and (B) a "business development
company" under the provisions of federal Investment Company Act of 1940, as
amended; and (C) a "regulated investment company" under the provisions of the
Internal Revenue Code of 1986. as amended.
ARTICLE 5 - AFFIRMATIVE COVENANTS
During the term of this Agreement and until its performance of all
obligations to Lender, Borrower will:
5.1 NOTICE TO LENDER. Promptly give written notice to Lender of:
(a) Any litigation or administrative or regulatory proceeding affecting
Borrower where the amount claimed against Borrower is at the Threshold Amount or
more, or where the granting of the relief requested could have a Material
Adverse Effect.
(b) The occurrence of any Default or any Event of Default where the
Borrower has knowledge of such Default or Event of Default.
(c) Any change in the location of any of Borrower's places of business or
Collateral at least thirty (30) days in advance of such change.
(d) Any default by Borrower under any joint venture, partnering,
distribution, cross-licensing, strategic alliance, collaborative research or
manufacturing, license or similar agreement which could reasonably be expected
to have a Material Adverse Effect.
(e) Any other matter which has resulted or might reasonably result in a
Material Adverse Change of which the Borrower is aware.
5.2 FINANCIAL STATEMENTS. Deliver to each Lender or cause to be delivered
to Lender, in form and detail satisfactory to Lender the following financial
information, which Borrower warrants shall be accurate and complete in all
material respects:
(a) QUARTERLY FINANCIAL STATEMENTS. As soon as available but no later than
forty five (45) days after the end of each quarter, Borrower's balance sheet as
of the end of such period, and Borrower's income statement for such period and
for that portion of Borrower's financial reporting year ending with such period,
prepared and attested by a responsible financial officer of Borrower as being
complete and correct and fairly presenting Borrower's financial condition and
the results of Borrower's operations. After a Qualified Public Offering, the
foregoing interim financial statements shall be delivered no later than 45 days
after
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each fiscal quarter and for the quarter-annual fiscal period then ended.
(b) YEAR-END FINANCIAL STATEMENTS. As soon as available but no later than
one hundred (100) days after and as of the end of each financial reporting year,
a complete copy of Borrower's audit report, which shall include balance sheet,
income statement, statement of changes in equity and statement of cash flows for
such year, prepared and certified by an independent certified public accountant
selected by Borrower and satisfactory to Lender (the "Accountant"). The
Accountant's certification shall not be qualified or limited due to a restricted
or limited examination by the Accountant of any material portion of Borrower's
records or otherwise.
(c) GOVERNMENT REQUIRED REPORTS; PRESS RELEASES. Within thirty (30) days
after sending, issuing, making available, or filing, copies of all statements
released by Borrower to any news media for publication, all reports, proxy
statements, and financial statements that Borrower sends or makes available to
its stockholders, and, not later than thirty (30) days after actual filing all
registration statements and reports that Borrower files or is required to file
with the Securities and Exchange Commission, or any other governmental or
regulatory authority.
(d) OTHER INFORMATION. Such other statements, lists of property and
accounts, budgets, forecasts, reports, or other information as Lender may from
time to time reasonably request.
5.3 MANAGERIAL ASSISTANCE FROM LENDER. Permit Lender, as a "venture
capital operating company" to participate in, and influence the conduct of
management of Borrower through the exercise of "management rights," as such
terms are defined in 29 C.F.R. Section 2510.3-101(d), and:
(a) Permit Lender to make available to Borrower, at no cost to Borrower,
"significant managerial assistance", as defined in Section 2(a)(47) of the
Investment Company Act of 1940, as amended, either in the form of: (i)
consulting arrangements with Lender or any of its officers, directors,
employees or affiliates, (ii) Borrower's allowing Lender to provide
recommendations of prospective candidates for election to Borrower's Board of
Directors, or (iii) Lender, at Borrower's request, seeking the services of
third-party consultants to aid Borrower with respect to its management and
operations;
(b) Permit Lender to make available consulting and advisory services to
officers of Borrower regarding Borrower's equipment acquisition and financing
plans, and such other matters affecting the business, financial condition and
prospects of Borrower as Lender shall reasonably deem relevant; and
(c) If Lender reasonably believes that financial or other developments
affecting Borrower have impaired or are likely to impair Borrower's ability to
perform its obligations under this Agreement, permit Lender reasonable access to
Borrower's management and/or Board of Directors and opportunity to present
Lender's views with respect to such developments.
5.4 EXISTENCE. Maintain and preserve Borrower's existence and all rights
and privileges necessary or desirable in the normal course of its business; and
keep all Borrower's property in good working order and condition, ordinary wear
and tear excepted.
5.5 INSURANCE. Obtain and keep in force insurance in such amounts and
types as is usual in the type of business conducted by Borrower, with insurance
carriers having a policyholder rating of not less than "A" and financial
category rating of Class VII in "Best's Insurance Guide," unless otherwise
approved by Lender. Such insurance policies must be in form and substance
satisfactory to Lender, and shall list Lender as an additional insured or loss
payee, as applicable, on endorsement(s) in form reasonably acceptable to Lender.
Borrower shall furnish to Lender such endorsements, and upon Lender's request,
copies of any or all such policies.
5.6 ACCOUNTING RECORDS. Maintain adequate books, accounts and records, and
prepare all financial statements in accordance with GAAP, and in compliance with
the regulations of any governmental or regulatory authority having jurisdiction
over Borrower or Borrower's business; and permit employees or agents of Lender
at such reasonable times as Lender may request, to inspect Borrower's
properties, and to examine, and make copies and memoranda of Borrower's books,
accounts and records. Such examination shall be at Lender's expense, as long as
Borrower is not in Default.
5.7 COMPLIANCE WITH LAWS. Comply with all laws (including Environmental
Laws), rules, regulations applicable to, and all orders and directives of any
governmental or regulatory authority having
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jurisdiction over, Borrower or Borrower's business, and with all material
agreements to which Borrower is a party, except where the failure to so comply
would not have a Material Adverse Effect.
5.8 TAXES AND OTHER LIABILITIES. Pay all Borrower's obligations when due;
pay all taxes and other governmental or regulatory assessments before
delinquency or before any penalty attaches thereto, except as may be contested
in good faith by the appropriate procedures and for which Borrower shall
maintain appropriate reserves; and timely file all required tax returns.
5.9 SPECIAL COLLATERAL COVENANTS.
(a) MAINTENANCE OF COLLATERAL; INSPECTION. Do all things reasonably
necessary to maintain, preserve, protect and keep all Collateral in good working
order and salable condition, ordinary wear and tear excepted, deal with the
Collateral in all ways as are considered good practice by owners of like
property, and use the Collateral lawfully and only as permitted by Borrower's
insurance policies. Borrower hereby authorizes Lender's officers, employees,
representatives and agents upon reasonable notice, at reasonable times and with
reasonable frequency to inspect the Collateral and to discuss the Collateral and
the Records relating thereto with Borrower's officers and employees.
(b) FINANCING STATEMENTS AND OTHER ACTIONS. Execute and deliver to Lender
and file or record at Borrowers, expense all financing statements, notices and
other documents from time to time reasonably requested by any Lender to maintain
a first perfected security interest in the Collateral in favor of Lender all in
form and substance satisfactory to Lender; perform such other acts, and execute
and deliver to Lender such additional conveyances, assignments, agreements and
instruments, as Lender may at any time reasonably request in connection with the
administration and enforcement of this Agreement or Lender's rights, powers and
remedies hereunder.
(c) LIENS. Not create, incur, assume or permit to exist any Lien on any
Collateral, except Permitted Liens.
(d) DOCUMENTS OF TITLE. Not sign or authorize the signing of any financing
statement or other document naming Borrower as debtor or obligor, except those
which do not relate to the Collateral or which, with respect to the Collateral
are permitted under this Agreement, or acquiesce or cooperate in the issuance of
any warehouse receipt or other document of title with respect to any Collateral,
except those negotiated to Lender, or those naming Lender as Lender.
(e) DISPOSITION OF COLLATERAL. Not sell, transfer, lease or otherwise
dispose of any Collateral.
(f) CHANGE IN LOCATION OR NAME. If and to the extent the same would in any
manner impair the creation, perfection or priority of Lender's security interest
in the Collateral, (a) maintain items of Collateral, Records, its chief
executive office or residence, or a place of business at a location other than
specified in the supplement; or (b) change its name, mailing address, or its
legal structure.
(g) DECALS, MARKINGS. At the request of Lender, firmly affix a decal,
stencil or other marking to designated items of Equipment, indicating thereon
the security interest of Lender.
(h) AGREEMENT WITH REAL PROPERTY OWNER/LANDLORD. Obtain and maintain such
acknowledgments, consents, waivers and agreements from the owner, lienholder,
mortgagee and landlord with respect to any real property on which Equipment is
located as Lender may require, all in form and substance satisfactory to Lender.
ARTICLE 6 - NEGATIVE COVENANTS
During the term of this Agreement and until the performance of all
obligations to Lender, Borrower will not (without Lender's prior written
consent):
6.1 INDEBTEDNESS. Be indebted for borrowed money or the deferred
purchase price of property, or become liable as a surety, guarantor,
accommodation party or otherwise for or upon the obligation of any other Person,
except:
(a) Indebtedness incurred for the acquisition of supplies or inventory on
normal trade credit, including a working capital credit line with a bank; and
other indebtedness incurred pursuant to one or more transactions permitted under
SECTION 6.4;
(b) Indebtedness not to exceed Seven Hundred Fifty Thousand Dollars
($750,000) in
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aggregate principal amount outstanding at any time secured by purchase money
security interests covered by clause (c) of the definition of Permitted Lien;
(c) Indebtedness of Borrower under this Agreement; and
(d) Any Indebtedness approved by Lender prior to the Closing Date.
6.2 LIENS. Create, incur, assume or permit to exist any Lien, or grant any
other Person a negative pledge, on any of Borrower's property, except Permitted
Liens. Borrower and Lender agree that this covenant is not intended to
constitute a lien, deed of trust, equitable mortgage, or security interest of
any kind on any of Borrower's real property, and this Agreement shall not be
recorded or recordable.
6.3 DIVIDENDS. Except after a Qualified Public Offering, pay any dividends
or purchase, redeem or otherwise acquire or make any other distribution with
respect to any of Borrower's capital stock, except dividends or other
distributions solely of capital stock of Borrower or repurchases of unvested
shares, at the original purchase price, held by employees.
6.4 CHANGES/MERGERS. Liquidate or dissolve, or enter into any
consolidation, merger, partnership, joint venture or other combination that
would constitute a Material Adverse Change.
6.5 SALES OF ASSETS. Sell, transfer, lease or otherwise dispose of any of
Borrower's assets except for fair consideration or where such sale, transfer,
lease or other disposition of assets would not constitute a Material Adverse
Change.
6.6 LOANS/INVESTMENTS. Make or suffer to exist any loans, guaranties,
advances, or investments, except:
(a) Accounts receivable in the ordinary course of Borrower's business;
(b) Investments in domestic certificates of deposit issued by, and other
domestic investments with, financial institutions organized under the laws of
the United States or a state thereof, having One Hundred Million Dollars
($100,000,000) in capital and a rating of at least "investment grade" or "A" by
Moody's or any successor rating agency;"
(c) Investments in marketable obligations of the United States of America
and in open market commercial paper given the highest credit rating by a
national credit agency and maturing not more than one year from the creation
thereof; and
(d) Temporary advances to cover incidental expenses to be incurred in the
ordinary course of business.
6.7 TRANSACTIONS WITH RELATED PERSONS. Directly or indirectly enter into
any transaction with or for the benefit of a Related Person on terms more
favorable to the Related Person than would have been obtainable in art "arms'
length" dealing. This Section 6.7 shall not apply to any equity financing
transactions with the Company's existing venture capital investors.
ARTICLE 7 - EVENTS OF DEFAULT
7.1 EVENTS OF DEFAULT; ACCELERATION. Upon the occurrence and during the
continuation of any Default, the obligation of Lender to make any additional
Loan shall be suspended. The occurrence of any of the following shall terminate
any obligation of Lender to make any additional Loan; and shall, at the option
of Lender (1) make all sums of Basic Interest and principal, all Terminal
Payments, and other amounts owing under any Loan Documents immediately due and
payable without notice of default, presentment or demand for payment, protest or
notice of nonpayment or dishonor or any other notices or demands, and (2) give
Lender the right to exercise any other right or remedy provided by contract or
applicable law:
(a) Borrower shall fail to pay any principal, interest or Terminal Payment
under this Agreement, or fail to pay any fees or other charges when due under
any Loan Document, and such failure continues for five (5) Business Days or more
after the same first becomes due; or an Event of Default as defined in any other
Loan Document shall have occurred.
(b) Any representation or warranty made, or financial statement,
certificate or other document provided, by Borrower under any Loan Document
shall prove to have been false or misleading in any material respect when made
or deemed made herein.
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(c) Borrower shall fail to pay its debts generally as they become due or
shall commence any Insolvency Proceeding with respect to itself; an involuntary
Insolvency Proceeding shall be filed against Borrower, or a custodian, receiver,
trustee, assignee for the benefit of creditors, or other similar official, shall
be appointed to take possession, custody or control of the properties of
Borrower, and such involuntary Insolvency Proceeding, petition or appointment is
acquiesced to by Borrower or is not dismissed within sixty (60) days; or the
dissolution or termination of the business of Borrower.
(d) Borrower shall be in default beyond any applicable period of grace or
cure under any other agreement involving the borrowing of money, the purchase of
property, the advance of credit or any other monetary liability of any kind to
Lender or to any Person which results in the acceleration of payment of such
obligation in an amount in excess of the Threshold Amount.
(e) Any governmental or regulatory authority shall take any judicial or
administrative action that would have a Material Adverse Effect and which cannot
be cured by Borrower within thirty days of such action.
(f) Any sale, transfer or other disposition of all or a substantial or
material part of the assets of Borrower, including without limitation to any
trust or similar entity, shall occur where such sale, transfer, lease or other
disposition of assets would constitute a Material Adverse Change.
(g) Any judgment(s) singly or in the aggregate in excess of the Threshold
Amount shall be entered against Borrower which remain unsatisfied, unvacated or
unstayed pending appeal for thirty (30) or more days after entry thereof.
(h) Borrower shall fail to perform or observe any covenant contained in
this Agreement or any other Loan Document (other than a covenant which is dealt
with specifically elsewhere in this Article 7) and the breach of such covenant
is not cured within 30 days after the sooner to occur of Borrower's receipt of
notice of such breach from Lender or the date on which such breach first becomes
known to any officer of Borrower; PROVIDED, HOWEVER that if such breach is not
capable of being cured within such 30-day period and Borrower timely notifies
Lender of such fact and Borrower diligently pursues such cure, then the cure
period shall be extended to the date requested in Borrower's notice but in no
event more than 90 days from the initial breach; PROVIDED, FURTHER, that such
additional 60-day opportunity to cure shall not apply in the case of any failure
to perform or observe any covenant which has been the subject of a prior failure
within the preceding 180 days or which is a willful and knowing breach by
Borrower.
7.2 REMEDIES UPON DEFAULT. Upon the occurrence and during the continuance
of an Event of Default, Lender shall be entitled to, at its option, exercise any
or all of the rights and remedies available to a Lender under the Uniform
Commercial Code or any other applicable law, and exercise any or all of its
rights and remedies provided for in this Agreement and in any other Loan
Document. The obligations of Borrower under this Agreement shall continue to be
effective or be reinstated, as the case may be, if at any time any payment of
any Obligations is rescinded or must otherwise be returned by Lender upon, on
account of, or in connection with, the insolvency, bankruptcy or reorganization
of Borrower or otherwise, all as though such payment had not been made.
7.3 SALE OF COLLATERAL. After the occurrence and during the continuance
of an Event of Default, Lender may sell all or any part of the Collateral, at
public or private sales, to itself, a wholesaler, retailer or investor, for
cash, upon credit or for future delivery, and at such price or prices as
Lender may deem commercially reasonable. To the extent permitted by law,
Borrower hereby specifically waives all rights of redemption and any rights
of stay or appraisal which it has or may have under any applicable law in
effect from time to time. Any such public or private sales shall be held at
such times and at such place(s) as Lender may determine. In case of the sale
of all or any part of the Collateral on credit or for future delivery, the
Collateral so sold may be retained by Lender until the selling price is paid
by the purchaser, but Lender shall not incur any liability in case of the
failure of such purchaser to pay for the Collateral and, in case of any such
failure, such Collateral may be resold. Lender may, instead of exercising its
power of sale, proceed to enforce its security interest in the Collateral by
seeking a judgment or decree of a court of competent jurisdiction.
7.4 BORROWER'S OBLIGATIONS UPON DEFAULT. Upon the request of Lender after
the occurrence of an Event of Default, Borrower will:
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(a) Assemble and make available to Lender the Collateral at such place(s)
as Lender shall designate, segregating all Collateral so that each item is
capable of identification; and
(b) Subject to the rights of any previous lessor, permit Lender, by
Lender's officers, employees, agents and representatives, to enter any premises
where any Collateral is located, to take possession of the Collateral and to
remove the Collateral, or to conduct any public or private sale of the
Collateral, all without any liability of Lender for rent or other compensation
for the use of Borrower's premises.
ARTICLE 8 - SPECIAL COLLATERAL PROVISIONS
8.1 PERFORMANCE OF BORROWER'S OBLIGATIONS. Without having any obligation
to do so, upon reasonable prior notice to Borrower, Lender may perform or pay
any obligation which Borrower has agreed to perform or pay under this Agreement,
including, without limitation, the payment or discharge of taxes or Liens levied
or placed on or threatened against the Collateral. In so performing or paying,
Lender shall determine the action to be taken and the amount necessary to
discharge such obligations. Borrower shall reimburse Lender on demand for any
amounts paid by Lender pursuant to this Section, which amounts shall constitute
Indebtedness secured by the Collateral and shall bear interest from the date of
demand at the rate applicable to overdue payments under this Loan Agreement.
8.2 POWER OF ATTORNEY. For the purpose of protecting, preserving and
enforcing the Collateral and Lender's rights under this Agreement, Borrower
hereby irrevocably appoints Lender, with fill power of substitution, as its
attorney-in-fact with full power and authority to do any act which Borrower is
obligated to door Lender has the right to do, hereunder; to exercise such rights
with respect to the Collateral as Borrower might exercise; to use such
Equipment, Fixtures or other property as Borrower might use; to enter Borrower's
premises; to give notice of Lender's security interest in, and to collect the
Collateral and the proceeds; and to execute and file in Borrower's name any
financing statements, amendments and continuation statements necessary or
desirable to perfect or continue the perfection of Lender's security interests
in the Collateral. Borrower hereby ratifies all that Lender shall lawfully do or
cause to be done by virtue of this appointment.
8.3 AUTHORIZATION FOR LENDER TO TAKE CERTAIN ACTION. The power of attorney
created in Section 8.2 is a power coupled with an interest and shall be
irrevocable. The powers conferred on Lender hereunder are solely to protect its
interests in the Collateral and shall not impose any duty upon Lender to
exercise such powers. Lender shall be accountable only for amounts that it
actually receives as a result of the exercise of such powers and in no event
shall Lender or any of its directors, officers, employees, agents or
representatives be responsible to Borrower for any act or failure to act, except
for gross negligence or willful misconduct. After the occurrence and during the
continuance of an Event of Default, Lender may exercise this power of attorney
without notice to or assent of Borrower, in the name of Borrower, or in Lender's
own name, from time to time in Lender's sole discretion and at Borrower's
expense. To further carry out the terms of this Agreement, Lender may upon the
occurrence and during the continuance of an Event of Default:
(a) Sign and endorse any invoices, freight or express bills, bills of
lading, storage or warehouse receipts; drafts, certificates and statements under
any commercial or standby letter of credit relating to Collateral; or any other
documents relating to the Collateral, including without limitation the Records.
(b) Use or operate Collateral or any other property of Borrower for the
purpose of preserving or liquidating Collateral.
(c) File any claim or take any other action or proceeding in any court of
law or equity or as otherwise deemed appropriate by Lender for the purpose of
collecting any and all monies due or securing any performance to be rendered
with respect to the Collateral.
(d) Commence, prosecute or defend any suits, actions or proceedings or as
otherwise deemed appropriate by Lender for the purpose of protecting or
collecting the Collateral. Infurtherance of this right, upon the occurrence and
during the continuance of an Event of Default, Lender may apply for the
appointment of a receiver or similar official to operate Borrower's business.
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(e) Prepare, adjust, execute, deliver and receive payment under insurance
claims, and collect and receive payment of and endorse any instrument in payment
of loss or returned premiums or any other insurance refund or return, and apply
such amounts at Lender's sole discretion, toward repayment of the Indebtedness
or replacement of the Collateral.
8.4 APPLICATION OF PROCEEDS. Any Proceeds and other monies or property
received by Lender pursuant to the terms of this Agreement or any Loan Document
may be applied by Lender first to the payment of expenses of collection,
including without limitation reasonable attorneys' fees, and then to the payment
of the Indebtedness in such order of application as Lender may elect.
8.5 DEFICIENCY. If the Proceeds of any sale of the Collateral are
insufficient to cover all costs and expenses of such sale and the payment in
full of all the Indebtedness, plus all other sums required to be expended or
distributed by Lender, then Borrower shall be liable for any such deficiency.
8.6 LENDER TRANSFER. Upon the transfer of all or any part of the
Indebtedness, Lender may transfer all or any part of its interest in the
Collateral and shall be fully discharged thereafter from all liability and
responsibility with respect to such interest in the Collateral so transferred,
and the transferee shall be vested with all the rights and powers of Lender
hereunder with respect to such interest in the Collateral so transferred.
8.7 LENDER'S DUTIES.
(a) Lender shall use reasonable care in the custody and preservation of any
Collateral in its possession. Without limitation on other conduct which may be
considered the exercise of reasonable care, Lender shall be deemed to have
exercised reasonable care in the custody and preservation of such Collateral if
such Collateral is accorded treatment substantially equal to that which Lender
accords its own property; or taking any necessary steps to preserve any rights
against any Person with respect to any Collateral. Under no circumstances shall
Lender be responsible for any injury or loss to the Collateral, or any part
thereof, arising from any cause beyond the reasonable control of Lender.
(b) Neither Lender, nor any of its directors, officers, employees, agents,
attorneys or any other person affiliated with or representing Lender shall be
liable for any claims, demands, losses or damages, of any kind whatsoever,
made, claimed, incurred or suffered by Borrower or any other party through the
ordinary negligence of Lender, or any of its directors, officers, employees,
agents, attorneys or any other person affiliated with or representing Lender.
8.8 TERMINATION OF SECURITY INTERESTS. Upon the payment in full of the
Obligations and if Lender has no further obligations under its Commitment, the
security interest granted hereby shall terminate and all rights to the
Collateral shall revert to Borrower. Upon any such termination, the Lender
shall, at Borrower's expense, execute and deliver to Borrower such documents as
Borrower shall reasonably request to evidence such termination.
ARTICLE 9 - GENERAL PROVISIONS
9.1 NOTICES. Any notice given by any party under any Loan Document shall
be in writing and personally delivered, sent by overnight courier, or United
States mail, postage prepaid, or sent by facsimile, to be promptly confirmed in
writing, or other authenticated message, charges prepaid, to the other party's
or parties' addresses shown on the Supplement. Each party may change the address
or facsimile number to which notices, requests and other communications are to
be sent by giving written notice of such change to each other party. Notice
given by hand delivery shall be deemed received on the date delivered; if sent
by overnight courier, on the next business day after delivery to the courier
service; if by first class mail, on the third business day after deposit in the
U.S. Mail; and if by telecopy, on the date of transmission.
9.2 BINDING EFFECT. The Loan Documents shall be binding upon and inure to
the benefit of Borrower and Lender and their respective successors and assigns;
provided, however, that Borrower may not assign or transfer Borrower's rights or
obligations under any Loan Document without Lender's prior written consent
except in connection with a consolidation, merger or other transaction in
compliance with Section 6.4 of this Agreement. Lender reserves the right to
sell, assign, transfer, negotiate or grant participations in all or any part of,
or any interest in, Lender's rights and obligations under the Loan Documents. In
connection with any of the foregoing, Lender may disclose all documents and
information which Lender now or
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hereafter may have relating to the Loans, Borrower, or its business; provided
that any person who receives such information shall have agreed in writing in
advance to maintain the confidentiality of such information on terms reasonably
acceptable to Borrower.
9.3 NO WAIVER. Any waiver, consent or approval by Lender of any Event of
Default or breach of any provision, condition, or covenant of any Loan Document
must be in writing and shall be effective only to the extent set forth in
writing. No waiver of any breach or default shall be deemed a waiver of any
later breach or default of the same or any other provision of any Loan Document.
No failure or delay on the part of Lender in exercising any power, right, or
privilege under any Loan Document shall operate as a waiver thereof, and no
single or partial exercise of any such power, right, or privilege shall preclude
any further exercise thereof or the exercise of any other power, right or
privilege. Lender has the right at its sole option to continue to accept
interest and/or principal payments due under the Loan Documents after default,
and such acceptance shall not constitute a waiver of said default or an
extension of the Maturity Date unless Lender agrees otherwise in writing.
9.4 RIGHTS CUMULATIVE. All rights and remedies existing under the Loan
Documents are cumulative to, and not exclusive of, any other rights or remedies
available under contract or applicable law.
9.5 UNENFORCEABLE PROVISIONS. Any provision of any Loan Document executed
by Borrower which is prohibited or unenforceable in any jurisdiction, shall be
so only as to such jurisdiction and only to the extent of such prohibition or
unenforceability, but all the remaining provisions of any such Loan Document
shall remain valid and enforceable.
9.6 ACCOUNTING TERMS. Except as otherwise provided in this Agreement,
accounting terms and financial covenants and information shall be determined and
prepared in accordance with GAAP.
9.7 INDEMNIFICATION; EXCULPATION. Borrower shall pay and protect, defend
and indemnify Lender and Lender's employees, officers, directors, shareholders,
affiliates, correspondents, agents and representatives (other than Lender,
collectively "Agents") against, and hold Lender and each such Agent harmless
from, all claims, actions, proceedings, liabilities, damages, losses, expenses
(including, without limitation, attorneys' fees and costs) and other amounts
incurred by Lender and each such Agent, arising from (i) the matters
contemplated by this Agreement or any other Loan Documents or (ii) financing
statement or record outstanding at the time of this Agreement, or (iii) any
contention that Borrower has failed to comply with any law, rule, regulation,
order or directive applicable to Borrower's business; PROVIDED, HOWEVER, that
this indemnification shall not apply to any of the foregoing incurred solely as
the result of Lender's or any Agent's gross negligence or willful misconduct.
This indemnification shall survive the payment and satisfaction of all of
Borrower's Obligations to Lender.
9.8 REIMBURSEMENT. Borrower shall reimburse Lender for all costs and
expenses, including without limitation reasonable attorneys' fees and
disbursements expended or incurred by Lender in any arbitration, mediation,
judicial reference, legal action or otherwise in connection with (a) the
preparation and negotiation of the Loan Documents, (b) the amendment,
interpretation and enforcement of the Loan Documents, including without
limitation during any workout, attempted workout, and/or in connection with the
rendering of legal advice as to Lender's rights, remedies and obligations under
the Loan Documents, (c) collecting any sum which becomes due Lender under any
Loan Document, (d) any proceeding for declaratory relief, any counterclaim to
any proceeding, or any appeal, or (e) the protection, preservation or
enforcement of any rights of Lender. For the purposes of this section,
attorneys' fees shall include, without limitation, fees incurred in connection
with the following: (1) contempt proceedings; (2) discovery; (3) any motion,
proceeding or other activity of any kind in connection with an Insolvency
Proceeding; (4) garnishment, levy, and debtor and third party examinations; and
(5) postjudgment motions and proceedings of any kind, including without
limitation any activity taken to collect or enforce any judgment. All of the
foregoing costs and expenses shall be payable upon demand by Lender, and if not
paid within forty-five (45) days of presentation of invoices shall bear interest
at the highest applicable Default Rate.
9.9 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts which, when taken together, shall constitute but one
agreement.
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9.10 ENTIRE AGREEMENT. The Loan Documents are intended by the parties as
the final expression of their agreement and therefore contain the entire
agreement between the parties and supersede all prior understandings or
agreements concerning the subject matter hereof. This Agreement may be amended
only in a writing signed by Borrower and Lender.
9.11 GOVERNING LAW AND JURISDICTION.
(a) THIS AGREEMENT AND THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR
OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA, AND BY EXECUTION
AND DELIVERY OF THIS AGREEMENT, EACH OF BORROWER AND LENDER CONSENTS, FOR ITSELF
AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE
COURTS.
EACH OF BORROWER AND LENDER IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING
ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR
PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT
RELATED HERETO. BORROWER AND LENDER EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS,
COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY
CALIFORNIA LAW.
9.12 WAIVER OF JURY TRIAL. BORROWER AND LENDER EACH WAIVES ITS RESPECTIVE
RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR
ANY PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT
CLAIMS, OR OTHERWISE. BORROWER AND LENDER EACH AGREES THAT ANY SUCH CLAIM OR
CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING
THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL
BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR
OTHER PROCEEDING WHICH SEEMS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION
HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
ARTICLE 10 - DEFINITIONS
The definitions appearing in this Agreement or any Supplement shall be
applicable to both the singular and plural forms of the defined terms:
"AFFILIATE" means any Person which directly or indirectly controls, is
controlled by, or is under common control with Borrower. "Control," "controlled
by" and "under common control with" mean direct or indirect possession of the
power to direct or cause the direction of management or policies (whether
through ownership of voting securities, by contract or otherwise); provided,
that control shall be conclusively presumed when any Person or affiliated group
directly or indirectly owns ten percent (10%) or more of the securities having
ordinary voting power for the election of directors of a corporation.
"AGREEMENT" means this Loan and Security Agreement and each Supplement thereto,
as each may be amended or supplemented from time to time.
"BANKRUPTCY CODE" means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C.
Section 101, ET SEQ.), as amended.
"BASIC INTEREST" means the fixed rate of interest payable on the outstanding
balance of each Loan at the applicable Designated Rate.
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"BORROWING DATE" means the Business Day on which the proceeds of a Loan are
disbursed by Lender.
"BORROWING REQUEST" means a written request from Borrower in substantially the
form of EXHIBIT "B" to the Supplement, requesting the funding of one or more
Loans on a particular Borrowing Date.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other day on which
commercial banks in New York City or San Francisco are authorized or required by
law to close.
"CLOSING DATE" means the date of this Agreement.
"COLLATERAL" means all Borrower's Equipment and Fixtures now owned or hereafter
acquired, wherever located, and whether held by Borrower or any third party, and
all proceeds and products thereof, including all insurance and condemnation
proceeds ("Proceeds"), and all monies now or at any time hereafter in the
possession or under the control of Lender or a bailee or affiliate of Lender,
including any cash collateral in any cash collateral or other account, and all
Records relating or useful to, or used in connection with any of the foregoing.
"COMMITMENT" means the obligation of Lender to make Loans to Borrower up to the
aggregate principal amount set forth in the Supplement.
"DEFAULT" means an event which with the giving of notice, passage of time, or
both would constitute an Event of Default.
"DEFAULT RATE" is defined in Section 2.7.
"DESIGNATED RATE" means the rate of interest per annum described in the
Supplement as being applicable to an outstanding Loan from time to time.
"ENVIRONMENTAL LAWS" means all federal, state or local laws, statutes, common
law duties, rules, regulations, ordinances and codes, together with all
administrative orders, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any governmental authorities, in each case
relating to environmental, health, or safety matters.
"EQUIPMENT" means all of Borrower's specific equipment identified and described
on SCHEDULE 1 attached to this Agreement and incorporated herein by this
reference (as such Schedule may be amended or supplemented from time to time),
all replacements, parts, accessions and additions thereto, and all proceeds
thereof arising from the sale, lease, rental or other use or disposition
thereof, including all rights to payment with respect to insurance or
condemnation, returned premiums, or any cause of action relating to any of the
foregoing.
"EVENT OF DEFAULT" means any event described in Section 7.1.
"FIXTURES" means all items of Equipment that are so related to the real property
upon which they are located that an interest in them arises under real property
law, and all proceeds thereof arising from the sale, lease, rental or other use
or disposition thereof.
"GAAP" means generally accepted accounting principles and practices consistent
with those principles and practices promulgated or adopted by the Financial
Accounting Standards Board and the Board of the American Institute of Certified
Public Accountants, their respective predecessors and successors. Each
accounting term used but not otherwise expressly defined herein shall have the
meaning given it by GAAP.
"INDEBTEDNESS" of any Person means at any date, without duplication and
without regard to whether matured or unmatured, absolute or contingent: (i)
all obligations of such Person for borrowed money; (ii) all obligations of
such Person evidenced by bonds, debentures, notes, or other similar
instruments; (iii) all obligations of such Person to pay the deferred
purchase price of property or services, except trade accounts payable arising
in the ordinary course of business; (iv) all obligations of such Person as
lessee under capital leases; (v) all obligations of such Person to reimburse
or prepay any bank or other Person in respect of amounts paid under a letter
of credit, banker's acceptance, or similar instrument, whether drawn or
undrawn; (vi) all obligations of such Person to purchase securities which
arise out of or in connection with the sale of the same or substantially
similar securities; (vii) all obligations of such Person to purchase, redeem,
exchange, convert or otherwise acquire for value any capital stock of such
Person or any warrants, rights or options to acquire such capital stock, now
or hereafter outstanding, except to the extent that such obligations remain
performable solely at the option of such Person; (viii) all obligations to
repurchase assets previously sold (including any obligation to repurchase any
accounts or chattel paper
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under any factoring, receivables purchase, or similar arrangement); (ix)
obligations of such Person under interest rate swap, cap, collar or similar
hedging arrangements; and (x) all obligations of others of any type described in
clause (i) through clause (ix) above guaranteed by such Person.
"INSOLVENCY PROCEEDING" means (a) any case, action or proceeding before any
court or other governmental authority relating to bankruptcy, reorganization,
insolvency, liquidation, receivership, dissolution, winding-up or relief of
debtors, or (b) any general assignment for the benefit of creditors,
composition, marshalling of assets for creditors, or other, similar arrangement
in respect of its creditors generally or any substantial portion of its
creditors, undertaken under U.S. Federal, state or foreign law, including the
Bankruptcy Code.
"LIEN" means any voluntary or involuntary security interest, mortgage, pledge,
claim, charge, encumbrance, title retention agreement, or third party interest,
covering all or any part of the property of Borrower or any other Person.
"LOAN" means an extension of credit by Lender under Section 2 of this Agreement.
"LOAN DOCUMENTS" means, individually and collectively, this Loan and Security
Agreement, each Supplement, each Note, and any other security or pledge
agreement(s), any Warrants issued by Borrower to Lender in connection with this
Agreement, and all other contracts, instruments, addenda and documents executed
in connection with this Agreement or the extensions of credit which are the
subject of this Agreement.
"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" means (a) a material
adverse change in, or a material adverse effect upon, the operations, business,
properties, or condition (financial or otherwise) of Borrower; (b) a material
impairment of the ability of Borrower to perform under any Loan Document; or (c)
a material adverse effect upon the legality, validity, binding effect or
enforceability against Borrower of any Loan Document.
"MATURITY DATE" means, with regard to a Loan, the earlier of (i) its maturity by
reason of acceleration, or (ii) its stated maturity date; and is the date on
which payment of all outstanding principal, accrued interest, and the Terminal
Payment with respect to such Loan is due.
"NOTE" means a promissory note substantially in the form attached to the
Supplement as EXHIBIT "A", executed by Borrower evidencing each Loan.
"OBLIGATIONS" means all advances, debts, liabilities, obligations, covenants and
duties arising under any Loan Document, owing by Borrower to Lender, whether
direct or indirect (including those acquired by assignment), absolute or
contingent, liquidated or unliquidated, due or to become due, now existing or
hereafter arising.
"PERMITTED LIEN" means
(a) Involuntary Liens which, in the aggregate, would not have a Material
Adverse Effect and which in any event would not exceed One-Hundred Thousand
Dollars ($100,000);
(b) Liens for current taxes or other governmental or regulatory assessments
which are not delinquent, or which are contested in good faith by the
appropriate procedures and for which appropriate reserves are maintained;
(c) Purchase Money security interests on any property held or acquired by
Borrower in the ordinary course of business securing Indebtedness incurred or
assumed for the purpose of financing all or any part of the cost of acquiring
such property; PROVIDED, that such Lien attaches solely to the property acquired
with such Indebtedness and that the principal amount of such Indebtedness does
not exceed one hundred percent (100%) of the cost of such property; and FURTHER
PROVIDED, that such property is not equipment with respect to which a Loan has
been made hereunder.
(d) Liens in favor of Lender;
(e) bankers' liens, rights of setoff and similar Liens incurred on deposits
made in the ordinary course of business;
(f) materialmen's, mechanics', repairmen's, employees' or other like Liens
arising in the ordinary course of business and which are not delinquent for more
than 45 days or are being contested in good faith by appropriate proceedings;
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(g) any judgment, attachment or similar Lien, unless the judgment it
secures has not been discharged or execution thereof effectively stayed and
bonded against pending appeal within 30 days of the entry thereof;
(h) licenses or sublicenses of Patents, Patent Licenses, Trademarks or
Trademark Licenses permitted under the Trademark Collateral Assignment or the
Patent Collateral Assignment; and,
(i) Liens which have been approved by Lender in writing prior to the
Closing Date and disclosed in Schedule 6.2 of this Agreement.
"PERSON" means any individual or entity.
"QUALIFIED PUBLIC OFFERING" means the closing of a firmly underwritten public
offering of Borrower's common stock with aggregate proceeds of not less than
$12,500,000 (prior to underwriting expenses and commissions).
"RECORDS" means all Borrower's computer programs, software, hardware, source
codes and data processing information, all written documents, books, invoices,
ledger sheets, financial information and statements, and all other writings
concerning Borrower's Equipment.
"RELATED PERSON" means any Affiliate of Borrower, or any officer, employee,
director or equity security holder of Borrower or any Affiliate.
"TERMINAL PAYMENT" means, with respect to each Loan, an amount payable on the
Maturity Date of such Loan in an amount equal to that percentage of the original
principal amount of such Loan specified in the Supplement.
"TERMINATION DATE" has the meaning specified in the Supplement.
"THRESHOLD AMOUNT" has the meaning specified in the Supplement.
"UCC" means the Uniform Commercial Code as enacted in the applicable
jurisdiction, in effect on the Closing Date and as amended from time to time.
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SUPPLEMENT
TO THE
LOAN AND SECURITY AGREEMENT (EQUIPMENT)
DATED AS OF DECEMBER 16, 1997
BETWEEN
IMGIS, INC. ("BORROWER")
AND
VENTURE LENDING & LEASING II, INC. ("LENDER")
- -------------------------------------------------------------------------------
This is a Supplement identified in the document entitled Loan and Security
Agreement (Equipment) dated as of December 16, 1997 between Borrower and Lender.
All capitalized terms used in this Supplement and not otherwise defined in this
Supplement have the meanings ascribed to them in Section 10 of the Loan and
Security Agreement, which is incorporated in its entirety into this Supplement.
In the event of any inconsistency between the provisions of that document and
this Supplement, this Supplement is controlling. Execution of this Supplement by
the Lender and Borrower shall constitute execution of the Loan and Security
Agreement.
In addition to the provisions of the Loan and Security Agreement, the
parties agree as follows:
1. - ADDITIONAL DEFINITIONS:
"COMMITMENT": Lender commits to make loans to Borrower up to the aggregate,
original principal amount of Three Hundred Fifty Thousand Dollars ($350,000).
"DESIGNATED RATE": The Designated Rate is nine and 75/100 percent (9.75%)
per annum.
"TERMINAL PAYMENT": Each Terminal Payment shall be an amount equal to
fifteen percent (15%) of the original principal amount of the associated Loan.
"TERMINATION DATE": The Termination Date is the earlier of (a) the date
Lender may terminate making Loans or extending other credit pursuant to the
rights of Lender under Article 7 of the Agreement, or (b) December 31, 1997.
"THRESHOLD AMOUNT": Fifty Thousand Dollars ($50,000.00).
2. - ADDITIONAL TERMS AND CONDITIONS:
ISSUANCE OF WARRANT TO LENDER. As additional consideration for the making
of the Loans under the Agreement, upon the making of, and as a condition to, the
initial Loan, Lender shall be entitled to receive a warrant to purchase 5,180
shares of preferred stock of Borrower ("Warrant Shares") with an aggregate
initial exercise price of $24,501.40 determined on the basis of a per share
exercise price of $4.73. The warrant issued under this Agreement shall be in
substantially the form attached hereto as EXHIBIT "C"; shall be transferable by
Lender, subject to compliance with applicable securities laws; shall expire not
earlier than December 31, 2002; and shall include piggy-back registration
rights, "net issuance" provisions, and anti-dilution protections reasonably
satisfactory to Lender and its counsel.
<PAGE>
LIMITATION ON REIMBURSEMENT OF DOCUMENTATION COSTS. Notwithstanding
anything to the contrary in Section 9.8 of the Loan and Security Agreement,
Borrower's obligation to reimburse Lender its attorneys' fees and costs of
documenting this transaction shall not exceed $350.00.
LIMITATION ON EQUIPMENT LOANS. Each Loan shall be in an amount not to
exceed one hundred percent (100%) of the amount paid or payable by Borrower to a
non-affiliated manufacturer, vendor or dealer for an item of equipment as shown
on an invoice therefor (excluding any commissions and any portion of the payment
which relates to the servicing of the equipment and sales taxes payable by
Borrower upon acquisition, and delivery charges). Lender has the right to
approve individual items of Equipment for funding. Each Loan requested by
Borrower to be made on a single Business Day shall be for a minimum principal
amount of Thirty Five Thousand Dollars ($35,000) except to the extent the
remaining Commitment is a lesser amount.
3. - ADDITIONAL REPRESENTATIONS:
Borrower represents and warrants that as of the Closing Date:
Its chief executive office is
located at: 10101 North DeAnza Blvd., Suite 210
Cupertino, CA 95014
Its Equipment is located at: 10101 North DeAnza Blvd., Suite 210
Cupertino, CA 95014
and
611 Anton Blvd., Suite 400
Costa Mesa, CA 92626
Its Records are located at: 10101 North DeAnza Blvd., Suite 210
Cupertino, CA 95014
In addition to its chief executive office, Borrower maintains offices or
operates its business at the following locations:
None
Other than its full corporate name, Debtor has conducted business using
the following trade names or fictitious business names:
None
4. - ADDITIONAL LOAN DOCUMENTS:
Form of Note Exhibit "A"
Form of Borrowing Request Exhibit "B"
Form of Warrant Exhibit "C"
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Supplement as of the
date first above written.
BORROWER: LENDER:
IMGIS, INC. VENTURE LENDING &
LEASING II, INC.
By: /s/ JOHN A. TANNER By: /s/ R W SWENSON
----------------------- ---------------
Name: John A. Tanner Name: R W Swenson
----------------------- ---------------
Title: Chief Financial Officer Title: CEO
----------------------- ---------------
Address for Notices: Attn: Chief Financial Attn: Chief Financial
Officer Officer
10101 North DeAnza Blvd. 2010 North First
Ste 210 Street, Suite 310
Cupertino, CA 95014 San Jose, CA, 95131
Fax # (408) 873-3693 Fax # (408)436-8625
<PAGE>
Exhibit 10.22
M A S T E R L E A S E A G R E E M E N T
MASTER LEASE AGREEMENT (the "Master Lease") dated December 2,1997 by and between
COMDISCO, INC. ("Lessor") and IMGIS, INC.("Lessee").
IN CONSIDERATION of the mutual agreements described below, the parties agree as
follows (all capitalized terms are defined in Section 14.18):
1. PROPERTY LEASED.
Lessor leases to Lessee all of the Equipment described on each Summary Equipment
Schedule. In the event of a conflict, the terms of the applicable Schedule
prevail over this Master Lease.
2. TERM.
On the Commencement Date, Lessee will be deemed to accept the Equipment, will be
bound to its rental obligations for each item of Equipment and the term of a
Summary Equipment Schedule will begin and continue through the Initial Term and
thereafter until terminated by either party upon prior written notice received
during the Notice Period. No termination may be effective prior to the
expiration of the Initial Term.
3. RENT AND PAYMENT.
Rent is due and payable in advance on the first day of each Rent Interval at the
address specified in Lessor's invoice. Interim Rent is due and payable when
invoiced. If any payment is not made when due, Lessee will pay a Late Charge on
the overdue amount. Upon Lessee's execution of each Schedule, Lessee will pay
Lessor the Advance specified on the Schedule. The Advance will be credited
towards the final Rent payment if Lessee is not then in default. No interest
will be paid on the Advance.
4. SELECTION; WARRANTY AND DISCLAIMER OF WARRANTIES.
4.1 SELECTION. Lessee acknowledges that it has selected the Equipment and
disclaims any reliance upon statements made by the Lessor, other than as set
forth in the Schedule.
4.2 WARRANTY AND DISCLAIMER OF WARRANTIES. Lessor warrants to Lessee that, so
long as Lessee is not in default, Lessor will not disturb Lessee's quiet and
peaceful possession, and unrestricted use of the Equipment. To the extent
permitted by the manufacturer, Lessor assigns to Lessee during the term of the
Summary Equipment Schedule any manufacturer's warranties for the Equipment.
LESSOR MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER,
INCLUDING, WITHOUT LIMITATION, THE MERCHANTABILITY OF THE EQUIPMENT OR ITS
FITNESS FOR A PARTICULAR PURPOSE. Lessor is not responsible for any liability,
claim, loss, damage or expense of any kind (including strict liability in tort)
caused by the Equipment except for any loss or damage caused by the willful
misconduct or negligent acts of Lessor. In no event is Lessor responsible for
special, incidental or consequential damages.
5. TITLE; RELOCATION OR SUBLEASE; AND ASSIGNMENT.
5.1 TITLE. Lessee holds the Equipment subject and subordinate to the rights of
the Owner, Lessor, any Assignee and any Secured Party. Lessee authorizes Lessor,
as Lessee's agent, and at Lessor's expense, to prepare, execute and file in
Lessee's name precautionary Uniform Commercial Code financing statements showing
the interest of the Owner, Lessor, and any Assignee or Secured Party in the
Equipment and to insert serial numbers in Summary Equipment Schedules as
appropriate. Lessee will, at its expense, keep the Equipment free and clear from
any liens or encumbrances of any kind (except any caused by Lessor) and will
indemnify and hold the Owner, Lessor, any Assignee and Secured Party harmless
from and against any loss caused by Lessee's failure to do so, except where such
is caused by Lessor.
5.2 RELOCATION OR SUBLEASE. Upon prior written notice, Lessee may relocate
Equipment to any location within the continental United States provided (i) the
Equipment will not be used by an entity exempt from federal income tax, and (ii)
all additional costs (including any administrative fees, additional taxes and
insurance coverage) are reconciled and promptly paid by Lessee.
Lessee may sublease the Equipment upon the reasonable consent of the Lessor and
the Secured Party. Such consent to sublease will be granted if: (i) Lessee meets
the relocation requirements set out above, (ii) the sublease is expressly
subject and subordinate to the terms of the Schedule, (iii) Lessee assigns its
rights in the sublease to Lessor and the Secured Party as additional collateral
and security, (iv) Lessee's obligation to maintain and insure the Equipment is
not altered, (v) all financing statements required to continue the Secured
Party's prior perfected security interest are filed, and (vi) Lessee executes
sublease documents acceptable to Lessor.
No relocation or sublease will relieve Lessee from any of its obligations under
this Master Lease and the relevant Schedule.
5.3 ASSIGNMENT BY LESSOR. The terms and conditions of each Schedule have been
fixed by Lessor in order to permit Lessor to sell and/or assign or transfer its
interest or grant a security interest in each Schedule and/or the Equipment to a
Secured Party or Assignee. In that event, the term Lessor will mean the Assignee
and any Secured Party. However, any assignment, sale, or other transfer by
Lessor will not relieve Lessor of its obligations to Lessee and will not
materially change Lessee's duties or materially increase the burdens or risks
imposed on Lessee. The Lessee consents to and will acknowledge such assignments
in a written notice given to Lessee. Lessee also agrees that:
(a) The Secured Party will be entitled to exercise all of Lessor's rights, but
will not be obligated to perform any of the obligations of Lessor. The Secured
Party will not disturb Lessee's quiet and peaceful possession and unrestricted
use of the Equipment so long as Lessee is not in default and the Secured Party
continues to receive all Rent payable under the Schedule; and
(b) Lessee will pay all Rent and all other amounts payable to the Secured Party,
despite any defense or claim which it has against Lessor. Lessee reserves its
right to have recourse directly against Lessor for any defense or claim;
(c) Subject to and without impairment of Lessee's leasehold rights in the
Equipment, Lessee holds the Equipment for the Secured Party to the extent of the
Secured Party's rights in that Equipment.
6. NET LEASE; TAXES AND FEES.
6.1 NET LEASE. Each Summary Equipment Schedule constitutes a net lease. Lessee's
obligation to pay Rent and all other amounts due hereunder is absolute and
unconditional and is not subject to any abatement, reduction, set-off, defense,
counterclaim, interruption, deferment or recoupment for any reason whatsoever.
6.2 TAXES AND FEES. Lessee will pay when due or reimburse Lessor for all taxes,
fees or any other charges (together with any related interest or penalties not
arising from the negligence of Lessor) accrued for or arising during the term of
each Summary Equipment Schedule against Lessor, Lessee or the Equipment by any
governmental authority (except only Federal, state, local and franchise taxes on
the capital or the net income of Lessor). Lessor will file all personal property
tax returns for the Equipment and pay all such property taxes due. Lessee will
reimburse Lessor for property taxes within thirty (30) days of receipt of an
invoice.
7. CARE, USE AND MAINTENANCE; INSPECTION BY LESSOR.
7.1 CARE, USE AND MAINTENANCE. Lessee will maintain the Equipment in good
operating order and appearance, protect the Equipment from deterioration, other
than normal wear and tear, and will not use the Equipment for any purpose other
than that for which it was designed. If commercially available and considered
common business practice for each item of Equipment, Lessee will maintain in
force a standard maintenance contract with the manufacturer of the Equipment, or
another party acceptable to Lessor, and will provide Lessor with a complete copy
of that contract. If Lessee has the Equipment maintained by a party other than
the manufacturer or self maintains, Lessee agrees to pay any costs necessary for
the manufacturer to bring the Equipment to then current release, revision and
engineering change levels, and to re-certify the Equipment as eligible for
manufacturer's maintenance at the expiration of the lease term, provided
re-certification is available and is required by Lessor. The lease term will
continue upon the same terms and conditions until recertification has been
obtained.
7.2 INSPECTION BY LESSOR. Upon reasonable advance notice, Lessee, during
reasonable business hours and subject to Lessee's security requirements, will
make the Equipment and its related log and maintenance records available to
Lessor for inspection.
8. REPRESENTATIONS AND WARRANTIES OF LESSEE. Lessee hereby represents, warrants
and covenants that with respect to the Master Lease and each Schedule executed
hereunder:
(a) The Lessee is a corporation duly organized and validly existing in good
standing under the laws of the jurisdiction of its incorporation, is duly
qualified to do business in each jurisdiction (including the jurisdiction where
the Equipment is, or is to be, located) where its ownership or lease of property
or the conduct of its business requires such qualification, except for where
such lack of qualification would not have a material adverse effect on the
Company's business; and has full corporate power and authority to hold property
under the Master Lease and each Schedule and to enter into and perform its
obligations under the Master Lease and each Schedule.
(b) The execution and delivery by the Lessee of the Master Lease and each
Schedule and its performance thereunder have been duly authorized by all
necessary corporate action on the part of the Lessee, and the Master Lease and
each Schedule are not inconsistent with the Lessee's Articles of Incorporation
or Bylaws, do not
<PAGE>
contravene any law or governmental rule, regulation or order applicable to it,
do not and will not contravene any provision of, or constitute a default under,
any indenture, mortgage, contract or other instrument to which it is a party or
by which it is bound, and the Master Lease and each Schedule constitute legal,
valid and binding agreements of the Lessee, enforceable in accordance with their
terms, subject to the effect of applicable bankruptcy and other similar laws
affecting the rights of creditors generally and rules of law concerning
equitable remedies.
(c) There are no actions, suits, proceedings or patent claims pending or, to the
knowledge of the Lessee, threatened against or affecting the Lessee in any court
or before any governmental commission, board or authority which, if adversely
determined, will have a material adverse effect on the ability of the Lessee to
perform its obligations under the Master Lease and each Schedule.
(d) The Equipment is personal property and when subjected to use by the Lessee
will not be or become fixtures under applicable law.
(e) The Lessee has no material liabilities or obligations, absolute or
contingent (individually or in the aggregate), except the liabilities and
obligations of the Lessee as set forth in the Financial Statements and
liabilities and obligations which have occurred in the ordinary course of
business, and which have not been, in any case or in the aggregate, materially
adverse to Lessee's ongoing business.
(f) To the best of the Lessee's knowledge, the Lessee owns, possesses, has
access to, or can become licensed on reasonable terms under all patents, patent
applications, trademarks, trade names, inventions, franchises, licenses,
permits, computer software and copyrights necessary for the operations of its
business as now conducted, with no known infringement of, or conflict with, the
rights of others.
(g) All material contracts, agreements and instruments to which the Lessee is a
party are in full force and effect in all material respects, and are valid,
binding and enforceable by the Lessee in accordance with their respective terms,
subject to the effect of applicable bankruptcy and other similar laws affecting
the rights of creditors generally, and rules of law concerning equitable
remedies.
9. DELIVERY AND RETURN OF EQUIPMENT.
Lessee hereby assumes the full expense of transportation and in-transit
insurance to Lessee's premises and installation thereat of the Equipment. Upon
termination (by expiration or otherwise) of each Summary Equipment Schedule,
Lessee shall, pursuant to Lessor's instructions and at Lessee's full expense
(including, without limitation, expenses of transportation and in-transit
insurance), return the Equipment to Lessor in the same operating order, repair,
condition and appearance as when received, less normal depreciation and wear and
tear. Lessee shall return the Equipment to Lessor at 6111 North River Road,
Rosemont, Illinois 60018 or at such other address within the continental United
States as directed by Lessor, provided, however, that Lessee's expense shall be
limited to the cost of returning the equipment to Lessor's address as set forth
herein. During the period subsequent to receipt of a notice under Section 2,
Lessor may demonstrate the Equipment's operation in place and Lessee will supply
any of its personnel as may reasonably be required to assist in the
demonstrations.
10. LABELING.
Upon request, Lessee will mark the Equipment indicating Lessor's interest with
labels provided by Lessor. Lessee will keep all Equipment free from any other
marking or labeling which might be interpreted as a claim of ownership.
11. INDEMNITY.
With regard to bodily injury and property damage liability only, Lessee will
indemnify and hold Lessor, any Assignee and any Secured Party harmless from and
against any and all claims, costs, expenses, damages and liabilities, including
reasonable attorneys' fees, arising out of the ownership (for strict liability
in tort only), selection, possession, leasing, operation, control, use,
maintenance, delivery, return or other disposition of the Equipment during the
term of this Master Lease or until Lessee's obligations under the Master Lease
terminate. However, Lessee is not responsible to a party indemnified hereunder
for any claims, costs, expenses, damages and liabilities occasioned by the
negligent acts of such indemnified party. Lessee agrees to carry bodily injury
and property damage liability insurance during the term of the Master Lease in
amounts and against risks customarily insured against by the Lessee on equipment
owned by it. Any amounts received by Lessor under that insurance will be
credited against Lessee's obligations under this Section.
12. RISK OF LOSS.
Effective upon delivery and until the Equipment is returned, Lessee relieves
Lessor of responsibility for all risks of physical damage to or loss or
destruction of the Equipment. Lessee will carry casualty insurance for each item
of Equipment in an amount not less than the Casualty Value. All policies for
such insurance will name the Lessor and any Secured Party as additional insured
and as loss payee, and will provide for at least thirty (30) days prior written
notice to the Lessor of cancellation or expiration, and will insure Lessor's
interests regardless of any breach or violation by Lessee of any representation,
warranty or condition contained in such policies and will be primary without
right of contribution from any insurance effected by Lessor. Upon the execution
of any Schedule, the Lessee will furnish appropriate evidence of such insurance
acceptable to Lessor.
Lessee will promptly repair any damaged item of Equipment unless such Equipment
has suffered a Casualty Loss. Within fifteen (15) days of a Casualty Loss,
Lessee will provide written notice of that loss to Lessor and Lessee will, at
Lessee's option, either (a) replace the item of Equipment with Like Equipment
and marketable title to the Like Equipment will automatically vest in Lessor or
(b) pay the Casualty Value and after that payment and the payment of all other
amounts due and owing with respect to that item of Equipment, Lessee's
obligation to pay further Rent for the item of Equipment will cease.
13. DEFAULT, REMEDIES AND MITIGATION.
13.1 DEFAULT. The occurrence of any one or more of the following Events of
Default constitutes a default under a Summary Equipment Schedule:
(a) Lessee's failure to pay Rent or other amounts payable by Lessee when due if
that failure continues for five (5) business days after written notice; or
(b) Lessee's failure to perform any other term or condition of the Schedule or
the material inaccuracy of any representation or warranty made by the Lessee in
the Schedule or in any document or certificate furnished to the Lessor hereunder
if that failure or inaccuracy continues for ten (10) business days after written
notice; or
(c) An assignment by Lessee for the benefit of its creditors, the failure by
Lessee to pay its debts when due, the insolvency of Lessee, the filing by Lessee
or the filing against Lessee of any petition under any bankruptcy or insolvency
law or for the appointment of a trustee or other officer with similar powers,
the adjudication of Lessee as insolvent, the liquidation of Lessee, or the
taking of any action for the purpose of the foregoing; or
(d) The occurrence of an Event of Default under any Schedule, Summary Equipment
Schedule or other agreement between Lessee and Lessor or its Assignee or Secured
Party.
13.2 REMEDIES. Upon the occurrence of any of the above Events of Default,
Lessor, at its option, may:
(a) enforce Lessee's performance of the provisions of the applicable Schedule by
appropriate court action in law or in equity;
(b) recover from Lessee any damages and or expenses, including Default Costs;
(c) with notice and demand, recover all sums due and accelerate and recover the
present value of the remaining payment stream of all Rent due under the
defaulted Schedule (discounted at the same rate of interest at which such
defaulted Schedule was discounted with a Secured Party plus any prepayment fees
charged to Lessor by the Secured Party or, if there is no Secured Party, then
discounted at 6%) together with all Rent and other amounts currently due as
liquidated damages and not as a penalty;
(d) with notice and process of law and in compliance with Lessee's security
requirements, Lessor may enter on Lessee's premises to remove and repossess the
Equipment without being liable to Lessee for damages due to the repossession,
except those resulting from Lessor's, its assignees', agents' or
representatives' negligence; and
(e) pursue any other remedy permitted by law or equity.
The above remedies, in Lessor's discretion and to the extent permitted by law,
are cumulative and may be exercised successively or concurrently.
13.3 MITIGATION. Upon return of the Equipment pursuant to the terms of Section
13.2, Lessor will use its best efforts in accordance with its normal business
procedures (and without obligation to give any priority to such Equipment) to
mitigate Lessor's damages as described below. EXCEPT AS SET FORTH IN THIS
SECTION, LESSEE HEREBY WAIVES ANY RIGHTS NOW OR HEREAFTER CONFERRED BY STATUTE
OR OTHERWISE WHICH MAY REQUIRE LESSOR TO MITIGATE ITS DAMAGES OR MODIFY ANY OF
LESSOR'S RIGHTS OR REMEDIES STATED HEREIN. Lessor may sell, lease or otherwise
dispose of all or any part of the Equipment at a public or private sale for cash
or credit with the privilege of purchasing the Equipment. The proceeds from any
sale, lease or other disposition of the Equipment are defined as either:
(a) if sold or otherwise disposed of, the cash proceeds less the Fair Market
Value of the Equipment at the expiration of the Initial Term less the Default
Costs; or
2
<PAGE>
(b) if leased, the present value (discounted at 3 percent (3%) over the U.S.
Treasury Notes of comparable maturity to the term of the re-lease) of the
rentals for a term not to exceed the Initial Term, less the Default Costs.
Any proceeds will be applied against liquidated damages and any other sums due
to Lessor from Lessee. However, Lessee is liable to Lessor for, and Lessor may
recover, the amount by which the proceeds are less than the liquidated damages
and other sums due to Lessor from Lessee.
14. ADDITIONAL PROVISIONS.
14.1 BOARD ATTENDANCE. One representative of Lessor will have the right to
attend Lessee's corporate Board of Directors meetings and Lessee will give
Lessor reasonable notice in advance of any special Board of Directors meeting,
which notice will provide an agenda of the subject matter to be discussed at
such board meeting. Lessee will provide Lessor with a certified copy of the
minutes of each Board of Directors meeting within thirty (30) days following the
date of such meeting held during the term of this Master Lease.
14.2 FINANCIAL STATEMENTS. As soon as practicable at the end of each month (and
in any event within thirty (30) days), Lessee will provide to Lessor the same
information which Lessee provides to its Board of Directors, but which will
include not less than a monthly income statement, balance sheet and statement of
cash flows prepared in accordance with generally accepted accounting principles,
consistently applied (the "Financial Statements"). As soon as practicable at the
end of each fiscal year, Lessee will provide to Lessor audited Financial
Statements setting forth in comparative form the corresponding figures for the
fiscal year (and in any event within ninety (90) days), and accompanied by an
audit report and opinion of the independent certified public accountants
selected by Lessee. Lessee will promptly furnish to Lessor any additional
information (including, but not limited to, tax returns, income statements,
balance sheets and names of principal creditors) as Lessor reasonably believes
necessary to evaluate Lessee's continuing ability to meet financial obligations.
After the effective date of the initial registration statement covering a public
offering of Lessee's securities, the term "Financial Statements" will be deemed
to refer to only those statements required by the Securities and Exchange
Commission.
14.3 OBLIGATION TO LEASE ADDITIONAL EQUIPMENT. Upon notice to Lessee, Lessor
will not be obligated to lease any Equipment which would have a Commencement
Date after said notice if: (i) Lessee is in default under this Master Lease or
any Schedule; (ii) Lessee is in default under any loan agreement, the result of
which would allow the lender or any secured party to demand immediate payment of
any material indebtedness; (iii) there is a material adverse change in Lessee's
credit standing; or (iv) Lessor determines (in reasonable good faith) that
Lessee will be unable to perform its obligations under this Master Lease or any
Schedule.
14.4 MERGER AND SALE PROVISIONS. Lessee will notify Lessor of any proposed
Merger at least sixty (60) days prior to the closing date. Lessor may, in its
discretion, either (i) consent to the assignment of the Master Lease and all
relevant Schedules to the successor entity, or (ii) terminate the Lease and all
relevant Schedules. If Lessor elects to consent to the assignment, Lessee and
its successor will sign the assignment documentation provided by Lessor. If
Lessor elects to terminate the Master Lease and all relevant Schedules, then
Lessee will pay Lessor all amounts then due and owing and a termination fee
equal to the present value (discounted at 6%) of the remaining Rent for the
balance of the Initial Term(s) of all Schedules, and will return the Equipment
in accordance with Section 9. Lessor hereby consents to any Merger in which the
acquiring entity has a Moody's Bond Rating of BA3 or better or a commercially
acceptable equivalent measure of creditworthiness as reasonably determined by
Lessor.
14.5 ENTIRE AGREEMENT. This Master Lease and associated Schedules and Summary
Equipment Schedules supersede all other oral or written agreements or
understandings between the parties concerning the Equipment including, for
example, purchase orders. ANY AMENDMENT OF THIS MASTER LEASE OR A SCHEDULE, MAY
ONLY BE ACCOMPLISHED BY A WRITING SIGNED BY THE PARTY AGAINST WHOM THE AMENDMENT
IS SOUGHT TO BE ENFORCED.
14.6 NO WAIVER. No action taken by Lessor or Lessee will be deemed to constitute
a waiver of compliance with any representation, warranty or covenant contained
in this Master Lease or a Schedule. The waiver by Lessor or Lessee of a breach
of any provision of this Master Lease or a Schedule will not operate or be
construed as a waiver of any subsequent breach.
14.7 BINDING NATURE. Each Schedule is binding upon, and inures to the benefit of
Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR OBLIGATIONS.
14.8 SURVIVAL OF OBLIGATIONS. All agreements, obligations including, but not
limited to those arising under Section 6.2, representations and warranties
contained in this Master Lease, any Schedule, Summary Equipment Schedule or in
any document delivered in connection with those agreements are for the benefit
of Lessor and any Assignee or Secured Party and survive the execution, delivery,
expiration or termination of this Master Lease.
14.9 NOTICES. Any notice, request or other communication to either party by the
other will be given in writing and deemed received upon the earlier of (1)
actual receipt or (2) three days after mailing if mailed postage prepaid by
regular or airmail to Lessor (to the attention of "the Comdisco Venture Group")
or Lessee, at the address set out in the Schedule, (3) one day after it is sent
by courier or (4) on the same day as sent via facsimile transmission, provided
that the original is sent by personal delivery or mail by the sending party.
14.10 APPLICABLE LAW. THIS MASTER LEASE HAS BEEN, AND EACH SCHEDULE WILL HAVE
BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF ILLINOIS AND WILL BE GOVERNED
AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE STATE OF
ILLINOIS WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS. NO RIGHTS OR
REMEDIES REFERRED TO IN ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE WILL BE
CONFERRED ON LESSEE UNLESS EXPRESSLY GRANTED IN THIS MASTER LEASE OR A SCHEDULE.
14.11 SEVERABILITY. If any one or more of the provisions of this Master Lease or
any Schedule is for any reason held invalid, illegal or unenforceable, the
remaining provisions of this Master Lease and any such Schedule will be
unimpaired, and the invalid, illegal or unenforceable provision replaced by a
mutually acceptable valid, legal and enforceable provision that is closest to
the original intention of the parties.
14.12 COUNTERPARTS. This Master Lease and any Schedule may be executed in any
number of counterparts, each of which will be deemed an original, but all such
counterparts together constitute one and the same instrument. If Lessor grants a
security interest in all or any part of a Schedule, the Equipment or sums
payable thereunder, only that counterpart Schedule marked "Secured Party's
Original" can transfer Lessor's rights and all other counterparts will be marked
"Duplicate."
14.13 LICENSED PRODUCTS. Lessee will obtain no title to Licensed Products which
will at all times remain the property of the owner of the Licensed Products. A
license from the owner may be required and it is Lessee's responsibility to
obtain any required license before the use of the Licensed Products. Lessee
agrees to treat the Licensed Products as confidential information of the owner,
to observe all copyright restrictions, and not to reproduce or sell the Licensed
Products.
14.14 SECRETARY'S CERTIFICATE. Lessee will, upon execution of this Master Lease,
provide Lessor with a secretary's certificate of incumbency and authority. Upon
the execution of each Schedule with a purchase price in excess of $1,000,000,
Lessee will provide Lessor with an opinion from Lessee's counsel in a form
acceptable to Lessor regarding the representations and warranties in Section 8.
14.15 ELECTRONIC COMMUNICATIONS. Each of the parties may communicate with the
other by electronic means under mutually agreeable terms.
14.16 LANDLORD/MORTGAGEE WAIVER. Lessee agrees to provide Lessor with a
Landlord/Mortgagee Waiver with respect to the Equipment. Such waiver shall be in
a form satisfactory to Lessor.
14.17 EQUIPMENT PROCUREMENT CHARGES/PROGRESS PAYMENTS. Lessee hereby agrees that
Lessor shall not, by virtue of its entering into this Master Lease, be required
to remit any payments to any manufacturer or other third party until Lessee
accepts the Equipment subject to this Master Lease.
14.18 DEFINITIONS.
ADVANCE - means the amount due to Lessor by Lessee upon Lessee's execution of
each Schedule.
ASSIGNEE - means an entity to whom Lessor has sold or assigned its rights as
owner and Lessor of Equipment.
CASUALTY LOSS - means the irreparable loss or destruction of Equipment.
CASUALTY VALUE - means the greater of the aggregate Rent remaining to be paid
for the balance of the lease term or the Fair Market Value of the Equipment
immediately prior to the Casualty Loss. However, if a Casualty Value Table is
attached to the relevant Schedule its terms will control.
COMMENCEMENT DATE - is defined in each Schedule.
DEFAULT COSTS - means reasonable attorney's fees and remarketing costs resulting
from a Lessee default or Lessor's enforcement of its remedies.
DELIVERY DATE - means date of delivery of Inventory Equipment to Lessee's
address.
EQUIPMENT - means the property described on a Summary Equipment Schedule and any
replacement for that property required or permitted by this Master Lease or a
Schedule.
EVENT OF DEFAULT - means the events described in Subsection 13.1.
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<PAGE>
FAIR MARKET VALUE - means the aggregate amount which would be obtainable in an
arm's-length transaction between an informed and willing buyer/user and an
informed and willing seller under no compulsion to sell.
INITIAL TERM - means the period of time beginning on the first day of the first
full Rent Interval following the Commencement Date for all items of Equipment
and continuing for the number of Rent Intervals indicated on a Schedule.
INTERIM RENT - means the pro-rata portion of Rent due for the period from the
Commencement Date through but not including the first day of the first full Rent
Interval included in the Initial Term.
LATE CHARGE - means the lesser of five percent (5%) of the payment due or the
maximum amount permitted by the law of the state where the Equipment is located.
LICENSED PRODUCTS - means any software or other licensed products attached to
the Equipment.
LIKE EQUIPMENT - means replacement Equipment which is lien free and of the same
model, type, configuration and manufacture as Equipment.
MERGER - means any consolidation or merger of the Lessee with or into any other
corporation or entity, any sale or conveyance of all or substantially all of the
assets or stock of the Lessee by or to any other person or entity in which
Lessee is not the surviving entity.
NOTICE PERIOD - means not less than ninety (90) days nor more than twelve (12)
months prior to the expiration of the lease term.
OWNER - means the owner of Equipment.
RENT - means the rent Lessee will pay for each item of Equipment expressed in a
Summary Equipment Schedule either as a specific amount or an amount equal to the
amount which Lessor pays for an item of Equipment multiplied by a lease rate
factor plus all other amounts due to Lessor under this Master Lease or a
Schedule.
RENT INTERVAL - means a full calendar month or quarter as indicated on a
Schedule.
SCHEDULE - means either an Equipment Schedule or a Licensed Products Schedule
which incorporates all of the terms and conditions of this Master Lease.
SECURED PARTY - means an entity to whom Lessor has granted a security interest
for the purpose of securing a loan.
SUMMARY EQUIPMENT SCHEDULE - means a certificate provided by Lessor summarizing
all of the Equipment for which Lessor has received Lessee approved vendor
invoices, purchase documents and/or evidence of delivery during a calendar
quarter which will incorporate all of the terms and conditions of the related
Schedule and this Master Lease and will constitute a separate lease for the
equipment leased thereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Master Lease on or as
of the day and year first above written.
IMGIS, INC. COMDISCO, INC.,
as Lessee as Lessor
By: By:
--------------------------- ---------------------------
Title: Title:
----------------------- ------------------------
4
<PAGE>
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
EXHIBIT 10.23
ADFORCE-TM- Service GeoCities Agreement
- -------------------------------------------------------------------------------
This service agreement for the AdForce service (the "Agreement") is entered
into between IMGIS, Inc., a California corporation ("IMGIS"), with offices at
10101 N. DeAnza Blvd., Suite 210, Cupertino, CA 95014 and GEOCITIES, a
California corporation ("GEOCITIES") with offices at 1918 Main Street, 3rd
Floor, Santa Monica, CA 90405.
1. ADFORCE SERVICE DEFINITION. The AdForce service is an Internet
advertising administration system that will allow GEOCITIES to manage
advertising on its Web site and/or similar on-line service. As part of
the AdForce service, IMGIS will provide GEOCITIES with the AdForce
"client" software application ("Application Software"), with which
GEOCITIES will be able to (a) generate ad tags, (b) schedule advertising
to run in the online environments in which GEOCITIES places those ad
tags and (c) generate reports on such advertising. IMGIS will maintain
an AdForce server complex from which IMGIS will electronically deliver
advertising scheduled by GEOCITIES to the online environments containing
the ad tags placed by GEOCITIES. IMGIS will complete development of, and
will make available to GEOCITIES by August 1, 1998, a "Hybrid Service"
which will allow GEOCITIES to direct Impressions (defined below) to be
delivered from the AdForce server complex ("Central Delivery") or IMGIS
servers located on GEOCITIES' site ("Local Delivery"). As part of the
Hybrid Service, IMGIS will provide GEOCITIES with the client and server
software needed to use the Hybrid Service ("Hybrid Service Software,"
collectively the "Hybrid Service Software" and the "Application Software"
are referred to herein as the "Licensed Software"). The "Hybrid Service"
is part of the AdForce Service as defined in this Section 1 and referred
to in this Agreement. In addition, the Hybrid Service will be capable of
instantaneously providing Local Delivery of ads to all ad tags in the
event that the AdForce server complex becomes disabled, inoperative, or
otherwise inaccessible to GEOCITIES. GEOCITIES recognizes that certain
functions available as part of the Central Delivery service will not be
available in the Local Delivery service. IMGIS acknowledges and agrees
that its failure to make the Hybrid Service available to GEOCITIES by
August 1, 1998 will significantly reduce the benefits GEOCITIES' expects
to receive under this Agreement. Because it would be impracticable and
extremely difficult to determine the exact amount of GEOCITIES' damages
in such event, IMGIS and GEOCITIES agree that, as compensation to
GEOCITIES for any such loss of the benefit of its bargain hereunder,
rather than as a penalty to IMGIS, the fees of the AdForce service
(Local Delivery and Central Delivery) set forth in Schedule A shall be
reduced [*] for each day, up to a maximum of [*] days or [*] total
reduction, after August 1, 1998 that IMGIS fails to make available to
GEOCITIES the Hybrid Service in the form described in this Section 1.
Fees will return to the amounts specified in Schedule A as soon as
the Hybrid Service is made available to GEOCITIES. Additionally,
if IMGIS fails to make the Hybrid Service available by September 1,
1998, GEOCITIES may terminate this Agreement and GEOCITIES shall be
entitled to recover from IMGIS all damages that GEOCITIES incurs, due
to such failure, provided that IMGIS' liability for such damages shall
not exceed the amount in aggregate paid by GEOCITIES for the AdForce
service during the thirty (30) days of prior to termination. The
foregoing reduction AdForce Service fees and early termination
privilege shall be GEOCITIES' sole remedy for failure by IMGIS to make
the Hybrid Service available by August 1, 1998 and September 1, 1998,
respectively. The delivery of "Impressions," defined as the transmission
of advertisements from the AdForce server complex or an IMGIS server
located on GEOCITIES' site to an AdForce ad tag, will be verified by
monthly third-party audits of the AdForce service, conducted by the
Audit Bureau of Verification Services, Inc. or another independent third
party chosen by IMGIS. This audit is included in all levels of the
AdForce service and, upon completion of an audit, IMGIS will provide
GEOCITIES with the results of the audit. Central Delivery includes
targeting features as listed in Exhibit B. Central Delivery includes the
capability of generating a suite of standard reports listed in Exhibit
B, but do not include custom reports that may be requested by GEOCITIES.
Local Delivery service includes targeting features as listed in Exhibit
D. Local Delivery service includes the capability of generating a suite
of standard reports listed in Exhibit D, but do not include custom
reports that may be requested by GEOCITIES. New features of the AdForce
service will, at the sole discretion of IMGIS, either be incorporated
into the then-current level of the AdForce service provided to GEOCITIES
hereunder, or will be offered to GEOCITIES as an additional service
subject to additional fees. IMGIS will notify GEOCITIES of new AdForce
service features. IMGIS will implement and make available to GEOCITIES,
within one hundred eighty (180) days following the Effective Date, the
AdForce+ service. AdForce+ will enable GEOCITIES to target advertising
to specific end users based upon end-user demographic characteristics,
as further described in Exhibit C, which is incorporated herein by this
reference. The terms and conditions of the AdForce+ service will be set
forth in a separate written agreement to be entered into by the parties.
2. LEVEL OF ADFORCE SERVICE. IMGIS will provide the functionality for the
AdForce service as described in section 1 and Exhibits B and C, as well
as live telephone customer support from the hours of 6am to 6pm Pacific
Time, Monday-Friday, excluding major holidays and 7-day-a-week,
24-hour-a-day access to IMGIS technical support via pager.
2.1 LEVELS OF MAINTENANCE AND SUPPORT. IMGIS will exercise its
reasonable efforts, but not less than the level of effort that
IMGIS uses for other customers receiving the AdForce Service
without payments of additional consideration specifically for
purposes of such maintenance and support, to correct errors in the
Application Software, other software used to operate the AdForce
server complex or the IMGIS servers located on GEOCITIES' site or
hardware provided or used by IMGIS to provide the Adforce service,
at the following Response Times: (i) Support Call (Level 1);
response time 15 minutes, patch or work-around next day, fixed or
documented in next major product release; (ii) Support Call (Level
2) response time six (6) hours, patch or work-around within five
days, fixed or documented in next major product release; (iii)
Support Call (Level 3); one (1)
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
Page 1 of 9
<PAGE>
ADFORCE-TM- Service GeoCities Agreement
- -------------------------------------------------------------------------------
business day, problem documented and input for consideration in
next major product release. For purposes of this Agreement,
"RESPONSE TIME" means the elapsed time between the receipt of a
service call and the time when IMGIS begins work on a fix or
workaround for the error.
2.2 SERVICE LEVEL WARRANTY.
(i) INABILITY TO ACCESS THE ADFORCE SERVICE (DOWNTIME). In the
event (i) of a material failure of the AdForce service (either
Local Delivery or Central Delivery) to deliver images to ad
requests within the GEOCITIES Website for more than thirty
(30) consecutive minutes in a calendar month or (ii) the
elapsed time from receipt of an ad request to delivery of an
image by the AdForce service (via either Local Delivery or
Central Delivery) in response to such ad request is greater
than twenty (20) seconds, taken as an average over any two (2)
consecutive hour period, (a "Failure") and GEOCITIES notifies
IMGIS of such Failure and IMGIS determines in its reasonable
judgment that such Failure was caused by IMGIS' inability to
provide the AdForce service for reasons within IMGIS'
reasonable control and not as a result of any actions or
inactions of GEOCITIES or any third parties (including
GEOCITIES' equipment and third party equipment), IMGIS will
not charge GEOCITIES, and GEOCITIES shall have no obligation
to pay any AdForce service fees during the twenty-four (24)
hour period immediately following resumption of the AdForce
service. Notwithstanding the foregoing, the occurrence of a
Failure over a twenty-four (24) hour period for (a) five (5) or
more consecutive days or (b) eight (8) days during any thirty
(30) day period shall be deemed a material breach of this
Agreement and, in such event, GEOCITIES may terminate this
Agreement pursuant to Section 9 below. Notwithstanding the
foregoing, if IMGIS provides GEOCITIES with not less than thirty
(30) days notice of a proposed cessation of the AdForce service
for the purpose of making specified improvements thereto (a
"Cessation") and GEOCITIES consents in writing to such proposed
Cessation, then such Cessation shall not be deemed to constitute
a Failure, provided that (1) the Cessation does not exceed two
(2) hours in duration and (2) no more than one (1) Cessation
occurs in any sixty (60) day period.
(ii) DEGRADATION OF CENTRAL DELIVERY: In the event that the elapsed
time from initial access of the AdForce server complex to
accurate selection of an advertisement for Central Delivery
("Access Time") is greater than one (1) second, taken as an
average over any two (2) consecutive day period ("Degraded
Service"), then IMGIS shall not charge GEOCITIES, and
GEOCITIES shall have no obligation to pay, any AdForce service
fees for such two (2) day period. Access Time shall be
monitored by a designated IMGIS server configured to model the
AdForce Service's access and transmission of advertisements to
IMGIS' Internet service provider ("Designated Server"). The
results of such monitoring shall be provided to GEOCITIES as
part of the AdForce reporting service. Additionally, if the
elapsed time from initial access of the AdForce server complex
to accurate selection of an advertisement for Central Delivery
is greater then two (2) seconds, taken as an average over any
two (2) consecutive hour period ("Degraded Service"), IMGIS
shall not charge GEOCITIES, and GEOCITIES shall have no
obligation to pay, any Adforce service fees for a period of
six (6) consecutive hours beginning with such two (2) hour
period. If the elapsed time from the accurate selection of an
advertisement, based upon a test 10 kilobyte advertisement,
from the AdForce server complex to the Designated Server is
greater then two (2) seconds, taken as an average over a two
(2) consecutive hour period ("Degraded Service"), IMGIS shall
not charge GEOCITIES, and GEOCITIES shall have no obligation to
pay, any AdForce service fees for a period of six (6)
consecutive hours beginning with such two (2) hour period.
Notwithstanding the foregoing, the occurrence of Degraded
Service over a twenty-four (24) hour period for (a) seven (7)
or more consecutive days or (b) ten (10) days during any
thirty (30) day period shall be deemed a material breach of
this Agreement and, in such event, GEOCITIES may terminate
this Agreement pursuant to Section 9 below.
(iii) TIME TO DISCOVER FAILURE OF ADFORCE SERVICES; NOTIFICATION OF
GEOCITIES. Within one (1) hour of discovering the existence of
a Failure of the AdForce service, IMGIS will use reasonable
efforts to determine whether the source of the Failure is
limited to GEOCITIES' equipment ("GEOCITIES Specific
Failure"). If the failure is not a GEOCITIES Specific Failure,
IMGIS will use reasonable efforts to determine the source of
the failure within two (2) hours after determining that it is
not a GEOCITIES Specific Failure. In any event, IMGIS will use
reasonable efforts to notify GEOCITIES of the source of the
Failure within thirty (30) minutes after first identifying
the source.
(iv) RESOLUTION OF FAILURE. IMGIS will use reasonable efforts to
remedy GEOCITIES Specific Failures within two (2) hours of
determining the source of the GEOCITIES Specific Failure
provided that GEOCITIES provides reasonable cooperation and
access to equipment and software located on GEOCITIES site.
IMGIS will use reasonable efforts to remedy failures caused
within the IMGIS server complex or the IMGIS servers on
GEOCITIES' site or other IMGIS hardware or software ("IMGIS
Specific Failure") within one (1) hour of determining the
source of the failure provided that GEOCITIES provides
reasonable cooperation and access to equipment and software
located on GEOCITIES site. IMGIS will use reasonable efforts
to notify GEOCITIES if the Failure is caused by other than an
IMGIS Specific Failure
Page 2 of 9
<PAGE>
ADFORCE-TM- Service GeoCities Agreement
- -------------------------------------------------------------------------------
and IMGIS will use commercially reasonable efforts to notify
the party(ies) responsible for the source of the Failure and
will cooperate with it (them) to resolve the Failure as soon
as possible.
(v) FAILURE TO DETERMINE SOURCE AND/OR RESOLVE FAILURE: IMGIS will
credit GEOCITIES' account for every one (1) hour after the
time periods described above that it takes IMGIS to provide a
remedy for an IMGIS Specific Failure. The amount of credit
shall be the aggregate average AdForce service fee incurred by
GEOCITIES per day during the preceding month.
3. OBLIGATIONS OF GEOCITIES. GEOCITIES agrees to implement the ad tags as
described in the AdForce User Guide and Help documentation provided to
GEOCITIES. GEOCITIES also agrees to schedule all advertising for
GEOCITIES' Web sites or on-line properties using the IMGIS-provided
"Application Software." If Geocities chooses to have IMGIS execute
insertion and change orders on behalf of GEOCITIES, GEOCITIES agrees to
supply IMGIS with the information necessary to schedule GEOCITIES' ad
campaigns at least [*] in advance of campaign initiation or
modification. Should the average file size of GEOCITIES' Central
Delivery advertisements exceed [*], as determined by IMGIS on
a monthly basis, GEOCITIES agrees to pay the incremental fee listed in
Exhibit A to compensate for higher bandwidth costs. GEOCITIES agrees to
provide IMGIS with non-binding, [*] volume forecasts of the number
of Impressions anticipated by GEOCITIES to be delivered using the
AdForce service on a rolling monthly basis. GEOCITIES agrees to provide
IMGIS with reasonable access to GEOCITIES' facilities for purposes of
implementing and supporting the Hybrid Service. GEOCITIES shall not
export or re-export, or allow the export or re-export of the Licensed
Software, without complying with all applicable export laws,
restrictions, national security controls and regulations of the United
States and all applicable foreign agencies and authorities.
4. OWNERSHIP/LIMITATIONS ON USE. Subject to the terms and conditions of
this Agreement, IMGIS hereby grants to GEOCITIES, contingent on timely
payment of monies due to IMGIS hereunder, a non-exclusive,
non-transferable (except as expressly permitted under section 10)
license for the term of this Agreement to use the Licensed Software in
connection with the AdForce service. IMGIS shall have the sole and
exclusive ownership of all right, title and interest in and to the
Licensed Software and the AdForce service, any enhancements thereto and
in any materials and data provided to GEOCITIES by IMGIS. GEOCITIES may
not sublicense the AdForce service. GEOCITIES may not copy (other than
copying into RAM), modify, alter, sell, distribute or sublicense the
Licensed Software or reverse assemble, reverse compile or otherwise
attempt by any other method to create or derive the source programs of
the AdForce service or the Licensed Software, nor authorize or contract
with third parties to do the same. During the course of providing the
AdForce Service, IMGIS will collect and maintain general statistical
information, including but not limited to information pertaining to the
number of advertisements delivered, response times, user's IP address,
cookie, browser type and operating system, as well as the time, date and
ad tag of a request, but excluding information revealing the identity
of individual users, individual credit card, debit card, bank account,
electronic currency or similar information and other transaction or user
specific data ("User Information"). IMGIS may include User Information
in IMGIS' logs and databases and use such User Information, as
aggregated with other data and information collected by IMGIS and
maintained in such logs or databases, for its internal business purposes
only. IMGIS will provide GEOCITIES with raw data of the User
Information, upon GEOCITIES' request, and will provide GEOCITIES with
reports, included with GEOCITIES' selected level of service, of the User
Information. Notwithstanding anything to the contrary contained
elsewhere in this Agreement, IMGIS agrees that it shall not, either
during the term of this Agreement, or thereafter; disclose to third
parties or otherwise disseminate, publish, reproduce, or use or permit
the dissemination, publication, reproduction or use of any of the User
Information in a manner that is in any respect inconsistent with the
terms and conditions pursuant to which GEOCITIES obtained the User
Information, as such terms and conditions may be set forth in GEOCITIES'
privacy statement (as it exists from time to time) or elsewhere.
5. CONFIDENTIALITY. It is agreed that all GEOCITIES' passwords used in
connection with AdForce user guides, the Licensed Software, and the
AdForce "help" documentation, whether on-line or in printed form, are
the confidential information of IMGIS. It is also agreed that any
account information relating to GEOCITIES' business, customers,
products, technology and information and data input into the AdForce
service by GEOCITIES, including, without limitation, advertiser contact
and billing information, and any and all confidential or proprietary
information disclosed to or learned by IMGIS while IMGIS employees or
implementation of the Hybrid Service is confidential information of
GEOCITIES. Each party shall not use, disclose or reproduce any
confidential information of the other party without the consent of the
party providing said information, except for any information, data or
material which: (a) at the time of disclosure to the receiving party was
known or is in the possession of the receiving party without
restriction; (b) is independently developed by the receiving party; (c)
is generally available to the public without any breach of this Agreement
by the receiving party. GEOCITIES acknowledges and agrees that
disclosure of the terms of this Agreement to anyone outside of GEOCITIES
(except attorneys and accountants of GEOCITIES) may create substantial
business damage to IMGIS and hereby agrees to keep the terms of this
Agreement strictly confidential.
6. INDEMNIFICATION. (a) Subject to subsection (b), GEOCITIES shall defend,
indemnify and hold harmless IMGIS from any and all third party claims
and liability and damages and costs (including reasonable court costs
and attorney's fees) arising out of or relating to advertising placed by
GEOCITIES using the AdForce service; including, without limitation,
libel, invasion of privacy, and rights of publicity claims arising from
the content of such advertising, provided that: (i) IMGIS promptly
notifies GEOCITIES of such claims;
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
Page 3 of 9
<PAGE>
ADFORCE-TM- Service GeoCities Agreement
- -------------------------------------------------------------------------------
(ii) GEOCITIES has sole control of the defense and settlement of such
claims and is not responsible for any settlement that it does not
approve in writing; and (iii) IMGIS renders all reasonable assistance
required at GEOCITIES' expense; (b) IMGIS shall defend, indemnify and
hold harmless GEOCITIES from any and all third party claims and
liabilities and damages and costs (including reasonable court costs and
attorneys fees) for infringement of third party intellectual property
rights arising out of or relating to GEOCITIES' use of the Licensed
Software and/or the AdForce service pursuant to this Agreement, provided
that: (i) GEOCITIES promptly notifies IMGIS of such claims; (ii) IMGIS
has sole control of the defense and settlement of such claims and is not
responsible for any settlement that it does not approve in writing; and
(iii) GEOCITIES renders all reasonable assistance required at IMGIS'
expenses. If an injunction is entered against GEOCITIES' use of the
Licensed Software or the AdForce service or GEOCITIES' use of the
Licensed Software or the AdForce service is likely to be enjoined,
IMGIS will, at its opinion and sole expense, (A) obtain a license
permitting such use, (B) modify the Licensed Software or the AdForce
service to avoid the infringement but maintaining equivalent
performance, functionality and compatability, or (C) if it cannot
reasonably do either of the foregoing, terminate GEOCITIES' licensing to
the Licensed Software and promptly refund fees paid by GEOCITIES for the
last thirty days of service, but not to exceed that cost in aggregate
incurred by GEOCITIES in obtaining replacement ad delivery services from
another provider.
7. WARRANTY. GEOCITIES warrants that GEOCITIES is free to enter into this
Agreement and that this Agreement constitutes the valid and binding
obligation of GEOCITIES, enforceable in accordance with its terms. IMGIS
represents and warrants that IMGIS is free to enter into and perform
this Agreement and, except for events beyond IMGIS' control including
but not limited to Internet access outages and other events of force
majeure; (a) the AdForce service (excluding components of the GEOCITIES
network and third party hardware and software profiled by IMGIS) will
materially conform to the functionality described in section 1 except to
the extent that the performance of the AdForce service is materially
affected by components of the GEOCITIES network and third party
hardware and software not provided to IMGIS; (b) IMGIS either owns, has,
or will otherwise acquire the right (and will, during the term hereof
maintain such right) to use all hardware and software components of the
AdForce service and the Licensed Software and will not infringe on any
right or interest (intellectual property or otherwise) or any third party.
EXCEPT AS SPECIFIED IN THIS SECTION 7, IMGIS HEREBY DISCLAIMS ALL
WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY AND
ALL WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
NON-INFRINGEMENT, IN CONNECTION WITH THIS AGREEMENT.
8. LIABILITY. NEITHER PARTY WILL BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL,
SPECIAL OR EXEMPLARY DAMAGES, EVEN IF IT HAS BEEN WARNED OF THE
POSSIBILITY OF SUCH DAMAGES.
9. TERMINATION. GEOCITIES shall select the term and level of service for
this Agreement in Section 12. Either party may terminate the Agreement
if the other party fails to perform any of its obligations in any
material respect, and such failure continues uncured for a period of
thirty (30) days (except in the event of a breach of section 5, in which
case termination shall be effective immediately) after receipt by the
breaching party of written notice from the non-breaching party
specifying such default. Either party may terminate this Agreement in
the event that the other party ceases to do business, undergoes a
bankruptcy or insolvency proceeding, or an assignment for the benefit of
creditors. Upon the expiration or termination of the Agreement for any
reason, the parties will immediately return all Confidential Information
of the other party in their possession. All accrued payment obligations
of GEOCITIES shall survive expiration or termination of the Agreement,
as shall the parties' rights and obligations under Section 4 through 9,
as well as sections 11 through 13.
10. ASSIGNMENT. This Agreement is not assignable or transferable by either
party without prior written consent of the other party, except that a
party may assign the Agreement (a) by operation of law or (b) to any
entity acquiring all or substantially all of assignor's assets, stock or
business without the other party's consent.
11. PAYMENT TERMS. GEOCITIES shall pay to IMGIS the dollar amounts determined
from the pricing schedule set forth in Exhibit A, within [*]
days from date of GEOCITIES' receipt of invoice. All payments to IMGIS
shall be remitted in U.S. Dollars. Fees for the AdForce service are
subject to change at the expiration of the initial term and upon
renewal of this Agreement. IMGIS shall provide GEOCITIES, not less than
ninety (90) days prior to expiration of the initial term or any renewal
term, written notice of any change in the fees for the AdForce service.
12. TERM. The term shall commence on the Effective Date indicated below and
shall continue for a period of two (2) years, except that GEOCITIES may
terminate the Agreement with or without cause during the thirty (30) day
period following the first anniversary of the Effective Date upon
receipt by IMGIS of written notice of GEOCITIES' intent to terminate. In
addition, if: (i) IMGIS fails within thirty (30) days following the
Effective Date to enter into a written agreement with America Online,
Inc. ("AOL") pursuant to which IMGIS receives demographic data pertaining
to AOL's current end users or (ii) IMGIS fails to make AdForce+ available
to GEOCITIES within one hundred eighty (180) days following the
Effective Date, GEOCITIES, any as its sole remedy, elect to
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
Page 4 of 9
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ADFORCE-TM- Service GeoCities Agreement
- -------------------------------------------------------------------------------
terminate this Agreement upon written notice to IMGIS. GEOCITIES agrees
to pay IMGIS for all Impressions delivered through the AdForce service,
according to the pricing schedule in Exhibit A, subject to change upon
renewal of this Agreement.
13 GENERAL. This agreement is the complete and exclusive statement of the
mutual understanding of the parties and supersedes and cancels all
previous written and oral agreements and communications relating to the
subject matter of this Agreement. No failure or delay in exercising any
right hereunder will operate as a waiver thereof, nor will any partial
exercise of any right or power hereunder preclude further exercise. Any
waivers or amendments shall be effective only if made in writing. All
notices shall be in writing and effective upon receipt when personally
delivered, delivered by a major commercial rapid delivery courier
service or mailed by certified or registered mail (postage prepaid, return
receipt requested) to a party at its address set forth above or amended
by notice. If not received sooner, notice by mail shall be deemed
received five (5) days' after deposit in the U.S. mails. If any
provision of this Agreement shall be adjudged by any court of competent
jurisdiction to be unenforceable or invalid, that provision shall be
limited or eliminated to the minimum extent necessary so that this
Agreement shall otherwise remain in full force and effect and
enforceable. This Agreement shall be governed by the law of the State of
California without regard to the conflicts of law provisions thereof.
The prevailing party in any action to enforce this Agreement will be
entitled to recover its attorney's fees and costs in connection with
such action. Nothing contained herein shall be construed as
establishing a partnership, joint venture, employment or other business
relationship between the parties hereto other than that of independent
contractors. This Agreement may be executed in counterparts.
IN WITNESS WHEREOF the parties have executed this Agreement as of: 5/4/98
(Effective Date). -------------
By /s/ Stephen Hansen Accepted: /s/ Chad Steelberg
------------------------ --------------------------
Print Name: Stephen Hansen Name: Chad Steelberg
------------------------ --------------------------
Title CFO/CAO Title EVP/Founder
------------------------ --------------------------
GEOCITIES: (GEOCITIES) IMGIS, Inc. (IMGIS)
-------------- -------------------
Page 5 of 9
<PAGE>
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- -------------------------------------------------------------------------------
SCHEDULE A
FEES
Following IMGIS' release and GEOCITIES' acceptance of the Hybrid Service,
pricing for the AdForce service will be as shown below:
Local Delivery Central Delivery
-------------------- -------------------------
[*] [*]
- There will be [*] for ads served locally until IMGIS makes the
Hybrid Service available to GEOCITIES, anticipated to occur by August 1,
1998. Prior to IMGIS' release and GEOCITIES' acceptance of the Hybrid
Service, pricing of the AdForce service prior to July 1, 1998 will be [*]
for Central Delivery and [*] CPM for Central Delivery during the
period commencing on July 1, 1998 and ending on August 1, 1998. GEOCITIES
agrees to continue to operate the StarPoint servers under the terms of the
Agreement between StarPoint and GEOCITIES dated 5/4/99 until the Hybrid
Service is available, including, but not limited to, paying monthly support
costs when due.
- AdForce+ pricing and fees for processing and using GEOCITIES data for
targeted advertising will be covered in a separate Data Agreement.
- Incremental fee for Centrally Delivered ads only, of [*] for every
[*] increase in average file size above an average of [*]
- If GEOCITIES elects to have IMGIS manually insert of modify campaigns,
GEOCITIES will pay IMGIS [*] for each insertion or modification.
IN THE EVENT OF A MATERIAL FAILURE OF LOCAL DELIVERY SERVICE CAUSED BY A
FAILURE WITHIN THE DIRECT CONTROL OF IMGIS, THE FEE FOR LOCAL DELIVERY
SERVICE SHALL APPLY, UNTIL LOCAL DELIVERY AGAIN BECOMES AVAILABLE TO
GEOCITIES, TO THE PERCENTAGE OF ADS SERVED BY CENTRAL DELIVERY BASED UPON THE
AVERAGE PERCENTAGE OF ADS SERVED BY THE LOCAL DELIVERY SERVICE DURING THE
IMMEDIATELY PRECEDING TWENTY-FOUR (24) HOUR PERIOD.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
Page 6 of 9
<PAGE>
ADFORCE-TM- Service GeoCities Agreement
- -------------------------------------------------------------------------------
EXHIBIT B
ADFORCE TARGETING
Adforce Central Delivery service includes targeting on the following
parameters, when AdForce databases allow the parameter to be resolved:
BROWSER TYPE--Different campaigns can be delivered to visitors with different
browsers.
OPERATING SYSTEM--Different campaigns can be delivered to visitors with
different operating systems
DOMAIN TYPE--Different campaigns can be delivered to visitors from different
domains (i.e. .com or .edu)
SERVICE PROVIDER--Different campaigns can be delivered to visitors with
different Internet service providers.
TELEPHONE AREA CODE--Different campaigns can be delivered to visitors in
different area codes.
SIC CODE--Different campaigns can be delivered to visitors working for
companies with different SIC codes.
COUNTRY--Different campaigns can be delivered to visitors from different
countries.
FREQUENCY--An advertisement can be shown no more than a specified number of
times to each visitor.
SEQUENCE--A series of advertisements can be shown in sequence to a visitor.
KEYWORDS--Advertisements can be targeted on the basis of a word or phrase
typed by a visitor.
SITE DATA--Ads can be targeted on the basis of data in a site's database
(i.e. with registered users)
DATE/DATE/TIME OF DAY--Ads can be scheduled to run during specific times and
on specific days.
CONTENT AREA--Ads can be targeted to a specific area of a site.
(AREA CODE DERIVED) DMA--Ads can be targeted to a specific DMA (Area Code
Derived). (Feature will be available in AdForce Version 3.0)
There may be additional charges for additional targeting parameters added in
the future, as well as for customization of the targeting algorithms for
keywords and site data.
ADFORCE REPORTING
The following reports are currently available with the AdForce Central
Delivery service:
<TABLE>
<CAPTION>
NETWORK REPORTS WEBSITE REPORTS ADVERTISER REPORTS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Daily Campaign Details Activity by Advertiser Campaign On-line Summary
Daily Campaign Summary Activity by Area Code Summary by Area Code
Monthly Billing Report Activity by Browser Summary by Banner
Summary by Advertiser Activity by Content Unit Summary by Browser
Summary by Area Code Activity by Country Summary by Category
Summary by Browser Activity by Date Summary by Country
Summary by Category Activity by Domain Summary by Date
Summary by Country Activity by Keyword Summary by Domain
Summary by Date Activity by Hour Summary by Hour
Summary by Domain Activity by Operating System Summary by Operating System
Summary by Hour Activity by Pay Type Summary by Service Provider
Summary by Operating System Activity by Service Provider Summary by SIC Code
Summary by Payment Type Activity by Summary by Website
SIC Code
Summary by Service Provider Website Revenue Campaign Summary
Summary by SIC Code Activity by DMA Monthly Billing Report
Summary by Website Summary by DMA
Summary by DMA
Website Revenue
</TABLE>
There will be additional charges for reports customized or designed to
GEOCITIES' specifications. There may also be additional charges for reports
added in the future.
Page 7 of 9
<PAGE>
ADFORCE-TM- Service GeoCities Agreement
- -------------------------------------------------------------------------------
EXHIBIT C
ADFORCE+
AdForce+ is IMGIS' proprietary database targeting service, designed to
provide one-to-one addressable on-line advertising. IMGIS has secured
multi-year, exclusive data agreements with both Marketing Information
Technologies, a leader in targeted print advertising, and Metromail, a $400
million, consumer demographic data compiler. These relationships position
IMGIS to exclusively leverage the unique, one-to-one marketing capabilities
of the Internet. Traditional consumer databases alone, however, do not
provide the key to unlock the demographic information on the Internet because
there is no mapping from terrestrial world data to the Internet. AdForce+
provides this map by linking on-line registration files and ISP login
information to IMGIS' 3rd party demographic databases.
Page 8 of 9
<PAGE>
ADFORCE-TM- Service GeoCities Agreement
- -------------------------------------------------------------------------------
EXHIBIT D
ADFORCE TARGETING
AdForce Local Delivery service include targeting on the following parameters,
when AdForce databases allow the parameter to be resolved:
BROWSER TYPE--Different campaigns can be delivered to visitors with different
browsers.
OPERATING SYSTEM--Different campaigns can be delivered to visitors with
different operating systems.
DOMAIN TYPE--Different campaigns can be delivered to visitors from different
domains (i.e. .com or .edu)
COUNTRY--Different campaigns can be delivered to visitors from different
countries.
DATE/DATE/TIME OF DAY--Ads can be scheduled to run during specific times and
on specific days.
CONTENT AREA--Ads can be targeted to a specific area of a site.
There may be additional charges for additional targeting parameters added in
the future, as well as for customization of the targeting algorithms for
keywords and site data.
ADFORCE REPORTING
The following reports are currently available with the AdForce Local
Delivery service:
<TABLE>
<CAPTION>
NETWORK REPORTS WEBSITE REPORTS ADVERTISER REPORTS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Daily Campaign Details Activity by Advertiser Campaign On-line Summary
Daily Campaign Summary Activity by Browser Summary by Banner
Monthly Billing Report Activity by Content Unit Summary by Browser
Summary by Advertiser Activity by Country Summary by Category
Summary by Browser Activity by Date Summary by Country
Summary by Category Activity by Domain Summary by Date
Summary by Country Activity by Hour Summary by Domain
Summary by Date Activity by Operating System Summary by Hour
Summary by Domain Activity by Pay Type Summary by Operating System
Summary by Hour Website Revenue Summary by Website
Summary by Operating System Campaign Summary
Summary by Payment Type Monthly Billing Report
Summary by Website
Website Revenue
</TABLE>
There will be additional charges for reports customized or designed to
GEOCITIES' specifications. There may also be additional charges for reports
added in the future.
Page 9 of 9
<PAGE>
ADFORCE-TM- Service GeoCities Agreement
- -------------------------------------------------------------------------------
Schedule A Amendment
Fees
This Amendment for the AdForce service (the "Agreement") is entered into
between AdForce, Inc., a California corporation ("ADFORCE"), with offices at
10101 N. DeAnza Blvd., Suite 210, Cupertino, CA 95014 and GeoCities,
("GeoCities") with offices at 1918 Main Street, 3rd Floor, Santa Monica CA
90405.
<TABLE>
<CAPTION>
----------------------------------------------------------------
Cost for Ad Delivery LEVEL OF SERVICE
----------------------------------------------------------------
<S> <C>
[*] for Ad Delivery / / AdForce Basic
--------
(Initial)
[*] for Ad Container
Delivery*
----------------------------------------------------------------
</TABLE>
* Ad Container delivery not to exceed 50% of overall ads delivered during a
month.
- - AdForce pricing and fees for processing and delivering targeted advertising
will be covered in a separate agreement.
- - If GeoCities instructs AdForce to manually insert or modify campaigns,
GeoCities will pay AdForce [*] for each insertion or modification.
This Amendment shall cover the period beginning August 1, 1998. GeoCities
agrees to pay ADFORCE, Inc. for all impressions delivered through the
AdForce service, according to the pricing schedule in the Schedule A
Amendment, subject to change upon renewal of the Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of 10/9/98
(Effective Date). --------
By: /s/ John A. Tanner Accepted: /s/ Jeffrey C. Stoddard
------------------------ --------------------------
Print Name: John A. Tanner Name: Jeffrey C. Stoddard
------------------------ --------------------------
Title: Chief Financial Officer Title: Director, Sales and
Marketing Strategy
------------------------ --------------------------
Company: Company: GeoCities
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
Page 1 of 2
<PAGE>
Exhibit 10.24
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
SOFTWARE LICENSE AND SUPPORT AGREEMENT
This SOFTWARE LICENSE AND SUPPORT AGREEMENT (this "Agreement") is
entered into by and between GeoCities, together with its Subsidiaries (as
defined below) (collectively "Customer"), and StarPoint Software, Inc.
("StarPoint"), and describes the terms and conditions pursuant to which
StarPoint shall license to Customer and support certain Software (as defined
below).
In consideration of the mutual promises and upon the terms and
conditions set forth below, the parties agree as follows:
1. DEFINITIONS
1.1 "CONFIDENTIAL INFORMATION" means this Agreement, including all of its
terms, and all its Schedules, any addenda hereto signed by both parties, all
Software listings, Documentation, information, data, drawings, benchmark
tests, specifications, trade secrets, object code and machine-readable copies
of the Software, source code relating to the Software, and any other
proprietary information supplied to Customer by StarPoint, or by Customer to
StarPoint and clearly marked as "confidential information", including all
items defined as "confidential information" in any other agreement between
Customer and StarPoint whether executed prior to or after the date of this
Agreement.
1.2 "DOCUMENTATION" means any on-line help files, instruction manuals,
operating instructions, user manuals, and specifications provided by
StarPoint which describe the use of the Software and which either accompany
the Software or are provided to Licensee at any time.
1.3 "EFFECTIVE DATE" means the later of the dates on which Customer and
StarPoint have signed this Agreement.
1.4 "EQUIPMENT" means the computer system, including peripheral equipment
and operating system software, specified in Schedule B.
1.5 "MAJOR AND MINOR UPDATES" shall mean updates, if any, to the StarPoint
Software. Major Updates involve additions of substantial functionality while
Minor Updates do not. Major Updates are designated by a change in the
number to the left of the decimal point of the number appearing after the
product name while Minor Updates are designated by a change in such number
to the right of the decimal point. StarPoint is the sole determiner of the
availability and designation of an update as a Major or Minor Update. Major
Updates exclude software releases which are reasonably designated by
StarPoint as new products, in accordance with generally accepted industry
practices. Where used herein "Updates" shall mean Major or Minor Updates
interchangeably.
1.6 "SITE" means each physical location, or each Internet service offering
specified in Schedule B of one or more CPU's of the Equipment at which
Customer is entitled to Use the Software.
1.7 "SOFTWARE" means the computer software programs specified in Schedule A
and otherwise provided to Customer pursuant to this Agreement.
1.8 "SUBSIDIARY" means all current and future business entities of which a
party owns, directly or indirectly, more than fifty percent (50%) of the
equity securities or other equity interest granting such party voting rights
exercisable in electing the management of the entities, for so long as such
ownership exists.
1.9 "USE" means loading, utilization, storage or display of the Software by
Customer for its own internal information processing, by copying or
transferring the same into Customer's Equipment.
2. LICENSE, DELIVERABLES AND COPIES
2.1 GRANT OF LICENSE. Subject to the terms and conditions of this
Agreement, StarPoint hereby grants to Customer during an unlimited period of
time, a non-exclusive and non-transferable license to (a) Use the Software on
the Equipment (or with prior written notice to StarPoint, on substitute,
upgraded, or additional equipment; provided, however that any costs resulting
from the transfer of the Software to such equipment, including without
limitation services rendered by StarPoint shall be Customer's responsibility)
and at the Site (or with prior written notice to StarPoint on additional
sites of Customer, to be specified in Schedule B), and to make sufficient
copies as necessary for such Use, (b) use the Documentation in connection
with Use of the Software, and (c) modify the Software pursuant to authorized
Use of the Software specified in Schedule A, if any; provided that, although
Customer does not transfer to StarPoint any of Customer's rights to such
modifications, all such modifications shall be subject to the restrictions of
this Agreement that apply to the Software. This license transfers to
Customer neither title nor any proprietary or intellectual property rights to
the Software, Documentation, or any copyrights, patents, or trademarks,
embodied or used in connection therewith, except for the rights expressly
granted herein. Notwithstanding the inclusion of Subsidiaries in the
definition of Customer in this Agreement, StarPoint's affirmative obligations
will be limited to the entity named above. Such entity hereby guarantees the
performance of its Subsidiaries under this Agreement and shall indemnify and
hold harmless StarPoint from and against all losses, costs, liabilities and
expenses arising out of or relating to any breaches by such Subsidiaries of
this Agreement.
2.2 DELIVERABLES. StarPoint shall issue to Customer, as soon as
practicable, one (1) machine-readable copy of the Software for Use at the
Site only, along with one (1) copy of the on-line Documentation, and one (1)
written copy of the Documentation. Customer may duplicate the Documentation
for internal use, and shall not distribute the Documentation to any party
other than Customer and its Subsidiaries.
2.3 COPIES. Customer will be entitled to make a reasonable number of
machine-readable copies of the Software for backup or archival purposes only.
Customer may not copy the Software, except as permitted by this Agreement.
Customer shall maintain accurate and up-to-date records of the number and
location of all copies of the Software and inform StarPoint in writing of
such location(s). All copies of the Software will be subject to all terms
and conditions of this Agreement. Whenever Customer is permitted to copy or
reproduce all or any part of the Software, all titles, trademark symbols,
copyright symbols and legends, and other proprietary markings must be
reproduced.
3. LICENSE RESTRICTIONS. Customer agrees that it will not itself, or
through any parent, subsidiary, affiliate, agent or other third party: (a)
sell, lease, license or sub-license the Software or the Documentation; (b)
decompile, disassemble, or reverse engineer
-1-
<PAGE>
the Software, in whole or in part; (c) write or develop any derivative
software or any other software program based upon the Software or any
Confidential Information, except pursuant to authorized Use of Software, if
any; (d) use the Software to provide services on a 'service bureau' basis; or
(e) provide, disclose, divulge or make available to, or permit use of the
Software by any unauthorized third party without StarPoint's prior written
consent.
4. LICENSE FEE
4.1 LICENSE FEE. In consideration of the license granted pursuant to
Section 2.1. Customer agrees to pay StarPoint the License Fee specified in
Schedule A. The License Fee is due and payable in full upon the Effective
Date.
4.2 TAXES. Customer agrees to pay or reimburse StarPoint for all federal,
state, dominion, provincial, or local sales, use, personal property, payroll,
excise or other taxes, fees, or duties arising out of this Agreement or the
transactions contemplated by this Agreement (other than taxes on the net
income of StarPoint).
4.3 NO OFFSET. Fees and expenses due from Customer under this Agreement may
not be withheld or offset by Customer against other amounts owed by Customer
for any reason.
5. ESCROW OF SOURCE CODE. A Master Source Code Escrow Agreement with
respect to the Software (excluding the Third Party Software) shall be
established within 30 days of the Effective Date. Customer shall have the
right to become a beneficiary of the Escrow Agreement provided that Customer
agrees to be bound by the terms of such Escrow Agreement.
6. MAINTENANCE AND SUPPORT. Customer agrees to pay Maintenance Fees
according to Schedule C as attached hereto for each Site as specified in
Schedule A. For so long as Customer is current in the payment of all
maintenance fees, with respect to each site, Customer will be entitled to
Maintenance and Support for each site as set forth in Schedule C attached
hereto. Failure to pay maintenance fees with respect to any Site shall be
deemed a material breach of this Agreement and in such event StarPoint shall
have the right to terminate the rights granted hereunder with respect to
such site.
7. LIMITED WARRANTY AND LIMITATION OF LIABILITY
7.1 LIMITED WARRANTY. StarPoint warrants that for a period of ninety (180)
days from the Effective Date (the "Warranty Period") (a) the Software will
perform in substantial accordance with the Documentation and (b) the media on
which the Software is distributed will be free from defects in materials and
workmanship under normal use. If during the Warranty Period the Software or
the media on which it is distributed do not perform as warranted (a
"Non-Conformance"), StarPoint shall undertake to correct such
Non-Conformance, or if correction is reasonably not possible, replace such
Software or the media free of charge. If neither of the foregoing is
commercially practicable, StarPoint shall terminate this Agreement and refund
to Customer the License Fee. THE FOREGOING ARE CUSTOMER'S SOLE AND EXCLUSIVE
REMEDIES FOR BREACH OF WARRANTY. The warranty set forth above is made to and
for the benefit of Customer only. The warranty will apply only if:
(a) the Software has been properly installed and used at all times and in
accordance with the instructions for Use; and
(b) no modification, alteration or addition has been made to the Software by
persons other than StarPoint or StarPoint's authorized representative
(except pursuant to the authorized Use of the Software specified in
Schedule A) except as authorized in writing by StarPoint; and
(c) Customer has not requested modifications, alterations or additions to the
Software that cause it to deviate from the Documentation.
(d) StarPoint warrants that it possesses all of the right, title, interest and
authority to enter into this agreement with Customer. StarPoint also
warrants that no lawsuit or claim concerning the Software is currently
pending.
Any pre-production versions of the Software distributed to Customer are
delivered "as-is," without any express or implied warranties. No employee,
agent, representative or affiliate of StarPoint has authority to bind
StarPoint to any oral representations or warranty concerning the Software.
Any written representation or warranty not expressly contained in this
Agreement will not be enforceable.
7.2 DISCLAIMER. EXCEPT AS SET FORTH ABOVE, STARPOINT MAKES NO WARRANTIES,
WHETHER EXPRESS, IMPLIED, OR STATUTORY REGARDING OR RELATING TO THE SOFTWARE
OR THE DOCUMENTATION, OR ANY MATERIALS OR SERVICES FURNISHED OR PROVIDED TO
CUSTOMER UNDER THIS AGREEMENT, INCLUDING MAINTENANCE AND SUPPORT. STARPOINT
SPECIFICALLY DISCLAIMS ALL IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR
A PARTICULAR PURPOSE AND NONINFRINGEMENT WITH RESPECT TO THE SOFTWARE,
DOCUMENTATION AND SAID OTHER MATERIALS AND SERVICES, AND WITH RESPECT TO THE
USE OF ANY OF THE FOREGOING. IN ADDITION, STARPOINT DISCLAIMS ANY WARRANTY
WITH RESPECT TO, AND WILL NOT BE LIABLE OR OTHERWISE RESPONSIBLE FOR, THE
OPERATION OF THE SOFTWARE IF PROGRAMS ARE MADE THROUGH THE USE OF SOFTWARE OR
NON-STARPOINT SOFTWARE THAT CHANGE, OR ARE ABLE TO CHANGE, THE DATA MODEL OF
THE SOFTWARE.
7.3 LIMITATION OF LIABILITY. IN NO EVENT WILL STARPOINT BE LIABLE FOR ANY
LOSS OF PROFITS, LOSS OF USE, BUSINESS INTERRUPTION, LOSS OF DATA, COST OF
COVER OR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND
IN CONNECTION WITH OR ARISING OUT OF THE FURNISHING, PERFORMANCE OR USE OF
THE SOFTWARE OR SERVICES PERFORMED HEREUNDER, WHETHER ALLEGED AS A BREACH OF
CONTRACT OR TORTIOUS CONDUCT, INCLUDING NEGLIGENCE, EVEN IF STARPOINT HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN ADDITION, STARPOINT WILL
NOT BE LIABLE FOR ANY DAMAGES CAUSED BY DELAY IN DELIVERY OR FURNISHING THE
SOFTWARE OR SAID SERVICES. STARPOINT'S LIABILITY UNDER THIS AGREEMENT FOR
DIRECT, INDIRECT, SPECIAL, INCIDENTAL AND/OR CONSEQUENTIAL DAMAGES OF ANY
KIND, INCLUDING, WITHOUT LIMITATION, RESTITUTION, WILL NOT, IN ANY EVENT,
EXCEED THE LICENSE FEE PAID BY CUSTOMER TO STARPOINT UNDER THIS AGREEMENT.
7.4 ALLOCATION OF RISK. The provisions of this Section 7 allocate risks
under this Agreement between Customer and StarPoint.
-2-
<PAGE>
StarPoint's pricing reflects this allocation of risks and limitation of in
accordance .with the provisions of this Agreement and will not liability.
7.5 CLAIMS. No action arising out of any breach or claimed breach of this
Agreement or transactions contemplated by this Agreement may be brought by
either party more than one (1) year after the cause of action has accrued.
For purposes of this Agreement, a cause of action will be deemed to have
accrued when a party knew or reasonably should have known of the breach or
claimed breach.
8. INDEMNIFICATION
8.1 INFRINGEMENT INDEMNITY. StarPoint shall, at its expense, defend or
settle any claim, action or allegation brought against Customer that the
Software infringes any patent, copyright, trade secret or other proprietary
right of any third party and shall pay any final judgments awarded or
settlements entered in the; provided that Customer gives prompt written notice
to StarPoint of any such claim, action or allegation of infringement and
gives StarPoint the authority to proceed as contemplated herein. StarPoint
will have the exclusive right to defend any such claim, action or allegation
and make settlements thereof at its own discretion, and Customer may not
settle or compromise such claim, action or allegation, except with prior
written consent of StarPoint. Customer shall give such assistance and
information as StarPoint may reasonably require to settle or oppose such
claims. In the event any such infringement, claim, action or allegation is
brought or threatened, StarPoint may, at its sole option and expense:
(a) procure for Customer the right to continue Use of the Software or
infringing part thereof; or
(b) modify or amend the Software or infringing part thereof, or replace the
Software or infringing part thereof with other software having
substantially the same or better capabilities; or, if neither of the
foregoing is commercially practicable,
(c) terminate this Agreement and repay to Customer a portion, if any, of the
License Fee and maintenance fees equal to the amount paid by Customer
less one-sixtieth (1/60) thereof for each month or portion thereof that
this Agreement has been in effect. StarPoint and Customer will then be
released from any further obligations of indemnification provided for
above and such other obligations that survive termination.
8.2 LIMITATION. The foregoing obligations shall not apply to the extent the
infringement arises as a result of modifications to the Software made by any
party other than StarPoint or StarPoint's authorized representative.
8.3 EXCLUSIVE REMEDY. The foregoing states the entire liability of StarPoint
and Customer's exclusive remedy with respect to infringement of any patent,
copyright, trade secret or other proprietary right.
8.4 CUSTOMER INDEMNITY. Customer shall indemnify and hold StarPoint
harmless from and against any costs, losses, liabilities and expenses
(including reasonable attorney's fees) arising out of third party claims
related to Customers Use of the Software under this AGreement.
9. CONFIDENTIALITY
9.1 CONFIDENTIAL INFORMATION. Each party acknowledges that the
Confidential Information constitutes valuable trade secrets and each party
agrees that it shall use Confidential Information solely in accordance with
the provisions of this Agreement and will not disclose, or permit to be
disclosed, the same, directly or indirectly, to any third party without the
other party's prior written consent. Each party agrees to exercise due care
in protecting the Confidential Information from unauthorized use and
disclosure. Furthermore, it is understood that the terms of this Agreement
reflect consideration received by Customer in return for being an early
adopter of the Software and that StarPoint's future revenue potential could be
adversely affected if such terms were to become publicly known. Therefore in
addition to not disclosing the terms of this Agreement, the parties shall
make no statement to any third party which tend to indicate the substance of
the terms (for example "we got a great deal, it was a bad deal for them).
However, neither party bears any responsibility for safeguarding information
that (i) is publicly available, (ii) already in the other party's possession
an not subject to a confidentiality obligation, (iii) obtained by the other
party from third parties without restrictions on disclosure, (iv)
independently developed by the other party without reference to Confidential
Information, or (v) required to be disclosed by order of a court or other
governmental entity. Nothing herein will prevent routine discussions by
the parties that normally take place in a "user group" context.
9.2 INJUNCTIVE RELIEF. In the event of actual or threatened breach of the
provisions of Section 9.1, the non-breaching party will have no adequate
remedy at law and will be entitled to immediate and injunctive and other
equitable relief, without bond and without the necessity of showing actual
money damages.
10. TERM AND TERMINATION
10.1 TERM. This Agreement will take effect on the Effective Date and will
remain in force until terminated in accordance with this Agreement.
10.2 TERMINATION. This Agreement is terminated by:
(a) Customer upon thirty (30) day's prior written notice to StarPoint,
with or without cause, provided that no such termination will entitle
Customer to a refund or any portion of the License Fee or maintenance
fees;
(b) StarPoint upon written notice to Customer if any of the following events
("Termination Events") occur, provided that, except as set forth in
Section 10.3(d) below, no such termination will entitle Customer to a
refund of any portion of the License Fee or maintenance fees; (i)
Customer fails to pay any undisputed amount due to StarPoint within
thirty (30) days after StarPoint gives the Customer written notice of
such non-payment; (ii) Customer is in material breach of any
non-monetary term, condition or provision of Agreement, which breach, if
capable of being cured, is not cured within thirty (30) days after
StarPoint gives Customer written notice of such breach; or (iii)
Customer becomes subject to any bankruptcy or insolvency proceeding
under federal or state statutes; or (iv) StarPoint elects to refund
Customer's fees in accordance with Section 7.1 or Section 8.1(c).
10.3 EFFECT OF TERMINATION. If any Termination Event occurs, termination
will become effective immediately or on the date set forth in the written
notice of termination. Termination of this Agreement will not affect the
provisions regarding Customer's or StarPoint's treatment of Confidential
Information, provisions relating to the payment of amounts due, or provisions
limiting or disclaiming StarPoint's liability, which provisions will survive
termination of this Agreement. Within fourteen (14) days after the date of
termination or discontinuance of this Agreement for
-3-
<PAGE>
any reason whatsoever, Customer shall return the Software, derivative works
and all copies thereof, in whole or in part, all related Documentation and
all copies thereof, and any other Confidential Information in its
possession. Customer shall furnish StarPoint with a certificate signed by an
executive officer of Customer verifying that the same has been done.
11. NON-ASSIGNMENT. Neither this Agreement nor any rights under this
Agreement may be assigned or otherwise transferred by Customer, in whole or
in part, whether voluntary or by operation of law, including by way of sale of
assets, merger or consolidation, without the prior written consent of
StarPoint, which consent will not be unreasonably withheld or delayed.
Subject to the foregoing, this Agreement will be binding upon and will inure
to the benefit of the parties and their respective successors and assigns.
11.2 ACQUISITION. In the event of acquisition of Customer resulting in
transfer of control of a majority of equity interest, the rights under this
Agreement shall be restricted to Customer and its Subsidiaries as constituted
prior to the acquisition.
12. NOTICES. Any notice required or permitted under the terms of this
Agreement or required by law must be in writing and must be (a) delivered in
person, (b) sent by first class registered mail, or air mail, as appropriate,
(c) sent by overnight air courier, or (d) by facsimile, in each case properly
posted to the appropriate address set forth below. Either party may change
its address for notice by notice to the other party given in accordance with
this Section. Notices will be considered to have been given at the time of
actual delivery in person, three (3) business days after deposition the mail
as set forth above, one (1) day after delivery to an overnight air courier
service, or one (1) day after the moment of transmission by facsimile.
13. MISCELLANEOUS
13.1 CENTURY DATE. The software shall experience no change in accuracy,
auditability or functionality relating to (1) the change of the system date
to January 1, 2000 (the "Century Date") on the Equipment or (ii) with
respect to the introduction or processing of records containing dates on or
after the Century Date.
13.2 VIRUSES AND DISABLING DEVICES. Neither the Software nor any
enhancements, modifications, upgrades, updates, revisions or releases thereof
shall contain (i) any mechanism such as a "trap door", "time bomb", or "logic
bomb", software protection routine or other similar device, that would enable
StarPoint to disable the Software or make the Software inaccessible to
GeoCities after the Software is installed; or (ii) to the best of StarPoint's
knowledge, any computer "virus", "worm" or similar programming routine.
13.3 FORCE MAJEURE. Neither party will incur any liability to the other
party on account of any loss or damage resulting from any delay or failure to
perform all or any part of this Agreement if such delay or failure is caused,
in whole or in part, by events, occurrences, or causes beyond the control and
without negligence of the parties. Such events, occurrences, or causes will
include,without limitation, acts of God, strikes, lockouts, riots, acts of
war, earthquakes, fire and explosions, but the inability to meet financial
obligations is expressly excluded.
13.4 WAIVER. Any waiver of the provisions of this Agreement or of a party's
rights or remedies under this Agreement must be in writing to be effective.
Failure, neglect, or delay by a party to enforce the provisions of this
Agreement or its rights or remedies at any time, will not be construed and
will not be deemed to be a waiver of such party's rights under this Agreement
and will not in any affect the validity of the whole or any part of this
Agreement or prejudice such party's right to take subsequent action. Except
as expressly stated in this Agreement, no exercise or enforcement by either
party of any right or remedy under this Agreement will preclude the
enforcement by such party of any other right or remedy under this Agreement or
that such party is entitled by law to enforce.
13.5 SEVERABILITY. If any term, condition, or provision in this Agreement is
found to be invalid,unlawful or unenforceable to any extent, the parties
shall endeavor in good faith to agree to such amendments that will preserve,
as far as possible,the intentions expressed in this Agreement. If the parties
fail to agree on such an amendment, such invalid term, condition or provision
will be severed from the remaining terms, conditions and provisions, which
will continue to be valid and enforceable to the fullest extent permitted by
law.
13.6 STANDARD TERMS OF CUSTOMER. No terms, provisions or condition s of
any purchase order, acknowledgment or other business form that Customer may
use in connection with the acquisition or licensing of the Software will have
any effect on the rights, duties or obligations of the parties under, or
otherwise modify, this Agreement, regardless of any failure of StarPoint to
object to such terms, provisions or conditions.
13.7 AMENDMENTS TO THIS AGREEMENT. This Agreement may not be amended, except
by a writing signed by both parties.
13.8 STARPOINT'S PRIOR CONSENT. Unless expressly provided otherwise in this
Agreement, any prior consent of StarPoint that is required before Customer
may take an action may be granted or withheld in StarPoint's sole and
absolute discretion.
13.9 EXPORT OF SOFTWARE. Customer may not export or re-export this Software
without the prior written consent of StarPoint and without the appropriate
United States and foreign government licenses.
13.10 APPLICABLE LAW. This Agreement will be interpreted and construed in
accordance with the laws of the State of California and the United States of
America, without regard to conflict of law principles.
13.11 PUBLIC ANNOUNCEMENTS. Customer acknowledges that StarPoint may desire
to use its name in press releases, product brochures and financial reports
indicating that Customer is a customer of StarPoint, and Customer agrees that
StarPoint may use its name in such a manner. Customer reserves the right to
review any use of its name and to withhold permission, which permission will
not reasonably be withheld.
13.12 ARBITRATION. All claims, disputes, and other matters in question
arising out of, or relating to, this Agreement or the interpretation or breach
thereof, shall be decided by arbitration before a single arbitrator in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association then obtaining unless the parties mutually agree otherwise. Said
arbitration shall be held in San Jose, California. This agreement to
arbitrate shall be specifically enforceable under applicable law in any court
of competent jurisdiction. Notice of the demand for arbitration shall be
filed in writing with the other party to this Agreement and with the American
Arbitration Association. The award rendered by the arbitrator shall be final
and judgment may be entered in accordance with applicable law and in any
court.
-4-
<PAGE>
having jurisdiction thereof. The arbitrator shall determine who is the
prevailing party and shall award reasonable attorneys' fees and expenses of
the arbitration to such party.
13.13 HEADINGS. Section and Schedule headings are for ease of reference only
and do not form part of this Agreement.
13.14 ENTIRE AGREEMENT. This Agreement (including the Schedules and any
addenda hereto signed by both parties) contains the entire agreement of the
parties with respect to the subject matter of this Agreement and supersedes
all previous communications, representations, understandings and agreements,
either oral or written, between the parties with respect to said subject
matter, except as provided in Section 1.3 with respect to the definition of
"Confidential Information."
IN WITNESS WHEREOF, the parties have executed this Agreement.
(CUSTOMER) STAR-POINT SOFTWARE, INC.
By: [illegible] By: /s/ Michael Tanne, President
------------------------------------- --------------------------------
[illegible], V.P. Operations Michael Tanne, President
- ---------------------------------------- --------------------------------
(print name and title) (print name and title)
Date: 7/11/97 Date: 27 June 1997
----------------------------------- ------------------------------
Address: Address:
1918 Main St #300 650 Castro Street, Suite 260
- ---------------------------------------- -----------------------------------
Santa Monica CA 90405 Mountain View, CA 94041
- ---------------------------------------- -----------------------------------
- ---------------------------------------- -----------------------------------
-5-
<PAGE>
SCHEDULE A
SOFTWARE AND LICENSE FEE
SOFTWARE
StarPoint Ad System. Standard configuration, including the following
modules: Content stream, demographic, c,eo-raphic, user interest,
sponsorship, ad inventory, and any future functionality that is incorporated
into the Ad System and not identified as a separate charceable option.
PLATFORM
Solaris
CONFIGURATION
Authorized confi-uration to support delivery of "unlimited" ads/day for the
GeoCities Web site and future sites that are Subsidiaries of Customer, or
sites that are minority-owned properties of Customer that do not qualify as
Subsidiaries, but for which StarPoint has -iven written permission to Use the
Software.
LICENSE FEE
[*] payable according to the followinc, schedule:
[*] upon contract sicnarure (by June 27, 1997)
[*] by July 31, 1997
[*] by August 29, 1997
ANNUAL MAINTENANCE FEE
[*] of License Fee [*] for each Site on which the Software is installed
that is not an exact duplicate of another Site, operated exclusively for the
purpose of Geographic or load distribution. Payment for the first year is
due by August 29, 1997. The annual maintenance renewal date shall be the
anniversary of the Effective Date.
SPECIAL TERMS
Customer agrees to provide a customer quote for a press release announcing
the use of StarPoint Ad System on the GeoCities Web site, and to continue to
act as a StarPoint reference account for prospects, customers, press and
analysts, provided such requests do not become burdensome to Customer.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
SCHEDULE B
EQUIPMENT AND SITE
B.I The following is the Equipment on which Customer may Use the Software:
not restricted
B.2 The following is the Operating System on which Customer may Use the
Software:
Solaris
B.3 The following is/are the physical Site(s) at which Customer is entitled to
Use the Software:
Physical sites are not restricted, but Customer will advise StarPoint in
writinc, of the installation of Software at any new site.
B.4 The following is the maximum number of delivered ads/day allowed under the
Agreement:
unlimited
<PAGE>
SCHEDULE C
MAINTENANCE AND SUPPORT
DEFINITIONS
1.1 "SUPPORT CALL (LEVEL 1)" means a reported problem in the Software which
causes the system to be down and not serving ads, or has a significant
revenue impact, with no obvious work-around.
1.2 "SUPPORT CALL (LEVEL 2)" means a reported problem in the Software, not
considered as a Level I support problem as defined in 1.1 above, which
causes serious disruption of a function such as targeting, ad insertion,
campaign management or reporting, however the system is still serving ads.
1.3 "SUPPORT CALL (LEVEL 3)" means a reported problem in the Software which is
not affecting the Software's ability to perform substantially in accordance
with the user documentation.
1.4 "RESPONSE TIME" means the elapsed time between the receipt of a service
call and the time when StarPoint begins the Maintenance and Support,
includin- a verbal or written confirmation to the Customer thereof.
1.6 "RESPONSE CENTER AND CONTACT PROCEDURE" shall mean:
Address Hours of Operation *
650 Castro Street Suite 260 Monday - Friday
Mountain View, CA 94041 (excluding public holidays)
www.starpt.com 9 am - 6 pm PST
* 24x7 maintenance customers
have continuous access
Contact Infon-nation Pacer: 415/428-2424, 415/335-0503
Tel: (415) 960-1 1 00 x2O E-mail: [email protected]
Fax: (415) 960 1140 attn: Support
2 Term AND TERMINATION. StarPoint's provision of Maintenance and Support to
Customer will commence on the Effective Date and will continue for an
initial term of one (1) year. Maintenance and Support will automatically
renew at the end of the initial term and any subsequent term for a renewal
term of one (1) year unless Customer has provided StarPoint with a written
ten-nination notice of its intention not to renew the Maintenance and
Support at least ninety (90) days prior to the termination expiration of
the then-current term. Termination of Maintenance and Support upon failure
to renew will not affect the license of the Software.
3 MAINTENANCE AND SUPPORT SERVICES. Maintenance and Support will be provided
only with respect to versions cf the Software that are being supported by
StarPoint, according to the followincy schedule: (a) a Major Update will be
supported for two (2) years after the commercial release of the next Major
Update, provided always that Customer makes use of the last Minor Update
and Update of the first mentioned Major Update and (b) a Minor Update will
be supported for one (1) year after the commercial release of the next
Minor Update, provided always that Customer makes use of the last Update of
the related Major Update.
3.1 LEVELS OF MAINTENANCE AND SU@RT. Maintenance and Support is available
at the following Response Times: (i) Support Call (Level 1):
response time two (2) hours, patch or work-around next day, fixed or
documented in next major product release (ii) Support Call (Level 2):
response time six (6) hours, patch or work-around within five days,
fixed or documented in next major product release; (iii) Support Call
(Level 3): one (1) business day, problem documented and input for
consideration in next major product release
<PAGE>
3.2 BASIC MAINTENANCE. Basic Maintenance means that StarPoint will
provide during StarPoint's standard. hours of service: (i) Updates and
Minor Updates, when and if available, and related on-line
Documentation, and (ii) telephone assistance with respect to the
Software, including (a) clarification of functions and features of the
Software; (b) clarification of the Documentation; (c) cuidance in the
operation of the Software; and (d) error verification, analysis and
correction to the extent possible by telephone. StarPoint's standard
hours of service are Monday through Friday, 9:00 a.m. to 6:00 p.m.,
PST except for holidays as observed by StarPoint.
3.3 ON-SITE ASSISTANCE. At StarPoint's discretion, StarPoint can decide
to provide Maintenance and Support at the Customer Site. In such
event Customer will reimburse StarPoint for all related traveling
expenses and costs for board and lodging.
3.4 INSTALLATION AND CONVERSION. Upon Customer's request, StarPoint can
perform the installation and/or conversion of the Software. Unless
otherwise agreed, the costs hereof shall be invoiced to Customer on
the basis of StarPoint's then-current rates.
3.5 CAUSES WHICH ARE NOT ATTRIBUTABLE TO STARPOINT. Maintenance and
Support will not include services requested as a result of, or with
respect to causes which are not attributable to StarPoint. These
services will be billed to Customer at StarPoint's then-current rates.
Causes which are not attributable to StarPoint include but are not
limited to:
3.5.1 accident. unusual physical, electrical or electromagnetic
stress; neglect; misuse; failure or fluctuation of electric
power, air conditioning or humidity control; failure of
rotation media not famished by StarPoint; excessive heating;
fire and smoke damage; operation of the Software with other
media and hardware, software or telecommunication interfaces
not meeting or not maintained in accordance with the
manufacturer's specifications; or causes other than ordinary
use;
3.5.2 improper installation by Customer or use of the Software
that deviates from any operating procedures established by
StarPoint in the applicable Documentation;
3.5.3 modification. alteration or addition or attempted
modification, alteration or addition of the Software
undertaken bv persons other than StarPoint or StarPoint's
authorized representatives;
3.5.4 software programs made by Customer, StarPoint or other
parties.
4 RESPONSIBILITIES OF CUSTOMER. StarPoint's provision of Maintenance and
Support to Customer is subject to the following:
4.1 Customer shall provide StarPoint with access to Customer's personnel
and Equipment during normal business hours. This access must include
the ability to dial-in to the Equipment on which the Software is
operating and to obtain the level of necessary to support the
Software.
4.2 Customer shall provide supervision, control and management of the Use
of the Software. In addition, Customer shall implement procedures
for the protection of information and the implementation of backup
facilities in the event of errors or malfunction of the Software or
Equipment.
4.3 Customer shall document and promptly report all errors or malfunctions
of the Soft%vare to StarPoint. Customer shall take all steps
necessary to carry out procedures for the rectification of errors or
malfunctions within a reasonable time after such procedures have been
received from StarPoint.
4.4 Customer shall maintain a current backup copy of all programs and
data.
4.5 Customer shall properly train its personnel in the Use and application
of the Software and the Equipment on which it is used.
<PAGE>
5 MAINTENANC FEE. The Maintenance Fee for each calendar year of Maintenance
and Support will be [*] of the License Fee as defined in Schedule A for
each Site as specified in Schedule A. The Maintenance Fee is due and
payable in full in advance within thirty (30) days after the date of
delivery of the Software. Any amounts not paid within thirty (30) days
will be subject to interest of [*] per month, which interest will be
immediately due and payable. Each calendar year, the Maintenance Fee may
be modified by StarPoint due to general price increases and/or general
inflation increases which are reflected in the Consumer Price Index, but
shall, for a period of four years from the Effective Date, in no event
exceed [*] plus the increase in the Consumer Price Index for
the applicable time period, by written notice to Customer at least thirty
(30) days prior to the end of the then-current term. In the event of a
modification of the Maintenance Fee, Customer may discontinue Maintenance
and Support. If Customer elects not to renew Maintenance and Support,
Customer may re-enroll only upon payment of the annual Maintenance Fee for
the coming year and [*] per cent of all Maintenance Fees that would
have been paid had Customer not terminated Maintenance and Support, which
entities Customer to all Updates and Minor Updates of the Software which
have been released during the same period.
6 ASSIGNMENT OF DUTIES. StarPoint may assign its duties of Maintenance and
Support to a third party, provided that StarPoint will remain responsible
for the actions of such third party. Any such assignment is subject to
Customer's consent, which consent shall not be unreasonably withheld or
delayed.]
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
PROPOSAL
Estimated Engineering Time Required: 1 week, assuming no changes to the
proposed mapping and filtering.
Cost [*]
Delivery Date. Completed and fully-testing by Friday, October 24th. [*]
of the fee will be paid upon completion if the proposal is complete on time.
If the delivery date slips we will pay [*] when the project is completed,
and StarPoint will forfeit the remaining [*]. The agreed upon deliverables
include all reports that run succssfully for the three consecutive days
starting Friday, October 24. All stock impromptu reports templates will have
columns of data specified along with the appropriate formatting (see page 3).
The reports should also generate 1-2 weeks of data without blowing up. Area
filtering should be completed based on the areamap.txt we will give you on
Wednesday October 15. OS, Browser and Domain filtering shoul d be completed
according to page 4 of this document. All Stock Impromptu reports should be
set up by StarPoint to sun automatically on a nightly basis and saved as
snapshots.
Accepted
GeoCities /s/ [ILLEGIBLE] Date 10/13/97
StarPoint /s/ [ILLEGIBLE] Date 10/13/97
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
page 2
<PAGE>
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
Exhibit 10.26
ADFORCE-TM- SERVICE 2CAN MEDIA AGREEMENT
- -------------------------------------------------------------------------------
ADFORCE SERVICES AGREEMENT
This Agreement (the "Agreement") is entered into between IMGIS, Inc., a
California corporation ("IMGIS"), with offices at 10101 North DeAnza Blvd.,
Suite 210, Cupertino, California 95014 and 2CAN Media, a Delaware corporation
("COMPANY"), with offices at 20700 Ventura Blvd., Woodland Hills, CA 91364.
1. ADFORCE SERVICE DEFINITION. The AdForce service is an Internet
advertising administration system that will allow 2CAN Media and its ad
sales and network clients, defined as Web publishers ("Clients") to
manage advertising on Client's Web sites or similar on-line services. As
part of the AdForce service, IMGIS will provide 2CAN Media with the
AdForce "client" software application ("Application Software"), with
which 2CAN Media will be able to (a) generate ad tags, (b) schedule
advertising to run in the online environments in which 2CAN Media places
those ad tags and (c) generate reports on such advertising. In addition,
IMGIS will maintain an AdForce server complex from which IMGIS will
electronically deliver advertising scheduled by 2CAN Media to the online
environments containing the ad tags placed by 2CAN Media and its
Clients. The delivery of "Impressions," defined as the transmission of
advertisements or other content by AdForce, will be verified by monthly
third-party audits of the AdForce service, conducted by the Audit Bureau
of Verification Services, Inc. or another third party chosen by IMGIS in
its sole discretion. The AdForce service includes targeting features as
listed in Exhibit B. The AdForce service includes a suite of standard
reports available in the AdForce system and listed in Exhibit B. Features
added to the AdForce service in the future, including, but not limited
to, demographic and psychographic targeting; will be considered part of
the AdForce service covered in this Agreement and may be subject to
additional fees, which fees will be subject to IMGIS sole discretion.
2. ADFORCE SERVICE AND SUPPORT. In addition to the functionality described
in Section 1, IMGIS will provide 2CAN Media with telephone customer
support from the hours of 6am to 6pm Pacific Time, Monday-Friday,
excluding major holidays and 7 day a week, 24-hour-a-day access to IMGIS
technical support via phone and pager. 2CAN Media will be responsible
for providing support to its Clients and advertisers unless IMGIS is
providing Platinum Service. IMGIS will provide full-service scheduling of
2CAN Media's advertising campaigns by IMGIS personnel ("Platinum
Service"), including manual insertions and campaign modifications for a
period of sixty (60) days from the execution date of this agreement
(Platinum Service). Platinum Service will be available to 2CAN Media
after this initial sixty (60) day period at an additional fee to be
determined.
3. OBLIGATIONS OF 2CAN MEDIA. 2CAN Media agrees to utilize the AdForce
service as its exclusive ad serving technology. 2CAN Media agrees to
implement the ad tags on its Clients' sites as described in the AdForce
User Guide and Help documentation. 2CAN Media also agrees to use best
commercial efforts to schedule all advertising for 2CAN's Client sites
or on-line properties on the AdForce service. If 2CAN Media elects to
have IMGIS process insertion and modification orders on 2CAN Media's
behalf, 2CAN Media agrees to supply IMGIS with the information necessary
to schedule and/or modify ad campaigns at least [*] in advance of
campaign initiation. Should the average file size of 2CAN Media's
advertisements exceed [*], as determined by IMGIS on a monthly
basis, 2CAN agrees to pay the incremental fee listed in Exhibit A to
compensate for higher bandwidth costs. 2CAN Media agrees to provide
IMGIS with non-binding volume forecasts of Impressions to be delivered
using the AdForce service for the upcoming 12 months on a rolling 30-day
basis. 2CAN Media agrees to respond favorably to inquiries from the
press, potential investors, customers and future customers regarding the
AdForce service, IMGIS and the relationship between parties.
Additionally, 2CAN Media agrees to participate in, and make inventory
available to, upcoming AdForce product functionality currently code
named "Cross Network Buying" which will allow media buyers and other web
publishers to electronically access available inventory through the
AdForce service. (release date TBD).
4. OWNERSHIP / LIMITATIONS ON USE. Subject to the terms and conditions
of this Agreement, IMGIS hereby grants to 2CAN Media a non-exclusive,
non-transferable license for the term of this Agreement to use the
Application Software in connection with the AdForce service. IMGIS shall
have the sole and exclusive ownership of all right, title and interest
in and to the Application Software and the AdForce service, any
enhancements thereto and in any materials provided to 2CAN Media by
IMGIS. 2CAN Media may not use or authorize the use of the AdForce
service except with its Clients and advertisers in conjunction with 2CAN
Media's ad sales business. 2CAN Media may not copy, sell, distribute or
sublicense the Application Software except as specifically permitted
under this Agreement. 2CAN Media shall not modify, alter, reverse
assemble, reverse compile or otherwise attempt by any other method to
create or derive the source programs of the AdForce service or the
Application Software, nor authorize or contract with third parties to do
the same.
5. DATA. During the course of delivering advertisements to Client Web
sites and for Client advertisers, the AdForce service collects and
maintains various information such as information necessary to target
advertising, including, but not limited to, the user's IP address,
cookies, browser type and operating system as well as the time, date and
ad tag of the request (the "Data"). IMGIS will store and maintain this
data for a period of 60 days. Although IMGIS owns the right to this
data, IMGIS shall not, during the term of this Agreement, distribute to
third parties, Data that discloses the traffic volumes, CPM's or
campaign details specific to the 2CAN Media network, their Clients or
advertisers. IMGIS will provide 2CAN Media with 24-hour access to data
on campaign results through reports available through the Application
Software. IMGIS will provide 2CAN Media monthly downloads of raw data
relating to
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
Page 1 of 6
<PAGE>
ADFORCE-TM- SERVICE 2CAN MEDIA AGREEMENT
- -------------------------------------------------------------------------------
reports available through the Application Software. IMGIS will provide
2CAN Media monthly downloads of raw data relating to 2CAN's network,
Clients and advertisers in a standard format to be agreed upon by 2CAN
Media and IMGIS for a period of 60 days. After the initial 60 day
period, should 2CAN Media require IMGIS to provide data downloads, 2CAN
Media will reimburse IMGIS for the cost of transferring the data on a
time and material basis at the rate of [*].
6. MODIFICATIONS/ENHANCEMENTS. IMGIS will give 2CAN Media access to any
modifications, upgrades or changes to the Application Software or AdForce
service that are generally available to other IMGIS customers as soon as
they become available; provided that any such modifications, upgrades or
changes will, at the sole discretion of IMGIS, be considered part of the
AdForce service covered in this Agreement, or be considered part of
other AdForce services and subject to additional fees. 2CAN Media may
request that IMGIS makes modifications to the Application Software or
the AdForce service. IMGIS will consider any such requests in good
faith, but shall not be obligated to make any requested modification. In
the event that IMGIS agrees to make a requested modification, IMGIS will
submit a quote for the cost to complete the modification to 2CAN Media
on a time and material basis at the rate of [*]. Any
modifications will be the sole property of IMGIS and, unless
specifically agreed otherwise, IMGIS may include the modifications in
the Application Software and AdForce service it provides to other IMGIS
customers.
7. CONFIDENTIALITY. Confidential Information includes: (i) information
of either party regarding R&D, manufacturing, products, business plans,
customers, user information, finances, or personnel and other
information identified as confidential by the party at the time it is
disclosed; (ii) any information regarding 2CAN Media's specific activity
levels, pricing, performance or any other data specific to 2CAN Media's
activity levels; (iii) any 2CAN Media's passwords to AdForce, AdForce
user guides, the AdForce Application Software, and the AdForce "help"
documentation, whether on-line or in printed form; and (iv) any account
information input into the AdForce service by 2CAN Media, such as
advertiser contact and billing information. Confidential Information of
either party shall not be used, disclosed or reproduced by the other
party without the consent of the party providing said information,
except for any information, data or material which: (a) at the time of
disclosure to the receiving party was known or in the possession of the
receiving party; (b) is independently developed by the receiving party;
(c) is generally available to the public without any breach of this
Agreement; or (d) is obtained from a third party having the right to
disclose such information. Each party will disclose the other party's
Confidential Information only to employees who need to know it to perform
under this Agreement and who are bound by the terms of this Agreement.
Each party will return or destroy all copies of the other party's
Confidential Information when this Agreement is terminated except for
data resident within the AdForce system.
8. INDEMNIFICATION. (a) Subject to subsection (b), 2CAN Media shall
indemnify and hold harmless IMGIS from any liability and damages and
costs (including reasonable costs and attorney's fees) arising out of or
relating to advertising placed by 2CAN Media, its Clients and
advertisers using the AdForce service, including, without limitation,
content, libel, invasion of privacy, and rights of publicity, provided
that: (i) IMGIS promptly notifies 2CAN Media of such claims; (ii) 2CAN
Media has sole control of the defense and settlement of such claims and
is not responsible for any settlement that it does not approve in
writing; and (iii) IMGIS renders all reasonable assistance required.
(b) IMGIS shall indemnify and hold harmless 2CAN Media from any third
party claims and liabilities for infringement arising out of or relating
to 2CAN Media's use of the Application Software and the AdForce Service
pursuant to this Agreement, provided that: (i) 2CAN Media promptly
notifies IMGIS of such claims; (ii) IMGIS has sole control of the
defense and settlement of such claims and is not responsible for any
settlement that it does not approve in writing; and (iii) 2CAN Media
renders all assistance required. If an injunction is entered against
2CAN Media's use of the Application Software, IMGIS will, at its option,
(A) obtain a license permitting such use, (B) modify the Application
Software to avoid the infringement, or (C) if it cannot reasonably do
either of the foregoing, terminate 2CAN's license to the Application
Software and terminate this Agreement.
9. WARRANTY. 2CAN Media warrants that 2CAN Media is free to enter into
this Agreement and that this Agreement constitutes the valid and
binding obligation of 2CAN Media enforceable in accordance with its
terms. IMGIS represents and warrants that IMGIS is free to enter into
and perform this Agreement and, except for events beyond IMGIS' control
including but not limited to Internet access outages and other events
of force majeure, (a) the AdForce service will materially conform to
the functionality described in section; (b) IMGIS either owns, has, or
will otherwise acquire the right (and will, during the term hereof
maintain such right) to use all hardware and software components of the
AdForce service and will not infringe on any right or interest
(intellectual property or otherwise) of any third party.
EXCEPT AS SPECIFIED IN THIS SECTION, IMGIS HEREBY DISCLAIMS ALL
WARRANTIES, EXPRESS AND IMPLIED, INCLUDING WITHOUT LIMITATION ANY AND
ALL WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
NON-INFRINGEMENT, IN CONNECTION WITH THIS AGREEMENT.
10. LIABILITY. NEITHER PARTY WILL BE LIABLE FOR CONSEQUENTIAL,
INCIDENTAL, SPECIAL OR EXEMPLARY DAMAGES, EVEN IF IT HAS BEEN WARNED OF
THE POSSIBILITY OF SUCH DAMAGES. IN NO EVENT SHALL IMGIS' AGGREGATE
LIABILITY TO 2CAN UNDER THIS AGREEMENT EXCEED THE FEES RECEIVED BY IMGIS
UNDER THIS AGREEMENT.
11. TERM AND TERMINATION. The initial term of this Agreement will be
eighteen (18) months and shall commence on the Effective Date indicated
below. Either party may terminate the Agreement if the other party fails
to perform any of its obligations in any material respect, and such
failure continues for a period of thirty (30) days after receipt by the
breaching party of written notice from the non-breaching party
specifying such default. Either party may terminate this Agreement in
the event that the other party ceases to do
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
Page 2 of 6
<PAGE>
ADFORCE-TM- SERVICE 2CAN MEDIA AGREEMENT
- -------------------------------------------------------------------------------
business, undergoes a bankruptcy or insolvency proceeding, or an
assignment for the benefit of creditors. Upon the expiration or
termination of the Agreement for any reason, the parties will return all
Confidential Information of the other party in their possession. All
accrued payment obligations of 2CAN shall survive expiration or
termination of the Agreement, as shall the parties' rights and
obligations under Sections 4 through 10, as well as sections 13 and 15.
12. ASSIGNMENT. This Agreement is not assignable or transferable by
either party without the prior written consent of the other party,
except that a party may assign the Agreement to any entity: (a)
controlling that party; (b) controlled by, under common control with, or
acquiring a controlling financial interest in that party, or in which
that party acquires a controlling financial interest (provided such
assignee assumes the assignor's obligations under this Agreement and
provided further that assignor remains liable to the other party
following such assignment); or (c) acquiring substantially all of
assignor's assets (provided such assignee assumes assignor's obligations
under this Agreement), where "control" in the foregoing shall mean
ownership of fifty percent (50%) or more of the voting stock of the
entity or (d) by operation of law.
13. PAYMENT TERMS. 2CAN shall pay to IMGIS the dollar amounts determined
from the pricing schedule set forth in Exhibit A for all fees incurred
by 2CAN, its Clients' and advertiser's use of the AdForce service,
within [*]. 2CAN shall pay IMGIS for its use and its Clients' and
advertiser's use of the AdForce service, regardless of whether
2CAN has received reimbursement from its Clients and
advertisers for such charges. All payments to IMGIS shall be remitted in
U.S. Dollars. Fees for the AdForce service are subject to change at the
expiration of the initial term and upon renewal of this Agreement.
14. GENERAL. This Agreement is the complete and exclusive statement of
the mutual understanding of the parties and supersedes and cancels all
previous written and oral agreements and communications relating to the
subject matter of this Agreement. No failure or delay in exercising any
right hereunder will operate as a waiver thereof, nor will any partial
exercise of any right or power hereunder preclude further exercise. Any
waivers or amendments shall be effective only if made in writing. If
any provision of this Agreement shall be adjudged by any court of
competent jurisdiction to be unenforceable or invalid, that provision
shall be limited or eliminated to the minimum extent necessary so that
this Agreement shall otherwise remain in full force and effect and
enforceable. This Agreement shall be governed by the law of the State of
California without regard to the conflicts of law provisions thereof.
The prevailing party in any action to enforce this Agreement will be
entitled to recover its attorney's fees and costs in connection with such
action. Nothing contained herein shall be construed as establishing a
partnership, joint venture, employment or other business relationship
between the parties hereto other than that of independent contractors.
This Agreement may be executed in counterparts.
IN WITNESS WHEREOF, the parties have executed this Agreement as of: 8/25/98
(Effective Date) -----------
By: /s/ [illegible] Accepted: /s/ Charles W. Berger
----------------------------- ----------------------------
Print Name: [illegible] Name: Charles W. Berger
----------------------------- ----------------------------
Title: President & CEO Title: Chairman & CEO
----------------------------- ----------------------------
2CAN Media: (2CAN) IMGIS, Inc. (IMGIS)
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
Page 3 of 6
<PAGE>
ADFORCE-TM- SERVICE 2CAN MEDIA AGREEMENT
- -------------------------------------------------------------------------------
SCHEDULE A
FEES
Pricing for the AdForce basic service for 2CAN Media will be as shown below:
<TABLE>
<CAPTION>
MONTHLY VOLUME CPM (COST PER THOUSAND ADS SERVED)
- -------------- ----------------------------------
<S> <C>
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
</TABLE>
MFN PRICING
-----------
- - IMGIS agrees that pricing for AdForce services for 2CAN Media will be
at most favored nation ("MFN") pricing as it relates to any
organizations who are exclusively in the business of ad sales and
delivering similar volumes on similar terms to 2CAN Media. Pricing to
America On-Lie and its affiliates are specifically excluded.
- - Pricing is based on average ad size of [*]. An additional [*]
will be added for each [*] average ad size exceeds [*].
- - Custom Reports can be designed for an extra charge.
- - On-site training is available on request for [*], per
trainer plus expenses.
- - Pricing for advanced features such as demographic and psychographic
targeting will be negotiated as those features become available. Such
pricing shall be offered to 2CAN Media on a MFN basis when compared to
other organizations who's primary business is on-line media sales under
similar terms and volumes. The only exception to this will be America
On-Line and its affiliates.
- - IMGIS' client service personnel will manually input new campaigns for
a sixty (60) day period from the execution of this agreement at no
additional charge (Platinum Service). Additionally, IMGIS agrees to
assign a dedicated Client Services representative to work with 2CAN
Media. This person will be based in IMGIS' Costa Mesa office, but will
be available from time to time to go on site at 2CAN's South Coast
offices. This service will be available after the initial sixty (60) day
period at a fee to be agreed by the parties.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
Page 4 of 6
<PAGE>
ADFORCE-TM- SERVICE 2CAN MEDIA AGREEMENT
- -------------------------------------------------------------------------------
SCHEDULE B
ADFORCE TARGETING
All levels of the AdForce service include targeting on the following
parameters, when AdForce databases allow the parameter to be resolved:
- - BROWSER TYPE - Different campaigns can be delivered to visitors with
different browsers.
- - OPERATING SYSTEM - Different campaigns can be delivered to visitors
with different operating systems.
- - DOMAIN TYPE - Different campaigns can be delivered to visitors from
different domains (i.e., com or edu)
- - SERVICE PROVIDER - Different campaigns can be delivered to visitors
with different Internet service providers.
- - TELEPHONE AREA CODE - Different campaigns can be delivered to visitors
in different area codes.
- - SIC CODE - Different campaigns can be delivered to visitors working
for companies with different SIC codes.
- - COUNTRY - Different campaigns can be delivered to visitors from
different countries.
- - FREQUENCY - An advertisement can be shown no more than a specified
number of times to each visitor.
- - SEQUENCE - A series of advertisements can be shown in sequence to a
visitor.
- - KEYWORDS - Advertisements can be targeted on the basis of a word or phrase
typed by a visitor.
- - SITE DATA - Ads can be targeted on the basis of data in a site's
database (i.e., with registered users)
- - DAY / DATE / TIME OF DAY - Ads can be scheduled to run during specific
times and on specific days.
- - CONTENT AREA - Ads can be targeted to a specific area of a site.
There may be additional charges for additional targeting parameters added in
the future, as well as for customization of the targeting algorithms for
keywords and site data--pricing for these services to be determined.
ADFORCE REPORTING
The following reports are currently available with all levels of the AdForce
service:
<TABLE>
<CAPTION>
NETWORK REPORTS WEBSITE REPORTS ADVERTISER REPORTS
- ----------------------------------------------------------------------------------
<S> <C> <C>
Daily Campaign Details Activity by Advertiser Campaign On-line Summary
Daily Campaign Summary Activity by Area Code Summary by Area Code
Monthly Billing Report Activity by Browser Summary by Banner
Sumary by Advertiser Activity by Content Unit Summary by Browser
Summary by Area Code Activity by Country Summary by Category
Summary by Browser Activity by Date Summary by Country
Summary by Category Activity by Domain Summary by Date
Summary by Country Activity by Keyword Summary by Domain
Summary by Date Activity by Hour Summary by Hour
Summary by Domain Activity by Operating System Summary by Operating System
Summary by Hour Activity by Pay Type Summary by Service Provider
Summary by Operating System Activity by Service Provider Summary by SIC Code
Summary by Payment Type Activity by SIC Code Summary by Website
Summary by Service Provider Website Revenue Campaign Summary
Summary by SIC Code Monthly Billing Report
Summary by Website
</TABLE>
Page 5 of 6
<PAGE>
ADFORCE-TM- SERVICE 2CAN MEDIA AGREEMENT
- -------------------------------------------------------------------------------
WEBSITE REVENUE
THERE WILL BE ADDITIONAL CHARGES FOR REPORTS CUSTOMIZED OR DESIGNED TO 2CAN'S
SPECIFICATIONS. THERE MAY ALSO BE ADDITIONAL CHARGES FOR REPORTS ADDED IN THE
FUTURE.
Page 6 of 6
<PAGE>
EXHIBIT 10.27
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
ADFORCE-TM- SERVICE Web Publisher Agreement
- --------------------------------------------------------------------------------
This service agreement for the AdForce service (the "Agreement") is entered
into between IMGIS, Inc., a California corporation ("IMGIS"), with offices at
10101 N. DeAnza Blvd., Suite 210, Cupertino, CA 95014 and Netscape
Communications, Inc., with offices at 501 East Middlefield Road, Mountain
View, CA 94043 ("COMPANY").
1. ADFORCE SERVICE DEFINITION. The AdForce service is an Internet
advertising administration system that allow COMPANY to manage
advertising on its Web site or similar on-line service. As part of the
AdForce service, IMGIS will provide COMPANY with the AdForce "client"
software application ("Application Software"), with which COMPANY will be
able to (a) generate ad tags, (b) schedule advertising to run in the
online environments with which COMPANY places those ad tags and (c)
generate reports on such advertising. In addition, IMGIS will maintain an
AdForce server complex from which IMGIS will electronically deliver
advertising scheduled by COMPANY to the online environments containing
the ad tags placed by COMPANY. The delivery of "Impressions," defined as
the transmission of advertisements by AdForce to an AdForce ad tag, will
be verified by monthly third-party audits of the AdForce service,
conducted by the Audit Bureau of Verification Services, Inc. or another
third party chosen by IMGIS. This audit is included in all levels of the
AdForce service. Each level of the AdForce service includes targeting
features as listed in Exhibit B. All levels of the AdForce service
include a suite of standard reports available in the AdForce system and
listed in Exhibit B, but do not include custom reports requested by
COMPANY. Features added to the AdForce service in the future will, at the
sole discretion of IMGIS, be considered part of one of the following
levels of AdForce service covered in this Agreement, or be considered part
of other AdForce services and subject to additional fees.
2. LEVELS OF ADFORCE SERVICE. ADFORCE BASIC is defined to include the
functionality described in section 1, as well as telephone customer
support from the hours of 6am to 6pm Pacific Time, Monday-Friday,
excluding major holidays. ADFORCE GOLD is defined to include the
functionality of ADFORCE BASIC, in addition to 24-hour-a-day access to
IMGIS technical support via phone and pager. ADFORCE PLATINUM is defined
to include the functionality of ADFORCE GOLD, in addition to
full-service scheduling of COMPANY'S advertising campaigns by IMGIS
personnel. Pricing for the each level of service is detailed in Exhibit
A. In addition, ADFORCE has agreed to place a Client Services
representative on-site at Netscape offices for a minimum of 45 days.
3. OBLIGATIONS OF COMPANY. COMPANY agrees to implement the ad tags as
described in the AdForce User Guide and Help documentation. If COMPANY
chooses the ADFORCE PLATINUM level of service, it agrees to supply IMGIS
with the information necessary to schedule COMPANY's ad campaigns at
least [*] in advance of campaign initiation. Should the average file
size of COMPANY's advertisements exceed [*], as determined by
IMGIS on a monthly basis, COMPANY agrees to pay the incremental fee
listed in Exhibit A to compensate for higher bandwidth costs. COMPANY
agrees to provide IMGIS with volume forecasts of Impressions to be
delivered using the AdForce service.
4. OWNERSHIP/LIMITATIONS ON USE. Subject to the terms and conditions of
this Agreement, IMGIS hereby grants to COMPANY, contingent on timely
payment of monies due to IMGIS, a non-exclusive, non-transferable
license for the term of this Agreement to use the Application Software
in connection with the AdForce service. IMGIS shall have the sole and
exclusive ownership of all right, title and interest in and to the
Application Software and the AdForce service, any enhancements thereto
and in any materials and data provided to COMPANY by IMGIS. COMPANY may
not sublicense the AdForce service. COMPANY may not copy, modify, alter,
sell, distribute or sublicense the Application Software or reverse
assemble, reverse compile or otherwise attempt by any other method to
create or derive the source programs of the AdForce service or the
Application Software, nor authorize or contract with third parties to do
the same. During the course of delivering advertising to visitors to
COMPANY's site, IMGIS will collect and maintain information necessary to
target advertising, including but not limited to the user's IP address,
cookie, browser type and operating system, as well as the time, date and
ad tag of the request. Although IMGIS owns the right to use or grant use
of this information, it will provide COMPANY with the ability to run any
reports considered part of COMPANY's selected level of service.
5. CONFIDENTIALITY. It is agreed that any COMPANY passwords to AdForce,
AdForce user guides, the AdForce Application Software, and the AdForce
"help" documentation, whether on-line or in printed form, are
confidential. It is also agreed that any account information input into
the AdForce service by COMPANY, such as advertiser contact and billing
information, is confidential. Such information shall not be used,
disclosed or reproduced by the other party without the consent of the
party providing said information, except for any information, data or
material which: (a) at the time of disclosure to the receiving party
was known or in the possession of the receiving party; (b) is
independently developed by the receiving party; (c) is generally
available to the public without any breach of this Agreement. Each party
will disclose the other party's Confidential Information only to
employees who need to know it to perform under this Agreement and who
are bound by the terms of this Agreement. Each party will return or
destroy all copies of the other party's Confidential Information when
this Agreement is terminated except for data resident with the AdForce
system. Confidential Information includes information about R&D,
manufacturing, products, business plans, customers, user information
(including but not limited to identifying users), finances, or personal
and other information, identified as confidential by a party at the time
it is disclosed. It is also agreed that any information regarding
COMPANY's specific activity levels, pricing, performances or any other
data specific to COMPANY's activity levels is confidential and will be
treated as such by IMGIS.
6. INDEMNIFICATION. (a) Subject to subsection (b), COMPANY shall indemnify
and hold harmless IMGIS from any liability and damages and costs
(including reasonable costs and attorney's fees) arising out of or
relating to advertising placed by COMPANY using the AdForce service,
including, without limitation, content, libel, invasion of privacy, and
rights of publicity, provided that: (1) IMGIS promptly notifies COMPANY
of such claims; (ii) COMPANY has sole control over the defense and
settlement of such claims and is not responsible for any settlement that
it does not approve in writing; and (iii) IMGIS renders all reasonable
assistance required; (iv) COMPANY has properly represented the
capabilities of the AdForce service and the Application Software, (b)
IMGIS shall indemnify and hold harmless COMPANY from any third party
claims and liabilities for infringement arising out of or relating to
COMPANY's use of the Application Software and the AdForce Service
pursuant to this Agreement, provided that: (i) COMPANY promptly notifies
IMGIS of such claims; (ii) IMGIS has sole control of the defense and
settlement of such claims and is not responsible for any
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
Page 1 of 5
<PAGE>
ADFORCE-TM- SERVICE Web Publisher Agreement
- --------------------------------------------------------------------------------
settlement that it does not approve in writing; and (iii) COMPANY
renders all assistance required. If an injunction is entered against
COMPANY's use of the Application Software, IMGIS will, at its option,
(A) obtain a license permitting such use, (B) modify the Application
Software to avoid the infringement, or (C) if it cannot reasonably do
either of the foregoing, terminate COMPANY's license to the Application
Software.
7. WARRANTY. COMPANY warrants that COMPANY is free to enter into this
Agreement and that this Agreement constitutes the valid and binding
obligation of COMPANY, enforceable in accordance with its terms. IMGIS
represents and warrants that IMGIS is free to enter into and perform
this Agreement and, except for events beyond IMGIS' control including
but not limited to Internet access outages and other events of force
majeure, (a) the AdForce service will materially conform to the
functionality described in section 1, (b) IMGIS either owns, has, or
will otherwise acquire the right (and will, during the term hereof
maintain such right) to use all hardware and software components of the
AdForce service and will not infringe on any right or interest
(intellectual property or otherwise) of any third party.
EXCEPT AS SPECIFIED IN THIS SECTION, IMGIS HEREBY DISCLAIMS ALL
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY AND ALL
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
NON-INFRINGEMENT, IN CONNECTION WITH THIS AGREEMENT.
8. LIABILITY. NEITHER PARTY WILL BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL,
SPECIAL OR EXEMPLARY DAMAGES, EVEN IF IT HAS BEEN WARNED OF THE
POSSIBILITY OF SUCH DAMAGES.
9. TERMINATION. COMPANY shall select the term and level of service for
this Agreement in Section 12, and shall indicate such selection by
authorized initial next to the desired term and level of service.
Either party may terminate the Agreement if the other party fails to
perform any of its obligations in any material respect, and such failure
continues for a period of thirty (30) days after receipt by the
breaching party of written notice from the non-breaching party
specifying such default. Either party may terminate this Agreement in
the event that the other party ceases to do business, undergoes a
bankruptcy or insolvency proceeding, or an assignment for the benefit of
creditors. Upon the expiration or termination of the Agreement for any
reason, the parties will return all Confidential Information of the
other party in their possession. All accrued payment obligations of
COMPANY shall survive expiration or termination of the Agreement, as
shall the parties' rights and obligations under Sections 4 through 9, as
well as sections 11 through 13.
10. ASSIGNMENT. This Agreement is not assignable or transferable by either
party without the prior written consent of the other party, except that
a party may assign the Agreement by operation of law.
11. PAYMENT TERMS. COMPANY shall pay to IMGIS the dollar amounts determined
from the pricing schedule set forth in Exhibit A, within 30 days from
date of invoice. All payments to IMGIS shall be remitted in U.S.
Dollars. Fees for the AdForce service are subject to change at the
expiration of the initial term and upon renewal of this Agreement.
12. TERM AND LEVEL OF SERVICE. COMPANY shall select the term and level of
service by initializing the desired term and level of service;
<TABLE>
<CAPTION>
TERM LEVEL OF SERVICE
---------------------------- ---------------------------------
<S> <C>
____________ / / 30-day term ____________ / / AdForce Basic
(Initial) (Initial)
____________ /X/ 90-day term ____________ / / AdForce Gold
(Initial) (Initial)
____________ /X/ AdForce Platinum
(Initial)
</TABLE>
The term shall commence on the Effective Date indicated below and shall
automatically renew unless, prior to the end of the term, written notice
is received of the intent to terminate. COMPANY agrees to pay IMGIS for
all Impressions delivered through the AdForce service, according to the
pricing schedule in Exhibit A, subject to change upon renewal of this
Agreement.
13. GENERAL. This Agreement is the complete and exclusive statement of the
mutual understanding of the parties and supersedes and cancels all
previous written and oral agreements and communications relating to the
subject matter of this Agreement. No failure or delay in exercising any
right hereunder will operate as a waiver thereof, nor will any partial
exercise of any right or power hereunder preclude further exercise. Any
waivers or amendments shall be effective only if made in writing. If
any provision of this Agreement shall be adjudged by any court of
competent jurisdiction to be unenforceable or invalid, that provision
shall be limited or eliminated to the minimum extent necessary so that
this Agreement shall otherwise remain in full force and effect and
enforceable. This Agreement shall be governed by the law of the State
of California without regard to the conflicts of law provisions thereof.
The prevailing party in any action to enforce this Agreement will be
entitled to recover its attorney's fees and costs in connection with
such action. Nothing contained herein shall be construed as
establishing a partnership, joint venture, employment or other business
relationship between the parties hereto other than that of independent
contractors. This Agreement may be executed in counterparts.
Page 2 of 5
<PAGE>
ADFORCE-TM- SERVICE Web Publisher Agreement
- -------------------------------------------------------------------------------
IN WITNESS WHEREOF, the parties have executed this Agreement as of: August 1,
1999 (Effective Date).
By: /s/ Mike Homer
--------------------------------------
Print Name: Mike Homer
--------------------------------------
Title: GM. SVP Netcenter
--------------------------------------
Company: Netscape Communications, Inc. (COMPANY)
--------------------------------------
Accepted: /s/ Charles W. Berger
-------------------------
Name: Charles W. Berger
-------------------------
Title: Chairman & CEO
-------------------------
Company: IMGIS, Inc. (IMGIS)
-------------------------
REVIEWED BY
NETSCAPE LEGAL
Initial /s/ LW
-----------
Page 3 of 5
<PAGE>
ADFORCE-TM- SERVICE Web Publisher Agreement
- -------------------------------------------------------------------------------
Exhibit A
---------
Netscape Rate for AdForce Platinum Service beginning August 1, 1998 through
October 31, 1998 is as follows:
-----------------------------------------------------------------------
Banners*** [*] [*]
-----------------------------------------------------------------------
Premiers [*] [*]
-----------------------------------------------------------------------
Spotlights/Buttons [*] [*]
-----------------------------------------------------------------------
Text Links [*] [*]
-----------------------------------------------------------------------
- - A surcharge of [*] will be applied if the average size of advertisements
over a 30-day period is greater than [*], and an additional [*] will be
charged for each additional [*] over [*].
- - Custom reports can be designed for an extra charge
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
Page 4 of 5
<PAGE>
ADFORCE -TM- SERVICE WEB PUBLISHER AGREEMENT
- -------------------------------------------------------------------------------
EXHIBIT B
ADFORCE TARGETING
All levels of the AdForce service include targeting on the following
parameters, when AdForce databases allow the parameter to be resolved:
- - BROWSER TYPE--Different campaigns can be delivered to visitors with different
browsers.
- - OPERATING SYSTEM--Different campaigns can be delivered to visitors with
different operating systems
- - DOMAIN TYPE--Different campaigns can be delivered to visitors from different
domains (i.e. .com or .edu)
- - SERVICE PROVIDER--Different campaigns can be delivered to visitors with
different Internet service providers.
- - TELEPHONE AREA CODE--Different campaigns can be delivered to visitors in
different area codes.
- - SIC CODE--Different campaigns can be delivered to visitors working for
companies with different SIC codes.
- - COUNTRY--Different campaigns can be delivered to visitors from different
countries.
- - FREQUENCY--An advertisement can be shown no more than a specified number of
times to each visitor.
- - SEQUENCE--A series of advertisements can be shown in sequence to a visitor.
- - KEYWORDS--Advertisements can be targeted on the basis of a word or phrase
typed by a visitor.
- - SITE DATA--Ads can be targeted on the basis of data in a site's database
(i.e. with registered users)
- - DAY/DATE/TIME OF DAY--Ads can be scheduled to run during specific times and
on specific days.
- - CONTENT AREA--Ads can be targeted to a specific area of a site.
There may be additional charges for additional targeting parameters added in
the future, as well as for customization of the targeting algorithms for
keywords and site data.
ADFORCE REPORTING
The following reports are currently available with all levels of the AdForce
service:
<TABLE>
<CAPTION>
NETWORK REPORTS WEBSITE REPORTS ADVERTISER REPORTS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Daily Campaign Details Activity by Advertiser Campaign On-line Summary
Daily Campaign Summary Activity by Area Code Summary by Area Code
Monthly Billing Report Activity by Browser Summary by Banner
Summary by Advertiser Activity by Content Unit Summary by Browser
Summary by Area Code Activity by Country Summary by Category
Summary by Browser Activity by Date Summary by Country
Summary by Category Activity by Domain Summary by Date
Summary by Country Activity by Keyword Summary by Domain
Summary by Date Activity by Hour Summary by Hour
Summary by Domain Activity by Operating System Summary by Operating System
Summary by Hour Activity by Pay Type Summary by Service Provider
Summary by Operating System Activity by Service Provider Summary by SIC Code
Summary by Payment Type Activity by SIC Code Summary by Website
Summary by Service Provider Website Revenue Campaign Summary
Summary by SIC Code Monthly Billing Report
Summary by Website
Website Revenue
</TABLE>
There will be additional charges for reports customized or designed to
COMPANY's specifications. There may also be additional charges for reports
added in the future.
Page 5 of 5
<PAGE>
Exhibit 10.28
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
CONFIDENTIAL
DEMOGRAPHIC DATA AGREEMENT
By and Between
AMERICA ONLINE, INC.
and
IMGIS, INC.
Dated as of July 15, 1998
<PAGE>
CONFIDENTIAL
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PAGE
ARTICLE 1 DEFINITIONS.................................................. 1
1.1 "Ad Serving Services"............................... 1
1.2 "Affiliate"......................................... 1
1.3 "AOL Affiliate"..................................... 1
1.4 "AOL Brand Service"................................. 2
1.5 "AOL Network"....................................... 2
1.6 "AOL User".......................................... 2
1.7 "Commencement Date"................................. 2
1.8 "Covered AOL Partner Site".......................... 2
1.9 "Demographic Data".................................. 2
1.10 "Floor Number"...................................... 2
1.11 "Gross Amount"...................................... 2
1.12 "IMGIS AdForce System".............................. 2
1.13 "IMGIS Competitor".................................. 2
1.14 "Implementation Schedule"........................... 2
1.15 "Incremental Revenue Amount"........................ 2
1.16 "License Agreement"................................. 2
1.17 "License Agreement Material Breach"................. 3
1.18 "Losses"............................................ 3
1.19 "Materially Limit or Prohibit"...................... 3
1.20 "Metromail Standards"............................... 3
1.21 "Minimum Annual Fees"............................... 3
1.22 "Party" and "Parties"............................... 3
1.23 "Person"............................................ 3
1.24 "Provision of Demographic Data" and "Provide
Demographic Data"................................ 3
1.25 "Targeted".......................................... 3
1.26 "Third Party"....................................... 3
1.27 "Year One Start Date"............................... 3
ARTICLE 2 ACCESS TO DEMOGRAPHIC DATA................................... 3
2.1 Access to Demographic Data.......................... 3
2.2 Agreement on Implementation Schedule................ 5
2.3 Definition of "Demographic Data".................... 5
2.4 No Individual Identification Information............ 7
ARTICLE 3 LIMITATIONS OR PROHIBITIONS ON USE OF
DEMOGRAPHIC DATA................................... 7
3.1 Specific Interactive Sites and Specific Advertisers.. 7
</TABLE>
- i -
<PAGE>
CONFIDENTIAL
<TABLE>
<CAPTION>
<S> <C>
3.2 Rights of AOL........................................ 8
3.3 Definition of "Materially Limit or Prohibit"......... 9
ARTICLE 4 PAYMENTS BY IMGIS............................................ 9
4.1 Fees................................................. 9
4.2 Fees in Event of Nonmonetary or
Discounted Consideration.......................... 10
4.3 Guaranteed Minimum Annual Fees....................... 10
4.4 Payment Procedures................................... 11
4.5 Late Payment......................................... 12
4.6 Application of Payments.............................. 12
4.7 Taxes................................................ 12
4.8 No Diversion......................................... 12
4.9 Books and Records.................................... 12
ARTICLE 5 INDEMNIFICATION...................................... 13
5.1 Indemnity by IMGIS................................... 13
5.2 Indemnity by AOL..................................... 13
5.3 Procedure............................................ 13
ARTICLE 6 LIMITATION ON LIABILITY...................................... 14
ARTICLE 7 REPRESENTATIONS AND WARRANTIES............................... 14
7.1 Mutual Representations and Warranties............... 14
7.2 Additional Representations and Warranties of IMGIS.. 15
7.3 Disclaimer.......................................... 15
ARTICLE 8 CONFIDENTIALITY.............................................. 15
8.1 Confidentiality Obligation.......................... 15
8.2 Nondisclosure of Confidential Information........... 16
8.3 Exception........................................... 16
8.4 Survival............................................ 16
ARTICLE 9 TERM AND TERMINATION......................................... 16
9.1 Term................................................ 16
9.2 Termination Rights of Either Party.................. 17
9.3 Additional Termination Rights of AOL................ 17
9.4 Survival............................................ 17
</TABLE>
- ii -
<PAGE>
CONFIDENTIAL
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 10 MISCELLANEOUS................................................ 18
10.1 Relationship of the Parties......................... 18
10.2 Applicable Law...................................... 18
10.3 Consent to Jurisdiction............................. 18
10.4 Counterparts........................................ 19
10.5 Notices............................................. 19
10.6 Force Majeure....................................... 20
10.7 Binding Effect; Assignment.......................... 20
10.8 Entire Agreement.................................... 21
10.9 Recitals, Schedules and Exhibit..................... 21
10.10 Amendment........................................... 21
10.11 Severability........................................ 21
10.12 Headings............................................ 21
10.13 No Waiver of Rights................................. 21
10.14 Remedies Cumulative; Specific Performance........... 22
10.15 Confidentiality of Agreement........................ 22
10.16 Usage............................................... 22
</TABLE>
- iii -
<PAGE>
CONFIDENTIAL
<TABLE>
<CAPTION>
LIST OF SCHEDULES AND EXHIBIT
<S> <C>
Schedule 1.13 Imgis Competitors
Schedule 3.1 Specific Interactive Sites and Specific
(To be attached) Advertisers
Exhibit Implementation Schedule
(To be attached)
</TABLE>
<PAGE>
CONFIDENTIAL
DEMOGRAPHIC DATA AGREEMENT
This DEMOGRAPHIC DATA AGREEMENT (the "Agreement") is entered into as of
July 15, 1998 by and between AMERICA ONLINE, INC., a Delaware corporation having
its principal office at 22000 AOL Way, Dulles, Virginia 20166 ("AOL"), and
IMGIS, INC., a California corporation having its principal office at 10101 N.
DeAnza Boulevard, Suite 210, Cupertino, California 95014 ("IMGIS").
WITNESSETH:
WHEREAS, IMGIS desires to obtain, and AOL is willing to provide IMGIS with,
access to certain demographic data with respect to AOL Users (as defined below)
for the sole purpose of serving targeted interactive advertisements, on the
terms and subject to the limitations and conditions set forth herein, and which
shall in no event enable IMGIS to identify such AOL Users.
NOW, THEREFORE, in consideration of the foregoing, of the mutual covenants
and undertakings contained herein and of other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Parties,
intending to be legally bound, hereby agree as follows:
ARTICLE 1
DEFINITIONS
In addition to other terms defined elsewhere herein, the following terms
shall have the following meanings when used herein (any term defined in the
singular shall have the same meaning when used in the plural and vice versa,
unless stated otherwise):
1.1 "AD SERVING SERVICES" has the meaning set forth in the License
Agreement.
1.2 "AFFILIATE" of any specified Person means any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with the specified Person.
1.3 "AOL AFFILIATE" means: (a) any Affiliate of AOL, where the term
"control" for purposes of Section 1.2 means the direct or indirect ownership or
control by AOL of twenty-five percent (25%) or more of the stock or other equity
interests of such Person entitled to vote for the election of members of the
Board of Directors or similar governing body of such Person, provided, however,
that such Person shall cease to be an AOL Affiliate if and when such equity
interest becomes less than twenty-five percent (25%) for any reason other than
as a result of dilution, and provided, further, that if such equity
<PAGE>
CONFIDENTIAL
interest becomes less than twenty-five percent (25%) as a result of dilution,
such Person shall cease to be an AOL Affiliate if and when such percentage
equity interest is further reduced for any reason other than as a result of
dilution; and (b) AOL Bertelsmann Online France S.N.C.
1.4 "AOL BRAND SERVICE" means the America Online brand online and
information service, including future modifications to, implementations of,
successors of, and international versions of such service.
1.5 "AOL NETWORK" has the meaning set forth in the License Agreement.
1.6 "AOL USER" means a user of the AOL Brand Service who has not elected
(a) not to permit AOL to transmit codes embodying Demographic Data with respect
to such user to IMGIS or any Third Party for the purpose of serving Targeted
interactive advertisements or (b) not to receive Targeted interactive
advertising.
1.7 "COMMENCEMENT DATE" has the meaning set forth in Section 2.2 below.
1.8 "COVERED AOL PARTNER SITE" has the meaning set forth in the License
Agreement.
1.9 "DEMOGRAPHIC DATA" has the meaning set forth in Section 2.3 below.
1.10 "FLOOR NUMBER" has the meaning set forth in Section 2.4 below.
1.11 "GROSS AMOUNT" has the meaning set forth in Section 4.1 below.
1.12 "IMGIS ADFORCE SYSTEM" means any software owned and/or used by, and/or
licensed to, IMGIS that enables operators of interactive sites and interactive
advertisers to schedule, monitor, serve, traffic and/or target interactive
advertising, including the system used by IMGIS to provide services under the
AdForce service mark and any related or successor system (including, without
limitation, IMGIS' proposed system known as AdForce+ and IMGIS' proposed
"hybrid" system based on the StarPoint Ad System).
1.13 "IMGIS COMPETITOR" means any of the competitors of IMGIS set forth on
Schedule 1.13 attached hereto.
1.14 "IMPLEMENTATION SCHEDULE" means the implementation schedule for AOL's
Provision of Demographic Data.
1.15 "INCREMENTAL REVENUE AMOUNT" has the meaning set forth in Section 4.1
below.
1.16 "LICENSE AGREEMENT" means the License Agreement between IMGIS and AOL
being executed simultaneously with the execution of this Agreement.
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1.17 "LICENSE AGREEMENT MATERIAL BREACH" has the meaning set forth in
Section 9.3 below.
1.18 "LOSSES" means losses, liabilities, suits, claims, costs, expenses
(including reasonable attorneys' fees), penalties, fines, judgments and/or
damages (including personal injury or property damages, but excluding indirect,
incidental, special or consequential damages of the indemnified Party).
1.19 "MATERIALLY LIMIT OR PROHIBIT" has the meaning set forth in Section
3.3 below.
1.20 "METROMAIL STANDARDS" means the standards used by Metromail
Corporation ("Metromail") as of the date hereof to place data included in
Metromail's data repositories in specific categories.
1.21 "MINIMUM ANNUAL FEES" means the minimum annual fees the payment of
which is guaranteed by IMGIS as provided in Section 4.3 below, and "QUARTERLY
PORTION" of a Minimum Annual Fee means the quarterly portion of the then
applicable Minimum Annual Fee the payment of which is guaranteed by IMGIS on a
quarterly basis.
1.22 "PARTY" means AOL or IMGIS, and "PARTIES" means AOL and IMGIS.
1.23 "PERSON" means a natural person, a corporation, a partnership, a
limited liability company, a trust, a joint venture, any governmental authority,
or any other entity or organization.
1.24 "PROVISION OF DEMOGRAPHIC DATA" means the transmission by AOL of codes
embodying Demographic Data (using a one key to many user matching algorithm)
with respect to AOL Users and the provision to IMGIS of access to such codes,
and "PROVIDE DEMOGRAPHIC DATA" means to implement the Provision of Demographic
Data.
1.25 "TARGETED" means served to users of interactive media based on
specific demographic characteristics.
1.26 "THIRD PARTY" means any Person that is not a Party to this Agreement.
1.27 "YEAR ONE START DATE" has the meaning set forth in Section 4.3 below.
ARTICLE 2
ACCESS TO DEMOGRAPHIC DATA
2.1 ACCESS TO DEMOGRAPHIC DATA.
(a) Following the Commencement Date, in accordance with the terms of
the Implementation Schedule, AOL agrees to permit IMGIS to access codes
embodying
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Demographic Data (using a one key to many user matching algorithm) with
respect to AOL Users, access to which codes shall be provided by AOL at the
time that each AOL User uses the AOL Brand Service to request delivery of
an advertisement to an Internet site other than AOL.com, an Internet site
of any AOL Affiliate or any Covered AOL Partner Site. IMGIS shall access
such Demographic Data following the Commencement Date for the sole purpose
of serving Targeted interactive advertisements using the IMGIS AdForce
System for or on behalf of Third Parties that have contracted with IMGIS
for the serving of Targeted interactive advertisements and for no other
purpose, subject to the limitations and conditions set forth in Article 3
below and elsewhere herein. IMGIS shall provide to AOL, on a quarterly
basis, a written report signed by an officer of IMGIS describing IMGIS' use
of Demographic Data during each quarter, including, without limitation, the
Third Parties that have contracted with IMGIS for the serving of Targeted
interactive advertisements using Demographic Data.
(b) Following the Commencement Date, in accordance with the terms of
the Implementation Schedule, AOL, at its option, may permit IMGIS to access
codes embodying Demographic Data (using a one key to many user matching
algorithm) with respect to AOL Users, access to which codes shall be
provided by AOL at the time that each AOL User (i) uses the AOL Brand
Service to request delivery of an advertisement to AOL.com, an Internet
site of an AOL Affiliate or a Covered AOL Partner Site, if AOL has
requested that IMGIS provide Ad Serving Services for such Internet site
under the License Agreement or (ii) receives a screen page on the AOL
Network on which appears an interactive advertisement, if AOL has requested
that IMGIS provide Ad Serving Services for the AOL Network under the
License Agreement. IMGIS shall access such Demographic Data following the
Commencement Date for the sole purpose of serving Targeted interactive
advertisements using the IMGIS AdForce System for or on behalf of AOL, such
AOL Affiliate or such AOL Partner and for no other purpose, subject to the
limitations and conditions set forth in Article 3 below and elsewhere
herein.
(c) In no event shall IMGIS have the right to recreate, reproduce,
compile, store or retain any embodiments or records of Demographic Data, in
whole or in part, whether in IMGIS' data center, on any user's hard drive
or other component of such user's computer system, or in any other location
or for any purpose. IMGIS shall not recreate, reproduce, compile, store or
retain any information on any AOL User's hard drive or other component of
such AOL User's computer system which would enable IMGIS to associate such
AOL User with Demographic Data or to identify such AOL User using
Demographic Data or any other data or information available to IMGIS. In no
event shall IMGIS take any action that would enable IMGIS to identify an
AOL User using Demographic Data or any other data or information available
to IMGIS, and the Parties agree that any taking by IMGIS of such an action
or any attempt by IMGIS to identify, or identification by IMGIS of, any AOL
User using Demographic Data or other data or information available to IMGIS
would constitute a breach by IMGIS of a material obligation hereunder.
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(d) To the extent that IMGIS is not prohibited hereunder from
recreating, reproducing, compiling, storing or retaining any information on
any AOL User's hard drive or other component of such AOL User's computer
system, IMGIS shall do so in compliance with generally accepted standards
for the protection of individual privacy rights as adopted by TRUSTe or
another organization mutually agreeable to the Parties that is similarly
dedicated to protecting the privacy rights of individuals who receive
interactive advertisements; provided, however, that in no event shall the
taking of any such action enable IMGIS to identify such AOL User.
2.2 AGREEMENT ON IMPLEMENTATION SCHEDULE. Promptly following the execution
of this Agreement, the Parties shall commence discussions on the preparation of
the Implementation Schedule and shall endeavor to reach agreement on a
preliminary Implementation Schedule within 60 days following the commencement of
such discussions. The final Implementation Schedule shall be agreed upon by the
Parties, and attached as an Exhibit hereto, within 30 days following the date as
of which the following conditions precedent are satisfied:
(a) The mutual determination by the Parties that there is general
acceptance of Targeted interactive advertising, as conducted by
IMGIS and as contemplated hereunder, in the marketplace of users
of the Internet and online services, unless satisfaction of this
condition precedent is waived by AOL in its sole discretion; and
(b) Following the mutual determination described in subpart (a) above
or the waiver of such condition precedent by AOL, the receipt by
AOL of any and all Third Party consents required for the
Provision of Demographic Data to IMGIS, unless satisfaction of
this condition precedent is waived by AOL in its sole discretion,
in which case the Demographic Data to be Provided pursuant to the
Implementation Schedule shall be adjusted accordingly.
AOL shall deliver promptly to IMGIS a written notice informing IMGIS
of the satisfaction or waiver of the foregoing conditions precedent. In no
event shall the failure of AOL to deliver such a written notice to IMGIS be
deemed to be a waiver by AOL of the foregoing conditions precedent. For
purposes of this Agreement, the date as of which the Parties reach
agreement on the final Implementation Schedule shall be referred to as the
"Commencement Date".
2.3 DEFINITION OF "DEMOGRAPHIC DATA". For purposes of this Agreement,
"Demographic Data" means demographic data in the categories set forth below
with respect to AOL Users, to the extent such demographic data is known to
AOL, which demographic data shall be embodied in codes transmitted by AOL
in the three phases set forth below in accordance with the terms of the
Implementation Schedule. IMGIS and AOL shall agree on a mutually acceptable
mechanism for determining the "not provided" codes specified below.
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<TABLE>
<CAPTION>
PHASE I:
Demographic Data in the following categories shall be transmitted in Phase I:
<S> <C>
CATEGORY SPECIFIC DEMOGRAPHIC DATA
Age Up to twelve ranges as shall be determined by the
Parties; not known; or not provided
Gender Male; female; not known; or not provided
Marital status Single; married; divorced; not known; or not provided
Home ownership Own; rent; not known; or not provided
Dwelling type Single family; attached; apartment; not known; or
not provided
Zip code 5 digits of zip codes; not known; or not provided
Income $1-$250,000+ by $10,000 increments; not known; or
not provided
Education level (by grade) High school; some college; college graduate;
postgraduate; not known; or not provided
Occupational codes To be provided by IMGIS subject to AOL's agreement;
not known; or not provided
PHASE II:
Demographic Data in the following categories shall be transmitted in Phase II:
CATEGORY SPECIFIC DEMOGRAPHIC DATA
Number of children (Age range I) To be defined in accordance with Metromail Standards;
not known; or not provided
Number of children (Age range II) To be defined in accordance with Metromail Standards;
not known; or not provided
Number of children (Age range III) To be defined in accordance with Metromail Standards;
not known; or not provided
Number of children (Age range IV) To be defined in accordance with Metromail Standards;
not known; or not provided
Car type To be defined in accordance with Metromail Standards;
not known; or not provided
Product preference To be defined in accordance with Metromail Standards;
(propensity to buy) not known; or not provided
</TABLE>
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PHASE III:
Demographic Data in additional categories to be agreed upon by the Parties shall
be transmitted in Phase III.
2.4 NO INDIVIDUAL IDENTIFICATION INFORMATION.
(a) Notwithstanding the categories of Demographic Data set forth in Section
2.3 above, in no event shall AOL Provide Demographic Data to IMGIS in such
groups or combinations of categories that might enable IMGIS to identify the
particular AOL User having the characteristics expressed in such Demographic
Data. To this end, in the event that at any time there is no more than a Floor
Number of AOL Users (as defined below) in any group or combination of categories
of Demographic Data to be provided to IMGIS, then AOL shall have the right to
reduce the number of categories of Demographic Data in such group or
combination, or to aggregate Demographic Data within such group or combination,
to the extent necessary to increase the number of AOL Users in such group or
combination to a number above the Floor Number or, if this is not possible, then
AOL shall have the right to eliminate such group or combination of categories of
Demographic Data in its entirety.
(b) If AOL takes any of the actions provided for in Section 2.4(a) above,
in no event shall the taking of such action mean, or be construed to mean, that
AOL is Materially Limiting or Prohibiting the use by IMGIS of Demographic Data
or be counted along with any other actions toward a determination that AOL is
Materially Limiting or Prohibiting the use by IMGIS of Demographic Data.
(c) For purposes of this Agreement, "Floor Number" means the floor number
of AOL Users to be agreed upon by the Parties prior to the Commencement Date,
which number may be modified from time to time by mutual agreement of the
Parties.
ARTICLE 3
LIMITATIONS OR PROHIBITIONS ON USE OF DEMOGRAPHIC DATA
3.1 SPECIFIC INTERACTIVE SITES AND SPECIFIC ADVERTISERS.
(a) Notwithstanding any provision to the contrary herein, IMGIS shall not
use Demographic Data for the purpose of serving Targeted interactive
advertisements for or on behalf of:
(i) Any interactive sites or advertisers that are engaged in the
business of pornography or any other business of
questionable morality;
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(ii) Any interactive sites or advertisers whose sites or
advertising would violate AOL's Terms of Service as then in
effect as they apply to the distribution of content,
advertising and direct marketing and/or the principles
underlying such Terms of Service as they apply to the
foregoing; or
(iii) Any one or more of the specific interactive sites and
specific advertisers to be listed on Schedule 3.1 attached
hereto, which Schedule shall be provided by AOL to IMGIS on
or prior to the Commencement Date and which may be modified
from time to time by AOL.
(b) In the event that IMGIS notifies AOL that the aggregate of the dollars
received by the specific interactive sites, and the aggregate of the dollars
spent on interactive advertising by the specific advertisers, listed on Schedule
3.1 in the then most recent calendar quarter exceeds twenty-five percent (25%)
of the sum of (i) the available advertising dollars on the Internet and online
interactive services received by interactive sites in such calendar quarter and
(ii) the available advertising dollars on the Internet and online interactive
services spent by advertisers in such calendar quarter, in each case as reported
by Jupiter's WebTrack (or by any other publication that compiles such
information which is mutually agreeable to the Parties), with adjustment for any
duplicate counting of such dollar amounts as necessary, then AOL shall have the
right to modify Schedule 3.1 so that such 25% threshold is not exceeded and, in
the event that AOL does not modify Schedule 3.1 within ten business days of
receiving such notification from IMGIS, then, for so long as such 25% threshold
is exceeded:
(i) If such 25% threshold is exceeded by no more than ten
percentage points (i.e., is no more than 35%), IMGIS'
obligation to guarantee payment to AOL of any Minimum Annual
Fees shall be reduced by the percentage equal to the
following: (X - 25) divided by 75, where X equals the
percentage of the available advertising dollars on the
Internet and online interactive services received by the
specific interactive sites, and spent by the specific
advertisers, listed on Schedule 3.1; or
(ii) If such 25% threshold is exceeded by more than ten
percentage points (i.e., is more than 35%), IMGIS shall not
be obligated to guarantee payment to AOL of any Minimum
Annual Fees.
3.2 RIGHTS OF AOL. AOL shall have the right to immediately terminate or
defer IMGIS' access to any or all categories of Demographic Data or to
immediately limit or prohibit the use by IMGIS of any or all categories of
Demographic Data: (a) in the event that AOL receives any adverse publicity, is
subject to any law or issued or pending governmental regulation, or is the
subject of any pending or threatened governmental
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investigation or legal action, regarding the use or provision of Demographic
Data or similar demographic information or which otherwise would limit or
prohibit Targeted interactive advertising; or (b) based on AOL policy, as such
policy may be modified from time to time in AOL's sole discretion, regarding
Targeted interactive advertising or the provision of Demographic Data or similar
demographic information. Immediately upon the receipt of notice from AOL that
AOL is exercising the foregoing right, IMGIS shall limit or terminate the use of
such categories of Demographic Data as indicated by AOL in such notice;
provided, however, that AOL shall consult with IMGIS prior to any decision that
would materially affect IMGIS' access to Demographic Data. In any event where
IMGIS is limited or prohibited from the use of any or all categories of
Demographic Data, AOL shall be limited or prohibited during the term of this
Agreement from providing any Third Party with access to such Demographic Data or
similar demographic information for the purpose of serving Targeted interactive
advertisements.
3.3 DEFINITION OF "MATERIALLY LIMIT OR PROHIBIT". If AOL takes any action
(other than action permitted under Section 2.4 above) that would terminate or
prohibit IMGIS' access to all categories of Demographic Data with respect to
more than fifty percent (50%) of AOL Users, excluding children and other
individuals to whom Targeted interactive advertising may be at such time legally
prohibited, for more than a period of 30 cumulative days in any calendar year,
then, beginning 120 days from the date that AOL restricts IMGIS from such use,
AOL shall be deemed to "Materially Limit or Prohibit" the use by IMGIS of
Demographic Data for purposes of this Agreement. IMGIS agrees that, in the event
that AOL Materially Limits or Prohibits the use by IMGIS of Demographic Data,
such action shall in no event constitute, or be deemed to constitute, a breach
by AOL of, or failure by AOL to perform, an obligation under this Agreement or
under the License Agreement.
ARTICLE 4
PAYMENTS BY IMGIS
4.1 FEES. For all Targeted interactive advertisements served by or on
behalf of IMGIS using the IMGIS AdForce System to AOL Users for whom AOL has
Provided Demographic Data, IMGIS shall pay to AOL, on a quarterly basis, a fee
per advertisement equal to the greater of:
(a) [*] of the gross amount of the consideration charged by IMGIS for
serving such Targeted interactive advertisement (the "Gross Amount");
and
(b) [*] of the difference between (i) the gross amount of the
consideration charged by IMGIS for serving such Targeted interactive
advertisement and (ii) the gross amount of the consideration that
would have been charged by IMGIS for serving a comparable interactive
advertisement using the IMGIS AdForce
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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System where such interactive advertisement is not Targeted (the
"Incremental Revenue Amount");
Provided, however, that, for all such Targeted interactive advertisements served
by or on behalf of IMGIS using the IMGIS AdForce System during the first twelve
months following the Year One Start Date (as defined below), IMGIS shall pay to
AOL a fee per advertisement equal to the greater of (x) [*] of the Gross Amount
of such advertisement and (y) [*] of the Incremental Revenue Amount of such
advertisement, until such time as AOL has received fees equal to [*] in
the aggregate.
4.2 FEES IN EVENT OF NONMONETARY OR DISCOUNTED CONSIDERATION. In the event
that, in any calendar quarter, IMGIS serves Targeted interactive advertisements
using the IMGIS AdForce System to AOL Users for whom AOL has Provided
Demographic Data in exchange for nonmonetary consideration or any combination of
monetary and nonmonetary consideration, for any consideration below the fair
market value of such interactive ad serving services, or for no consideration at
all, then IMGIS shall pay to AOL the fee required under Section 4.1 above for
each such advertisement based on the gross amount of the fair market value of
such interactive ad serving services but in no event shall such payment to AOL
be less than the largest payment paid by IMGIS to AOL under Section 4.1 during
such quarter. Nothing herein shall limit IMGIS' discretion to grant commercially
reasonable discounts.
4.3 GUARANTEED MINIMUM ANNUAL FEES. So long as AOL is in compliance with
all of its material obligations under this Agreement and does not Materially
Limit or Prohibit the use by IMGIS of Demographic Data, IMGIS shall guarantee to
AOL the payment of the following Minimum Annual Fees payable on a quarterly
basis (each such payment being a "Quarterly Portion" of the then applicable
Minimum Annual Fee) for Targeted interactive advertisements served by or on
behalf of IMGIS using the IMGIS AdForce System to AOL Users for whom AOL has
Provided Demographic Data:
(a) For all such Targeted interactive advertisements served during
the twelve month period following the Commencement Date, unless
AOL does not Provide Demographic Data to IMGIS within 60 days
following the Commencement Date, in which case such date shall be
the date as of which AOL first Provides Demographic Data to IMGIS
(such date to be referred to as the "Year One Start Date" and
such twelve month period to be referred to as "Year One"):
[*];
(b) For all such Targeted interactive advertisements served during
the twelve month period following the first anniversary of the
Year One Start Date ("Year Two"):
The greater of (i) [*] and (ii) one-half of the aggregate
amount of fees payable by IMGIS to AOL for Year One (including
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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any amount payable by IMGIS to meet the Minimum Annual Fee for
Year One) (such greater amount to be referred to hereafter as the
"Year Two Minimum"); and
(c) For all such Targeted interactive advertisements served during
the twelve month period following the second anniversary of the
Year One Start Date ("Year Three"):
The greater of (i) the Year Two Minimum and (ii) one-half of the
aggregate amount of fees payable by IMGIS to AOL for Year Two
(including any amount payable by IMGIS to meet the Minimum Annual
Fee for Year Two);
Provided, however, that, in the event that, at any time during the term of this
Agreement, AOL provides access to Demographic Data to an IMGIS Competitor for
the purpose of serving Targeted interactive advertisements, then the Quarterly
Portion of the Minimum Annual Fee payable by IMGIS at the end of the calendar
quarter in which such event occurs shall be reduced ratably by the number of
days in such quarter during which AOL provides Demographic Data to such IMGIS
Competitor and IMGIS shall not be obligated to guarantee payment to AOL of any
Minimum Annual Fees thereafter.
In the event that, in Year One or Year Two (or in Year Three if this Agreement
is renewed and requires IMGIS to guarantee payment of a minimum annual fee
during such renewal term), IMGIS makes a payment to AOL in excess of the amount
of fees due under Section 4.1 in satisfaction of IMGIS' obligation under this
Section 4.3 to guarantee payment of the Minimum Annual Fee for such year (the
"Excess Amount"), then IMGIS may recoup such Excess Amount in any subsequent
year in which the Agreement remains in effect, including any renewal term, by
crediting such Excess Amount against the fees due to AOL in such subsequent year
following the payment to AOL in such subsequent year of the Minimum Annual Fee
due to AOL for such year and only to the extent that the amount of fees due to
AOL in such subsequent year exceeds the Minimum Annual Fee for such year.
4.4 PAYMENT PROCEDURES.
(a) IMGIS shall pay to AOL all fees and other amounts due and owing to AOL
as described herein for the serving of Targeted interactive advertisements
within 60 days of the end of the calendar quarter in which such Targeted
interactive advertisements are served using the IMGIS AdForce System, together
with a written report (in addition to the report required under Section 2.1(a)
above) signed by an officer of IMGIS setting forth the number of Targeted
interactive advertisements served during such calendar quarter, the Gross Amount
of each such Targeted interactive advertisement, and the Incremental Revenue
Amount of each such Targeted interactive advertisement.
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(b) All payments due to AOL hereunder shall be paid to AOL in U.S. Dollars
by wire transfer, or by such other method mutually agreed upon by the Parties,
in each case at the expense of IMGIS, for value no later than the due date
thereof (with 24 hours advance notice of each wire transfer) to such bank
account or accounts as AOL shall designate in writing within a reasonable period
of time prior to such due date.
4.5 LATE PAYMENT. Without limiting AOL's rights to pursue any other
remedies at law or in equity, if IMGIS fails to pay any payment required under
this Agreement on or before the due date therefor, then IMGIS shall pay annually
compounded interest on such amount at an annual rate equal to the lower of (a)
the highest rate permitted by applicable law and (b) the lowest prime rate as
published by The Wall Street Journal on or nearest to such due date plus three
percent (3%), which interest shall accrue from the date the payment not timely
made became due until the date such payment is paid in full.
4.6 APPLICATION OF PAYMENTS. Any payments received by AOL shall be applied
first to the satisfaction of the oldest of any unpaid, accrued interest charges
and, following payment of all such interest charges, to the satisfaction of the
oldest of any unpaid fees or other amounts due hereunder.
4.7 TAXES. All payments required to be made by IMGIS under this Agreement
shall be made free and clear of, and without deduction for, any and all taxes
that are levied on the transfer of such payments to AOL. If any withholding or
deductions are required by applicable law, payments shall be made such that,
after such withholding or deductions, the net amount that AOL receives is equal
to the amount due under this Article 4. IMGIS shall file any information or tax
returns with respect to such taxes, and IMGIS shall indemnify AOL from any
interest or other payments, fines or penalties relating to or resulting from any
failure, delay or error of IMGIS in doing so.
4.8 NO DIVERSION. IMGIS agrees that it shall not knowingly engage in any
action or practice that results in reducing any fees or other payment
obligations under this Article 4 that otherwise would have been owed to AOL
hereunder as consideration for the Provision of Demographic Data to IMGIS.
4.9 BOOKS AND RECORDS. IMGIS shall keep full, true and accurate books of
account containing all particulars and reasonable supporting documentation that
may be necessary for the purpose of determining the fees and other amounts
payable to AOL hereunder and IMGIS' compliance in other respects with its
obligations under this Agreement, including, without limitation, its obligations
under Section 2.1 above. All such books of account and reasonable supporting
documentation shall be located at the principal place of business of IMGIS and
shall be open for inspection for such purpose by AOL or any independent
certified public accountant retained by AOL, at a time mutually acceptable to
AOL and IMGIS during normal business hours but no more frequently than once each
calendar year for three years following the end of the calendar year to which
they pertain (and access shall not be denied thereafter if reasonably
available). If such records are insufficient for the foregoing purposes or any
such inspection discloses an underpayment to AOL of five percent (5%) or more of
the amount actually due for any
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quarterly period, then, in addition to any other rights and remedies available
to AOL under this Agreement, IMGIS shall pay to AOL the amount of such
underpayment as well as the reasonable cost of such inspection promptly
following IMGIS' receipt from AOL of the bill or invoice for such inspection.
ARTICLE 5
INDEMNIFICATION
5.1 INDEMNITY BY IMGIS. AOL shall not be liable to IMGIS, any of its
Affiliates or any other Person for, and IMGIS shall indemnify and hold harmless
AOL and all AOL Affiliates, and their respective directors, officers, employees
and agents (collectively, the "AOL Indemnitees"), from and against any Losses
incurred arising out of or resulting from the serving of Targeted interactive
advertisements using the IMGIS AdForce System or otherwise from the use of
Demographic Data by IMGIS or any of its Affiliates, except to the extent that
such Losses arise out of or result from the provision by AOL of Demographic Data
that AOL is not permitted to provide to IMGIS.
5.2 INDEMNITY BY AOL. IMGIS shall not be liable to AOL, any of its
Affiliates or any other Person for, and AOL shall indemnify and hold harmless
IMGIS and its Affiliates, and their respective directors, officers, employees
and agents (collectively, the "IMGIS Indemnitees"), from and against any Losses
incurred arising out of or resulting from the provision by AOL of Demographic
Data that AOL is not permitted to provide to IMGIS, except to the extent that
such Losses arise out of or result from the use of Demographic Data that AOL is
permitted to provide by IMGIS or any of its Affiliates.
5.3 PROCEDURE. Any AOL Indemnitee or IMGIS Indemnitee shall notify IMGIS or
AOL, as the case may be (the "Indemnifying Party"), promptly in writing of an
indemnifiable claim or cause of action under Section 5.1 or Section 5.2 above
upon receiving notice or being informed of the existence thereof; provided,
however, that failure to notify the Indemnifying Party of an indemnifiable claim
or cause of action shall not relieve the Indemnifying Party of its obligation to
provide indemnification hereunder, except to the extent that such failure
prejudices the Indemnifying Party's ability to defend or settle such claim or
cause of action. The Indemnifying Party shall assume, at its cost and expense,
the sole defense of such claim or cause of action through counsel selected by
the Indemnifying Party and reasonably acceptable to the other Party, except that
in the case of a conflict of interest between the Indemnifying Party and the
other Party, the Indemnifying Party shall, at its cost and expense, provide
separate counsel for the other Party selected by the other Party. The
Indemnifying Party shall maintain control of such defense, including any
decision as to settlement; provided that, in the event that the Indemnifying
Party does not maintain control of such defense on a timely basis, then, without
prejudice to any other rights and remedies available to the other Party under
this Agreement, the other Party may take over such defense with counsel of its
choosing, at the Indemnifying Party's cost and expense. The other Party may, at
its option and expense, participate in the Indemnifying Party's defense, and if
the other Party so participates, the
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Parties shall cooperate with one another in such defense. The Indemnifying Party
shall bear the total costs of any court award or any settlement of such claim or
cause of action approved by the Indemnifying Party and all other costs, fees and
expenses related to the resolution thereof (including reasonable attorneys'
fees, except for attorneys' fees for which the other Party is responsible in the
event that the other Party participates in the Indemnifying Party's defense of
such claim or cause of action).
ARTICLE 6
LIMITATION ON LIABILITY
EXCEPT FOR A CLAIM OF INDEMNIFICATION PURSUANT TO ARTICLE 5, NEITHER
PARTY SHALL BE LIABLE TO THE OTHER PARTY HEREUNDER FOR ANY INDIRECT, INCIDENTAL,
SPECIAL OR CONSEQUENTIAL DAMAGES.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES
7.1 MUTUAL REPRESENTATIONS AND WARRANTIES. Each Party represents and
warrants to the other Party that:
(a) Such Party has the full corporate right, power and authority to
execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby;
(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of
such Party;
(c) This Agreement has been duly executed and delivered by an
authorized officer of such Party, and is a legal, valid and
binding obligation of such Party enforceable against it in
accordance with its terms, except as enforcement may be limited
by general principles of equity (regardless of whether such
enforceability is considered in a proceeding at law or in equity)
and the effect of applicable bankruptcy, insolvency, moratorium
and other similar laws of general application relating to or
affecting creditors' rights generally, including, without
limitation, the effect of statutory or other laws regarding
fraudulent conveyances and preferential transfers;
(d) Except for, in the case of AOL, the Third Party consents referred
to in Section 2.2(b) above, such Party's execution, delivery and
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performance of this Agreement shall not constitute a breach or
default under any contract or agreement to which such Party is a
party or by which it is bound or otherwise violate the rights of
any Third Party; and
(e) Except for, in the case of AOL, the Third Party consents referred
to in Section 2.2(b) above, no consent, approval or authorization
of or from any governmental entity or any other Person not a
Party to this Agreement, whether prescribed by law, regulation,
contract or agreement, is required for such Party's execution,
delivery and performance of this Agreement or consummation of the
transactions contemplated hereby.
7.2 ADDITIONAL REPRESENTATIONS AND WARRANTIES OF IMGIS. IMGIS further
represents and warrants to AOL that:
(a) IMGIS is a member of TRUSTe and shall remain a member of TRUSTe
or another organization mutually agreeable to the Parties that is
similarly dedicated to the protection of the privacy rights of
individuals; and
(b) IMGIS has taken and shall take commercially reasonable steps to
ensure the protection of the privacy rights of individuals who
receive interactive advertisements served by or on behalf of
IMGIS or using the IMGIS AdForce System.
7.3 DISCLAIMER. AOL HEREBY DISCLAIMS ANY REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, AS TO THE ACCURACY OR COMPLETENESS OF ANY DEMOGRAPHIC DATA.
EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS ARTICLE 7, NEITHER PARTY MAKES
ANY OTHER WARRANTY OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, AND ALL IMPLIED
WARRANTIES, INCLUDING THE WARRANTY OF FITNESS FOR A PARTICULAR USE OR PURPOSE
AND THE WARRANTY OF MERCHANTABILITY, ARE HEREBY DISCLAIMED BY THE PARTIES AND
EXCLUDED FROM THIS AGREEMENT.
ARTICLE 8
CONFIDENTIALITY
8.1 CONFIDENTIALITY OBLIGATION. Each of AOL and IMGIS (the "Receiving
Party") shall keep, and shall cause their Affiliates to keep, strictly
confidential any information disclosed by the other Party (the "Disclosing
Party") or otherwise made available to the Receiving Party concerning the
Demographic Data to be provided hereunder or either Party's performance of this
Agreement or otherwise concerning
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the business, operations, trade secrets or other proprietary information of the
Disclosing Party (whether in written media or otherwise) ("Confidential
Information"), using at least the same degree of care that it uses to protect
its own confidential or proprietary information. "Confidential Information"
shall not include information: (a) which is or becomes generally available to
the public other than as a result of disclosure thereof by the Receiving Party;
(b) which is lawfully received by the Receiving Party on a nonconfidential basis
from a Third Party that is not itself under any obligation of confidentiality or
nondisclosure to the Disclosing Party or any other Person with respect to such
information; or (c) which is independently developed by the Receiving Party.
8.2 NONDISCLOSURE OF CONFIDENTIAL INFORMATION. The Receiving Party shall
use Confidential Information solely for the purposes of this Agreement and the
transactions contemplated hereby and shall not disclose or disseminate any
Confidential Information to any Person at any time, except for disclosure to its
Affiliates and to those of its own and its Affiliates' directors, officers,
employees, accountants, attorneys, advisers and agents whose duties reasonably
require them to have access to such Confidential Information, provided that such
directors, officers, employees, accountants, attorneys, advisers and agents are
bound to maintain the confidentiality of such Confidential Information to the
same extent as if they were Parties hereto.
8.3 EXCEPTION. The foregoing confidentiality and nondisclosure obligations
shall not apply to Confidential Information which is required to be publicly
disclosed by law or by regulation; provided, however, that, in such event, the
Receiving Party provides the Disclosing Party with prompt advance notice of such
disclosure so that the Disclosing Party has the opportunity if it so desires to
seek a protective order or other appropriate remedy.
8.4 SURVIVAL. The confidentiality and nondisclosure obligations of this
Article 8 shall survive the expiration or termination of this Agreement.
ARTICLE 9
TERM AND TERMINATION
9.1 TERM. This Agreement shall commence as of the date hereof and, unless
otherwise terminated in accordance with Section 9.2 or 9.3 below, shall remain
in full force and effect for the earlier of: (a) three years following the Year
One Start Date; and (b) four years following the date hereof. Thereafter, this
Agreement may be renewed on a year-to-year basis at the option of AOL on the
same terms, except that the Parties shall negotiate mutually acceptable minimum
annual fees to be payable by IMGIS in consideration for Targeted interactive
advertisements served during such renewal period by or on behalf of IMGIS using
the IMGIS AdForce System to AOL Users for whom AOL has Provided Demographic
Data. In the event that AOL desires to exercise this option, AOL shall notify
IMGIS in writing of its desire to renew this Agreement at least 90 days prior to
the end of the initial term of this Agreement or any renewal term thereof.
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9.2 TERMINATION RIGHTS OF EITHER PARTY. Either Party shall have the right
to terminate this Agreement in the event of the breach by the other Party of, or
the failure of the other Party to perform, any of its material obligations
hereunder and the failure to remedy such breach or nonperformance within 60 days
following the receipt of written notice of such breach or nonperformance from
the nonbreaching Party. Such termination shall be immediately effective upon the
receipt by the breaching or nonperforming Party of written notice of termination
from the nonbreaching Party.
9.3 ADDITIONAL TERMINATION RIGHTS OF AOL.
(a) In addition to the right of termination provided in Section 9.2
above, AOL shall have the right to terminate this Agreement, at any time
following the earlier of (i) the first anniversary of the Year One Start
Date and (ii) the second anniversary of the date hereof, in the event that
AOL has received an offer from a Third Party seeking access to Demographic
Data on terms that are, and for financial consideration that is, more
favorable than the terms and financial consideration provided by IMGIS to
AOL in this Agreement and, within ten business days after the receipt from
AOL of notice of such Third Party offer, IMGIS has refused to modify this
Agreement to match the terms and financial consideration of such Third
Party offer or has failed to respond to the AOL notice. Such termination
shall be immediately effective upon the receipt by IMGIS of written notice
of termination from AOL and the receipt by IMGIS of: (i) [*], in
the event that the termination notice is delivered by AOL to IMGIS at any
time during Year Two or, if the second anniversary of the date hereof
occurs earlier than the first anniversary of the Year One Start Date,
during the twelve month period following the second anniversary of the date
hereof; or (ii) [*], in the event that the termination notice is
delivered by AOL to IMGIS at any time during Year Three or, if the second
anniversary of the date hereof occurs earlier than the first anniversary of
the Year One Start Date, during the twelve month period following the third
anniversary of the date hereof.
(b) In addition to the right of termination provided in Section 9.2
above, AOL shall have the right to terminate this Agreement in the event of
a "License Agreement Material Breach" by IMGIS. For purposes of this
Agreement, a "License Agreement Material Breach" means the breach by IMGIS
of, or the failure of IMGIS to perform, any of its material obligations
under the License Agreement, the failure of IMGIS to remedy such breach or
nonperformance within 60 days following the receipt of written notice of
such breach or nonperformance from AOL, and, in the event that such breach
or nonperformance is disputed by the Parties, the final determination of
such breach or nonperformance by a court of competent jurisdiction from
which no further appeal may be taken. Such termination shall be immediately
effective upon the receipt by IMGIS of written notice of termination from
AOL.
9.4 SURVIVAL. All rights granted to and obligations undertaken by the
Parties hereunder shall terminate immediately upon the expiration or termination
of this Agreement except for the following, which shall survive according to
their terms:
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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(a) The obligations of IMGIS under Section 2.1(c);
(b) The obligation of IMGIS to pay to AOL any and all fees and other
payments accrued under Article 4;
(c) The right of AOL to inspect the books and records of IMGIS as
provided in Section 4.9;
(d) The indemnification obligations of Article 5 and the limitation
on liability of Article 6;
(e) The confidentiality and nondisclosure obligations of Article 8;
and
(f) The provisions of Sections 10.2, 10.3, 10.5, 10.14 and 10.15
below.
In addition, expiration or termination of this Agreement shall not affect the
remedies of the Parties otherwise available at law or in equity in relation to
any rights accrued under this Agreement prior to expiration or termination.
ARTICLE 10
MISCELLANEOUS
10.1 RELATIONSHIP OF THE PARTIES. Nothing in this Agreement is intended or
shall be deemed to constitute a partnership, agency or joint venture
relationship between the Parties hereto.
10.2 APPLICABLE LAW. This Agreement shall be governed by the laws of the
Commonwealth of Virginia applicable to contracts made and to be performed
entirely within such jurisdiction and without giving effect to the choice or
conflict of laws rules or principles of the Commonwealth of Virginia or of any
other jurisdiction.
10.3 CONSENT TO JURISDICTION. Each of the Parties irrevocably submits to
the exclusive jurisdiction of the courts of the Commonwealth of Virginia and of
any United States federal court sitting in the Commonwealth of Virginia in any
action or proceeding arising out of or relating to this Agreement, and
irrevocably agrees that all claims in respect of such action or proceeding shall
be heard and determined in any such Virginia or United States federal court.
Each Party further agrees that service of any process, summons, notice or
document by registered mail to the address of such Party set forth in Section
10.5 below shall be effective service of process for any action or proceeding
brought against such Party in any such court. Each Party hereby irrevocably and
unconditionally waives any objection to the laying of venue of any action or
proceeding arising out of or relating to this Agreement in any such court and
further irrevocably and unconditionally waives and agrees not to plead or claim
in any such court that any such action or proceeding brought in any such court
has been brought in any inconvenient forum. Each Party further agrees that a
final, nonappealable judgment in any such action
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or proceeding shall be conclusive and may be enforced in any other jurisdictions
by suit on the judgment or in any other manner provided by law.
10.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and may be executed by facsimile. All counterparts shall
collectively constitute one and the same Agreement.
10.5 NOTICES. In any case where any notice or other communication is
required or permitted to be given hereunder, such notice or communication shall
be in writing and deemed to have been duly given and delivered (a) if delivered
in person, on the date of such delivery, (b) if sent by confirmed facsimile
transmission (with answer back received), on the date of such facsimile
transmission, or (c) if sent by overnight express or registered or certified
mail (with return receipt requested), on the date of receipt of such mail, and
shall be sent to the following address (or such other address as either Party
may designate from time to time in writing):
If to AOL:
America Online, Inc.
22000 AOL Way
Dulles, VA 20166
Telephone: (703) 265 2365
Telefax: (703) 265 1202
Attention: Senior Vice President, Business Affairs
Copy to:
America Online, Inc.
22000 AOL Way
Dulles, VA 20166
Telephone: (703) 265 2120
Telefax: (703) 265 2208
Attention: General Counsel
If to IMGIS:
Imgis, Inc.
10101 N. DeAnza Boulevard
Suite 210
Cupertino, CA 95014
Telephone: (408) 873-3680
Telefax: (408) 873-3690
Attention: Charles W. Berger
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Copy to :
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Telephone: (650) 494-0600
Telefax: (650) 494-1417
Attention: Gordon K. Davidson
10.6 FORCE MAJEURE. If any circumstance beyond the reasonable control of
either Party occurs which delays or renders impossible the performance of that
Party's obligations under this Agreement on the dates herein provided, such
obligation shall be postponed for such time as such performance necessarily has
had to be suspended or delayed on account thereof, provided such Party shall
notify the other Party in writing as soon as practicable, but in no event more
than ten days after the occurrence of such force majeure. In such event, the
Parties shall meet promptly to determine an equitable solution to the effects of
any such event, provided that such Party who fails because of force majeure to
perform its obligations hereunder shall upon the cessation of the force majeure
take all reasonable steps within its power to resume with the least possible
delay compliance with its obligations. Events of force majeure shall include,
without limitation, war, revolution, invasion, insurrection, riots, mob
violence, sabotage or other civil disorders, acts of God, limitations imposed by
exchange control regulations or foreign investment regulations or similar
regulations, laws, regulations or rules of any government or governmental
agency, and any inordinate and unanticipated delays in the regulatory review or
governmental approval process that are within the control of such government or
governmental agency.
10.7 BINDING EFFECT; ASSIGNMENT. This Agreement may not be assigned, in
whole or in part, by either Party without the prior written consent of the other
Party, and any attempted assignment without such consent shall be null and void.
An assignment of this Agreement requiring the consent of the other Party shall
include, without limitation: (i) the acquisition by a Third Party of more than
fifty percent (50%) of the voting power of the assigning Party; (ii) the
acquisition by a Third Party of all or substantially all of the assets of the
assigning Party; and (iii) the consummation of a merger, consolidation or
similar corporate transaction of the assigning Party with or into a Third Party
where the voting securities of the assigning Party outstanding immediately prior
to consummation of such transaction are converted into cash or securities
possessing less than fifty percent (50%) of the voting power of the surviving
entity; provided, however, that such consent shall not be unreasonably withheld
and provided, further, that IMGIS agrees, by way of example, that, if AOL is the
other Party whose consent is being sought, it shall not be unreasonable for AOL
to withhold its consent if the Third Party is a competitor of AOL (e.g., if the
Third Party engages in a business that competes with the AOL Network) or if the
Third Party is engaged in the business of pornography or any other business of
questionable morality. Any assignment by IMGIS in violation of this Section 10.7
shall constitute a breach by IMGIS of a material obligation hereunder for which
AOL shall have the right, notwithstanding the provisions of Section 9.2 above,
to immediately terminate this Agreement without allowance of any period to
remedy such breach, such termination
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to be immediately effective upon the receipt by IMGIS of written notice of
termination from AOL; provided, however, that in the event that any such
assignment occurs as the result of the consummation of a merger, consolidation
or similar corporate transaction as described in subpart (iii) above, then AOL's
sole remedy in such event shall be such right of termination. This Agreement
shall inure to the benefit of and be binding upon each of the Parties hereto and
their respective successors and permitted assigns.
10.8 ENTIRE AGREEMENT. The terms and conditions herein contained constitute
the entire agreement between the Parties relating to the subject matter of this
Agreement and shall supersede all previous communications between the Parties
with respect to the subject matter of this Agreement, except for the Letter
Agreement between the Parties dated as of April 14, 1998 and the Confidential
Non-Disclosure Agreement between the Parties dated as of April 15, 1998, each of
which shall survive according to their terms. Neither Party has entered into
this Agreement in reliance upon any representation, warranty, covenant or
undertaking of the other Party that is not set out or referred to in this
Agreement.
10.9 RECITALS, SCHEDULES AND EXHIBIT. The recitals set forth at the start
of this Agreement along with the Schedule attached, and the Schedule and Exhibit
to be attached, to this Agreement and the terms and conditions incorporated in
such recitals, Schedules and Exhibit shall be deemed integral parts of this
Agreement, and all references in this Agreement to this Agreement shall
encompass such recitals, Schedules and Exhibit and the terms and conditions
incorporated in such recitals, Schedules and Exhibit.
10.10 AMENDMENT. This Agreement may be varied, amended or extended only by
the written agreement of the Parties through their duly authorized officers or
representatives, specifically referring to this Agreement.
10.11 SEVERABILITY. In the event that any provision of this Agreement is
held to be illegal, invalid or unenforceable in a final, unappealable order or
judgment (each such provision, an "invalid provision"), then such provision
shall be severed from this Agreement and shall be inoperative, and the Parties
promptly shall negotiate in good faith a lawful, valid and enforceable provision
that is as similar to the invalid provision as may be possible, while the
remaining provisions of this Agreement shall remain binding on the Parties
hereto.
10.12 HEADINGS. The descriptive headings of the several articles and
sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
10.13 NO WAIVER OF RIGHTS. No failure or delay on the part of either Party
in the exercise of any power or right hereunder shall operate as a waiver
thereof. No single or partial exercise of any right or power hereunder shall
operate as a waiver of such right or of any other right or power. The waiver by
either Party of a breach of any provision of this Agreement shall not operate or
be construed as a waiver of any other or subsequent breach hereunder.
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10.14 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. All rights and remedies
granted to either Party under this Agreement are cumulative and in addition to,
and not in lieu of, any other rights or remedies otherwise available to such
Party at law or in equity. The Parties agree that any breach by either Party of,
or failure of either Party to perform, any obligation under this Agreement shall
constitute immediate and irreparable damage to the other Party which cannot be
fully and adequately compensated in money damages and that, in the event of such
breach or failure, the other Party shall be entitled to injunctive relief and
specific performance in addition to any other remedies to which it may be
entitled at law or in equity.
10.15 CONFIDENTIALITY OF AGREEMENT. Each Party shall maintain the
confidentiality of this Agreement and all provisions of this Agreement and,
without the prior consent of the other Party, neither Party shall make any press
release or other public announcement of or otherwise disclose this Agreement or
any of its provisions to any Third Party (a) other than to its Affiliates and to
its own and its Affiliates' directors, officers, employees, attorneys and
accountants, and to the lead underwriter engaged by IMGIS in connection with any
offering of securities of IMGIS, whose duties reasonably require familiarity
with this Agreement, provided that such Persons (including any such lead
underwriter) are bound to maintain the confidentiality of this Agreement, and
(b) except for such disclosure as may be required by applicable law or
regulation, in which case the disclosing Party shall provide the other Party
with prompt advance notice of such disclosure so that the other Party has the
opportunity if it so desires to seek a protective order or other appropriate
remedy; provided that, in connection with any offering of securities of IMGIS,
IMGIS shall provide in advance to AOL for review the form and content of any
disclosure of this Agreement or any of its provisions that may be required by
applicable law or regulation and, to the extent consistent with its disclosure
obligations under applicable law, include such modifications to such disclosure
as may be reasonably requested by AOL (except that IMGIS may file this Agreement
as an exhibit to its registration statement if it would constitute a "material
agreement" under applicable law or regulation and IMGIS shall use its reasonable
best efforts to obtain confidential treatment of the portions of this Agreement
that meet the SEC qualifications for confidential treatment if so requested by
AOL). The confidentiality obligations of this Section 10.15 would apply, inter
alia, to any disclosure by IMGIS of this Agreement or of any provisions of this
Agreement to any customer or potential customer of IMGIS and any such disclosure
would constitute a breach of this Section 10.15. The Parties agree that any
breach of the provisions of this Section 10.15 by either Party, including,
without limitation, by any directors, officers or employees of such Party, would
constitute a breach by such Party of a material obligation hereunder for which
the other Party shall have the right, notwithstanding the provisions of Section
9.2 above, to immediately terminate this Agreement without allowance of any
period to remedy such breach, such termination to be immediately effective upon
the receipt by the breaching Party of written notice of termination from the
nonbreaching Party.
10.16 USAGE. Wherever any provision of this Agreement uses the term
"including" (or "includes"), such term shall be deemed to mean "including
without limitation" and "including but not limited to" (or "includes without
limitation"
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and "includes but is not limited to") regardless of whether the words "without
limitation" or "but not limited to" actually follow the term "including" (or
"includes").
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
AMERICA ONLINE, INC.
By: /s/ David M. Colburn
---------------------------------
David M. Colburn
Senior Vice President, Business Affairs
IMGIS, INC.
By: /s/ Charles W. Berger
---------------------------------
Charles W. Berger
Chairman and Chief Executive Officer
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SCHEDULE 1.13
IMGIS COMPETITORS
DoubleClick
NetGravity
AdFinity
Accipiter
Engage
AdSmart
FlyCast
MatchLogic
24/7
Zulu Technology
IPro
NetPerceptions
AdKnowledge
RealMedia
Yahoo
Excite
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SCHEDULE 3.1
SPECIFIC INTERACTIVE SITES AND SPECIFIC ADVERTISERS
[To be Provided by AOL on or Prior to the
Commencement Date]
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EXHIBIT
IMPLEMENTATION SCHEDULE
[To be attached on the Commencement Date]
<PAGE>
EXHIBIT 10.29
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
CONFIDENTIAL
LICENSE AGREEMENT
By and Between
AMERICA ONLINE, INC.
and
IMGIS, INC.
Dated as of July 15, 1998
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
ARTICLE 1 DEFINITIONS .................................................. 1
1.1 "Ad Serving Services" .................................. 1
1.2 "Affiliate" ............................................ 1
1.3 "AOL Affiliate" ........................................ 1
1.4 "AOL Brand Service" .................................... 2
1.5 "AOL Network" .......................................... 2
1.6 "AOL Partner" .......................................... 2
1.7 "Covered AOL Partner Site" ............................. 2
1.8 "Data Agreement Material Breach"........................ 2
1.9 "Demographic Data" ..................................... 2
1.10 "Demographic Data Agreement"............................ 2
1.11 "Deployment Date" ...................................... 2
1.12 "Development Services".................................. 2
1.13 "Fully Burdened Costs".................................. 3
1.14 "IMGIS AdForce System".................................. 3
1.15 "IMGIS Customer" ....................................... 4
1.16 "Implementation Date" .................................. 4
1.17 "Improvement" .......................................... 4
1.18 "Losses" ............................................... 4
1.19 "Materially Limit or Prohibit".......................... 4
1.20 "Party" ................................................ 4
1.21 "Permitted Purposes" ................................... 4
1.22 "Person" ............................................... 4
1.23 "Personnel" ............................................ 4
1.24 "Services" ............................................. 4
1.25 "Software" ............................................. 4
1.26 "Technical Support Services"............................ 5
1.27 "Technology" ........................................... 5
1.28 "Third Party" .......................................... 5
1.29 "Work Products" ........................................ 5
ARTICLE 2 GRANT OF LICENSE............................................... 5
2.1 License Grant........................................... 5
2.2 Exercise of Rights...................................... 6
2.3 Use of Personnel........................................ 6
</TABLE>
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<TABLE>
<S> <C>
ARTICLE 3 DELIVERY....................................................... 7
3.1 Initial Delivery........................................ 7
3.2 Delivery of Improvements and Other Technology........... 7
ARTICLE 4 TECHNICAL SUPPORT SERVICES..................................... 8
4.1 Scope of Services....................................... 8
4.2 Fees for Technical Services Support..................... 8
4.3 Warranty................................................ 9
ARTICLE 5 DEVELOPMENT SERVICES........................................... 10
5.1 Scope of Services....................................... 10
5.2 Fees for Development Services........................... 10
5.3 Original Work........................................... 10
5.4 Work for Hire........................................... 11
5.5 Change Management Process............................... 11
ARTICLE 6 AD SERVING SERVICES............................................ 12
6.1 Scope of Services....................................... 12
6.2 Fees for Ad Serving Services............................ 12
6.3 Provision of Services to Other Sites of AOL Partners.... 13
6.4 Reimbursement for Ad Serving Services................... 13
ARTICLE 7 AOL MARKETING EFFORTS.......................................... 13
7.1 AOL Marketing Efforts................................... 13
7.2 Commissions............................................. 14
7.3 Commission Sharing...................................... 14
ARTICLE 8 SALE OF ADVERTISEMENTS ON BEHALF OF
IMGIS' CUSTOMERS............................................... 14
8.1 Obligations of IMGIS.................................... 14
8.2 Assignment of Rights to AOL............................. 15
8.3 Revenue Sharing and Other Consideration................. 15
ARTICLE 9 PAYMENT PROVISIONS............................................. 15
9.1 Payment Procedures...................................... 15
9.2 Late Payment............................................ 16
9.3 Application of Payments................................. 16
</TABLE>
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<TABLE>
<S> <C>
9.4 Taxes................................................... 16
9.5 Books and Records....................................... 17
ARTICLE 10 REPRESENTATIONS AND WARRANTIES................................. 17
10.1 Mutual Representations and Warranties................... 17
10.2 Additional Representations and Warranties of IMGIS...... 18
10.3 No Other Warranties..................................... 19
ARTICLE 11 INDEMNIFICATION................................................ 19
11.1 Indemnity............................................... 19
11.2 Procedure............................................... 19
11.3 Abatement of Infringement............................... 20
ARTICLE 12 LIMITATION ON LIABILITY........................................ 20
ARTICLE 13 CONFIDENTIALITY................................................ 20
13.1 Confidentiality Obligation.............................. 20
13.2 Nondisclosure of Confidential Information............... 21
13.3 Exception .............................................. 21
13.4 Survival ............................................... 21
13.5 Source Code Protection.................................. 21
13.6 Other Business Activities............................... 22
ARTICLE 14 TERM AND TERMINATION........................................... 22
14.1 Term ................................................... 22
14.2 Termination............................................. 22
14.3 Effect of Termination................................... 23
14.4 Return of Confidential Information...................... 24
14.5 Survival................................................ 24
ARTICLE 15 MISCELLANEOUS.................................................. 25
15.1 Electronic Repossession ................................ 25
15.2 Periodic Discussions ................................ 25
15.3 Mutual Non-Solicitation ................................ 25
15.4 Failure to Assert Rights in Bankruptcy.................. 25
15.5 Further Assurances...................................... 25
15.6 Relationship of the Parties ............................ 26
15.7 Applicable Law ......................................... 26
15.8 Consent to Jurisdiction ................................ 26
15.9 Counterparts ........................................... 26
</TABLE>
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<TABLE>
<S> <C>
15.10 Notices ................................................ 26
15.11 Force Majeure .......................................... 27
15.12 Binding Effect; Assignment.............................. 28
15.13 Entire Agreement........................................ 28
15.14 Recitals ............................................... 28
15.15 Amendment .............................................. 28
15.16 Severability ........................................... 29
15.17 Headings ............................................... 29
15.18 No Waiver of Rights..................................... 29
15.19 Remedies Cumulative; Specific Performance............... 29
15.20 Confidentiality of Agreement............................ 29
15.21 Usage .................................................. 30
</TABLE>
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CONFIDENTIAL
LICENSE AGREEMENT
This LICENSE AGREEMENT (the "Agreement") is entered into as of July __,
1998 by and between AMERICA ONLINE, INC., a Delaware corporation having its
principal office at 22000 AOL Way, Dulles, Virginia 20166 ("AOL"), and IMGIS,
INC., a California corporation having its principal office at 10101 N. DeAnza
Boulevard, Suite 210, Cupertino, California 95014 ("IMGIS").
WITNESSETH:
WHEREAS, AOL desires to obtain, and IMGIS is willing to grant to AOL, a
worldwide, perpetual and nonexclusive license to use, and to serve interactive
advertisements using, IMGIS' ad serving, trafficking, targeting and related
technology on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing, of the mutual covenants
and undertakings contained herein and of other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Parties,
intending to be legally bound, hereby agree as follows:
ARTICLE 1
DEFINITIONS
In addition to other terms defined elsewhere herein, the following terms
will have the following meanings when used herein (any term defined in the
singular will have the same meaning when used in the plural and vice versa,
unless stated otherwise):
1.1 "AD SERVING SERVICES" has the meaning set forth in Section 6.1 below.
1.2 "AFFILIATE" of any specified Person means any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with the specified Person.
1.3 "AOL AFFILIATE" means: (a) any Affiliate of AOL, where the term
"control" for purposes of Section 1.2 means the direct or indirect ownership or
control by AOL of twenty-five percent (25%) or more of the stock or other equity
interests of such Person entitled to vote for the election of members of the
Board of Directors or similar governing body of such Person; provided, however,
that such Person shall cease to be an AOL Affiliate if and when such equity
interest becomes less than twenty-five percent (25%) for any reason other than
as a result of dilution, and provided, further, that if such equity interest
becomes less than twenty-five percent (25%) as a result of dilution, such Person
shall cease to be an AOL Affiliate if and when such percentage equity interest
is further
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CONFIDENTIAL
reduced for any reason other than as a result of dilution; and (b) AOL
Bertelsmann Online France S.N.C.
1.4 "AOL BRAND SERVICE" means the America Online brand online and
information service, including future modifications to, implementations of,
successors of, and international versions of such service.
1.5 "AOL NETWORK" means: (a) the AOL Brand Service; (b) any other product
or service owned or operated by AOL or any AOL Affiliate (including, without
limitation, the Compuserve brand online and information service, AOL.com, and
any "offline" information browsing products of AOL or AOL Affiliates), excluding
mere links to Third Party products or services that are accessible through
distribution channels other than the AOL Brand Service and excluding any
products consisting of the Technology, or any repackaged or reengineered version
of the Technology, that are distributed commercially to Third Parties other than
AOL Affiliates; and (c) any other product or service distributed under the brand
name of AOL or any AOL Affiliate other than under a mere trademark license of
such brand name, provided that AOL or such AOL Affiliate contributes not
insubstantially to the creation or development of such product or service.
1.6 "AOL PARTNER" means any Person with which AOL or an AOL Affiliate has a
joint venture, partnership or other contractual relationship for the purposes of
commerce, advertising, online access, or the provision by such Person of content
or information for the AOL Network.
1.7 "COVERED AOL PARTNER SITE" means the interactive site of an AOL Partner
provided that: (a) such site is marketed or promoted, and intended to be
accessible, to AOL members only; and (b) AOL or an AOL Affiliate has the right
to serve and to sell the advertising inventory for such site.
1.8 "DATA AGREEMENT MATERIAL BREACH" has the meaning set forth in Section
14.2.2 below.
1.9 "DEMOGRAPHIC DATA" has the meaning set forth in the Demographic Data
Agreement.
1.10 "DEMOGRAPHIC DATA AGREEMENT" means the Demographic Data Agreement
between AOL and IMGIS being executed simultaneously with the execution of this
Agreement.
1.11 "DEPLOYMENT DATE" has the meaning set forth in Section 3.2 below.
1.12 "DEVELOPMENT SERVICES" has the meaning set forth in Section 5.1 below.
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1.13 "FULLY BURDENED COSTS" of IMGIS Personnel in the provision of Services
hereunder means, for each IMGIS Personnel providing any Services to AOL, an
amount equal to the sum of the following:
(a) (i) If such Personnel is an employee of IMGIS, the wages and
benefits payable by IMGIS to such employee multiplied by the
percentage of time spent by such employee in the provision of
such Services to AOL relative to the total amount of time spent
by such employee in his or her employment with IMGIS, as measured
on a daily basis and charged on an hourly basis, which amount
shall in no event exceed $100 per hour, or
(ii) if such Personnel is an independent contractor of IMGIS, the
fees (excluding out-of-pocket expenses paid to such contractor)
payable to such contractor by IMGIS multiplied by the percentage
of time spent by such contractor in the provision of such
Services to AOL relative to the total amount of time spent by
such contractor in the provision of services to IMGIS, as
measured on a daily basis and charged on an hourly basis, which
amount shall in no event exceed $100 per hour; plus
(b) IMGIS' direct out-of-pocket costs in the provision by such
Personnel of such Services to AOL but only to the extent that AOL
is not otherwise obligated hereunder to provide reimbursement to
IMGIS for such direct costs; plus
(c) An amount (representing a reasonable allocation of overhead
expenses) equal to ten percent (10%) of the direct out-of-pocket
costs provided for in subpart (b) above.
Out-of-pocket costs and expenses, for purposes of this definition, means travel,
lodging and other non-compensatory costs or expenses. The $100 per hour maximum
amount referred to in subparts (a)(i) and (a)(ii) above shall be adjusted by
mutual agreement of the Parties three years following the date hereof to reflect
any applicable increase or decrease in the cost of living.
1.14 "IMGIS ADFORCE SYSTEM" means any software owned and/or used by, and/or
licensed to, IMGIS that enables operators of interactive sites and interactive
advertisers to schedule, monitor, serve, traffic and/or target interactive
advertising, including the system used by IMGIS to provide services under the
AdForce service mark and any related or successor system (including, without
limitation, IMGIS' proposed system known as AdForce+ and IMGIS' proposed
"hybrid" system based on the StarPoint Ad System).
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1.15 "IMGIS CUSTOMER" means a Third Party that has contracted with IMGIS
for the serving and/or management of interactive advertisements using the IMGIS
AdForce System.
1.16 "IMPLEMENTATION DATE" means the date following the Commencement Date
(as such term is defined in the Demographic Data Agreement) as of which AOL
first Provides Demographic Data (as defined in the Demographic Data Agreement)
to IMGIS.
1.17 "IMPROVEMENT" means any modification, customization, upgrade, update,
enhancement, patch, "bug" fix or other improvement to the Technology.
1.18 "LOSSES" means losses, liabilities, suits, claims, costs, expenses
(including reasonable attorneys' fees), penalties, fines, judgments and/or
damages (including personal injury or property damages, but excluding indirect,
incidental, special or consequential damages suffered by the indemnified Party).
1.19 "MATERIALLY LIMIT OR PROHIBIT" has the meaning set forth in the
Demographic Data Agreement. In addition, for purposes of this Agreement, AOL
shall be deemed to "Materially Limit or Prohibit" the use by IMGIS of
Demographic Data: (a) six months following the expiration of the term (including
any renewal term) of the Demographic Data Agreement; or (b) six months following
the termination of the Demographic Data Agreement (other than as a result of
breach or nonperformance by AOL) provided that, if the event giving rise to such
termination is disputed by the Parties, there has been a final determination of
such termination event by a court of competent jurisdiction (excluding any
determination in connection with the granting of equitable relief).
1.20 "PARTY" means AOL or IMGIS, and "PARTIES" means AOL and IMGIS.
1.21 "PERMITTED PURPOSES" means to serve, traffic and/or target
advertisements or other information or materials, and to perform such other
functions as the Technology (including any Improvements) is capable of, for
AOL's own internal purposes or for or on behalf of any of the following networks
or sites, to users of such networks or sites: (a) the AOL Network; (b) the
interactive sites of AOL Affiliates; or (c) the Covered AOL Partner Sites.
1.22 "PERSON" means a natural person, a corporation, a partnership, a
trust, a joint venture, any governmental authority, or any other entity or
organization.
1.23 "PERSONNEL" means employees and/or independent contractors.
1.24 "SERVICES" means any services provided by IMGIS pursuant to this
Agreement, including Ad Serving Services, Development Services and Technical
Support Services.
1.25 "SOFTWARE" means software included in the Technology.
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CONFIDENTIAL
1.26 "TECHNICAL SUPPORT SERVICES" has the meaning set forth in Section 4.1
below.
1.27 "TECHNOLOGY" means all software (in both source code and object code
form), inventions, discoveries, designs, tools, know-how and other technology,
including any Improvements thereto, now or hereafter developed, owned and/or
used by, and/or licensed to, IMGIS or any of its Affiliates relating to the
serving, trafficking and/or targeting of advertisements or other information or
materials (including all software, inventions, discoveries, designs, tools,
know-how and other technology comprising or used in connection with the IMGIS
AdForce System and all Third Party software and other Third Party technology
integrated in or necessary for the successful operation of such technology
(except for commercially available Third Party software that has not been
modified to meet IMGIS' needs, where IMGIS does not have the right to provide
such software to AOL)), and all documentation for such technology. Without
limiting the generality of the foregoing, in no event shall "Technology" include
(a) demographic data owned by or licensed to IMGIS from any Third Parties or (b)
Third Party software that is not integrated in or necessary for the successful
operation of such technology which is developed by IMGIS as a "work made for
hire" for a Third Party that is not an Affiliate of IMGIS. For purposes of the
foregoing definition, an "Affiliate" of IMGIS means any Affiliate of IMGIS where
the term "control" means the direct or indirect ownership or control by IMGIS of
twenty-five percent (25%) or more of the stock or other equity interests of such
Person entitled to vote for the election of members of the Board of Directors or
similar governing body of such Person.
1.28 "THIRD PARTY" means any Person that is not a Party to this Agreement.
1.29 "WORK PRODUCTS" means any Improvements, designs, drawings,
specifications, documentation, computer software, reports, training materials,
inventions, discoveries and other items made by or on behalf of IMGIS in
connection with the provision of Development Services.
ARTICLE 2
GRANT OF LICENSE
2.1 LICENSE GRANT.
(a) Subject to the terms and conditions hereof, IMGIS hereby grants to
AOL a perpetual, worldwide, nonexclusive, nontransferable (except as set forth
in Section 15.12 below), royalty-free license under all of IMGIS' patent,
copyright, trade secret and other proprietary rights to use, reproduce, adapt,
transmit, perform, display and otherwise practice the Technology or any part
thereof, other than commercially available Third Party software that IMGIS has
the right to provide to AOL only upon payment of a fee to the Third Party,
solely for the Permitted Purposes and to sublicense such rights to AOL
Affiliates solely for the Permitted Purposes.
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(b) If any Technology consists of commercially available Third Party
software that IMGIS has the right to provide to AOL only upon payment of a fee
to the Third Party, AOL may, by written notice to IMGIS and payment of such fee,
require IMGIS to grant to AOL a perpetual, worldwide, nonexclusive,
nontransferable (except as set forth in Section 15.12 below), royalty-free
(except for such fee) license under all applicable patent, copyright, trade
secret and other proprietary rights to use, reproduce, adapt, transmit, perform,
display and otherwise practice such Technology or any part thereof solely for
the Permitted Purposes and to sublicense such rights to AOL Affiliates solely
for the Permitted Purposes (but only to the extent of IMGIS' rights in such
Technology).
(c) In the event that AOL grants a sublicense to an AOL Affiliate
under any of the licenses granted in Section 2.1(a) or (b) above, AOL shall
enter into a sublicense agreement with such AOL Affiliate in a form to be
approved by IMGIS, which approval shall not be unreasonably withheld, and
included in such sublicense shall be the agreement of such AOL Affiliate to be
bound by the terms of this Agreement. AOL shall notify IMGIS of the grant of any
sublicense to an AOL Affiliate.
(d) AOL shall not disclose or transfer the source code for any
Software included in the Technology to any AOL Affiliate that is not a
wholly-owned subsidiary of AOL. If IMGIS includes trademark or other proprietary
rights notices on copies of the Technology delivered to AOL, AOL shall reproduce
such notices on copies of the Technology made by AOL.
(e) The Parties agree that neither the licenses granted in this
Section 2.1 nor any other provisions of this Agreement impose or shall be
construed to impose any obligation upon AOL to use or otherwise practice the
Technology. IMGIS agrees that it shall not bring any action in law or equity, or
any other judicial or nonjudicial proceeding, against AOL asserting that the use
by AOL of any patent rights claiming the Technology that are now or hereafter
owned by or licensed to IMGIS or any other Technology infringes or otherwise
violates any patent, copyright, trade secret or other proprietary rights of
IMGIS.
2.2 EXERCISE OF RIGHTS. AOL may exercise its rights in and to the
Technology at any location, on any hardware, and with respect to all, none or
any portion or combination of the Technology. Nothing in this Agreement shall
obligate AOL to use the Technology or to use a designated server or site in
connection with such Technology.
2.3 USE OF PERSONNEL. AOL may exercise its rights hereunder through
Personnel who are obligated by written agreement to maintain the Technology in
confidence and restrict their use of the Technology pursuant to terms comparable
to those set forth in Article 13.
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ARTICLE 3
DELIVERY
3.1 INITIAL DELIVERY. Within 45 days after the date hereof, IMGIS shall
deliver to AOL: (a) one machine-readable copy of the object code for the
Software; (b) one copy of available technical and user documentation for the
Technology in printed and machine-readable format as available; and (c) one
machine-readable copy of the source code for the Software. Such delivery shall
be transmitted electronically or by any other means agreed upon by IMGIS and
AOL.
3.2 DELIVERY OF IMPROVEMENTS AND OTHER TECHNOLOGY.
(a) IMGIS shall use commercially reasonable efforts regularly to
develop Improvements to adapt the Technology to changes in related technologies
and in market and user requirements and to remain competitive with alternative
technologies for the serving, trafficking and/or targeting of advertisements or
other information or materials.
(b) At such times as reasonably requested by AOL, IMGIS shall provide
AOL with any Improvements made by or on behalf of IMGIS and any other Technology
requested by AOL that is existing and not then in the possession of AOL. In
addition, commencing no later than 45 days after such time that AOL determines
to deploy the Technology in whole or in part (the "Deployment Date"), IMGIS
shall provide to AOL on a quarterly basis the then current version of the source
code for the Software and shall provide to AOL any and all Improvements,
including upgrades, updates, enhancements, patches and "bug" fixes, prior to or
concurrently with their installation or release, by any means requested by AOL
(including electronically), along with the applicable documentation related to
such Improvement.
(c) IMGIS shall provide all Improvements and other Technology, other
than Improvements provided in the provision of Development Services, to AOL
without any additional charge or fee provided that, in the case of any
Improvement, AOL is in compliance with all of its material obligations under the
Demographic Data Agreement and does not Materially Limit or Prohibit the use by
IMGIS of Demographic Data at the time such Improvement is developed. If AOL
ceases to be in compliance with all of its material obligations under the
Demographic Data Agreement or Materially Limits or Prohibits the use by IMGIS of
Demographic Data, and AOL desires to continue receiving Improvements from IMGIS,
then AOL shall pay to IMGIS on an annual basis a reasonable update fee to be
agreed upon by the Parties for all Improvements developed for so long as AOL is
not in compliance with all of its material obligations under the Demographic
Data Agreement or Materially Limits or Prohibits the use by IMGIS of Demographic
Data; provided that such fee shall not exceed (i) IMGIS' customary update fees
for such Improvements in arm's length transactions with its licensees, if IMGIS
then licenses the Technology to Third Parties, or (ii) update fees charged by
other licensors of comparable systems for serving, trafficking and/or targeting
of advertisements or other information or materials, but not less
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CONFIDENTIAL
than IMGIS' cost of providing such Improvements, if IMGIS does not then license
the Technology to Third Parties.
(d) At AOL's request, IMGIS shall identify to AOL, and provide AOL
reasonable information and assistance in furtherance of AOL's efforts to
acquire, at AOL's own expense, commercially available Third Party software
licensed to IMGIS for use in connection with the Technology and not sublicensed
to AOL under Section 2.1(a) or (b) above.
ARTICLE 4
TECHNICAL SUPPORT SERVICES
4.1 SCOPE OF SERVICES.
(a) During the term of this Agreement, IMGIS shall provide to AOL, at
AOL's written request, reasonable technical training, support, documentation and
assistance relating to the interactive content (including interactive
advertisement) serving, trafficking, targeting and related functions of the
Technology (collectively, "Technical Support Services"). The Technical Support
Services shall, at a minimum, enable AOL, without the aid of IMGIS or any other
Person, to develop, enhance and maintain the Technology (including the source
code for the Software) for use by AOL to the same extent as IMGIS.
(b) Commencing no later than 45 days after the Deployment Date, the
Technical Support Services shall include, without limitation: (i) the regular
provision by IMGIS of qualified Personnel able to resolve problems in the
operation of the Technology on-site at AOL's data centers in the greater
Washington metropolitan area; and (ii) the provision by IMGIS of telephone
access 24 hours a day, seven days a week, to qualified Personnel able to resolve
problems in the operation of the Technology, via a designated telephone support
number.
4.2 FEES FOR TECHNICAL SERVICES SUPPORT.
(a) Provided that, at the time any Technical Support Services are
requested by AOL or are to be performed by IMGIS, AOL is in compliance with all
of its material obligations under the Demographic Data Agreement and does not
Materially Limit or Prohibit the use by IMGIS of Demographic Data, IMGIS shall
provide the Technical Support Services requested by AOL for no additional
consideration other than reimbursement of the Fully Burdened Costs of the
provision by IMGIS Personnel of such Technical Support Services.
(b) If, at the time any Technical Support Services are requested by
AOL or are to be performed by IMGIS: (i) the Implementation Date has not yet
occurred under the Demographic Data Agreement and no more than twelve months
have passed since the
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execution of the Demographic Data Agreement, then AOL shall pay to IMGIS the
Fully Burdened Costs of the provision by IMGIS Personnel of such Technical
Support Services plus [*] of such costs; or (ii) the Implementation Date has
not yet occurred under the Demographic Data Agreement and more than twelve
months have passed since the execution of the Demographic Data Agreement,
then AOL shall pay to IMGIS the Fully Burdened Costs of the provision by
IMGIS Personnel of such Technical Support Services plus [*] of such costs.
(c) If, following the occurrence of the Implementation Date, at the
time any Technical Support Services are requested by AOL or are to be performed
by IMGIS, AOL is not in compliance with all of its material obligations under
the Demographic Data Agreement or Materially Limits or Prohibits the use by
IMGIS of Demographic Data, then AOL shall pay to IMGIS the Fully Burdened Costs
of the provision by IMGIS Personnel of such Technical Support Services plus
[*].
4.3 WARRANTY. In the event that the Technology fails to conform to or
perform in accordance with the technical or user documentation provided by IMGIS
(other than as a result of operator error, accident, or misuse or alteration of
the Technology by a Person not under IMGIS' direction or control) or in the
event of a breach of the warranties set forth in Section 10.2(e) or 10.2(f)
below, then IMGIS, at its expense and without any payment by AOL for Technical
Support or other Services, shall use commercially reasonable efforts to cure
such failure or breach as soon as practicable, but in any event:
(a) For a "critical" failure or breach, such as the Technology, or
other software, hardware or other technology with which the
Technology is interfacing or integrating, ceasing to execute a
function that AOL reasonably deems critical to its business,
IMGIS shall provide at least a temporary workaround or fix within
two hours of receiving notice of such failure or breach and shall
cure such failure or breach within three business days of
receiving notice of such failure or breach; and
(b) For any other failure or breach that is not a "critical" problem,
IMGIS shall provide at least a temporary workaround or fix within
three business days of receiving notice of such failure or breach
and shall cure such failure or breach within 15 days after
receiving notice of such failure or breach.
Without limiting the generality of the foregoing, IMGIS agrees, by way of
example, that it shall not be unreasonable for AOL to deem a failure or breach
"critical to its business" as provided in subpart (a) above if such failure or
breach results or would result in the breach or nonperformance by AOL of any
obligation to any advertiser on the AOL Network.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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ARTICLE 5
DEVELOPMENT SERVICES
5.1 SCOPE OF SERVICES. At AOL's written request, IMGIS shall undertake the
reasonable development of Improvements as necessary to customize the interactive
content (including interactive advertisement) serving, trafficking, targeting
and related functions of the Technology to meet AOL's needs, including, without
limitation, developing the functionality to serve the same advertisement to the
top and bottom of a page, scaling search term capabilities, and undertaking such
other work as may be specified by AOL (collectively, "Development Services").
Notwithstanding the foregoing, AOL shall have no obligation to request or to use
Development Services of IMGIS and may undertake similar work itself or through
independent contractors other than IMGIS, subject to the provisions of Section
2.3 above.
5.2 FEES FOR DEVELOPMENT SERVICES.
(a) Provided that, at the time any Development Services are requested
by AOL or are to be performed by IMGIS, AOL is in compliance with all of its
material obligations under the Demographic Data Agreement and does not
Materially Limit or Prohibit the use by IMGIS of Demographic Data, IMGIS shall
provide the Development Services requested by AOL for no additional
consideration other than reimbursement of the Fully Burdened Costs of the
provision by IMGIS Personnel of such Development Services.
(b) If, at the time any Development Services are requested by AOL
or are to be performed by IMGIS: (i) the Implementation Date has not yet
occurred under the Demographic Data Agreement and no more than twelve months
have passed since the execution of the Demographic Data Agreement, then AOL
shall pay to IMGIS the Fully Burdened Costs of the provision by IMGIS
Personnel of such Development Services plus [*] of such costs; or (ii) the
Implementation Date has not yet occurred under the Demographic Data Agreement
and more than twelve months have passed since the execution of the
Demographic Data Agreement, then AOL shall pay to IMGIS the Fully Burdened
Costs of the provision by IMGIS Personnel of such Development Services plus
[*] of such costs.
(c) If, following the occurrence of the Implementation Date, at the
time any Development Services are requested by AOL or are to be performed by
IMGIS, AOL is not in compliance with all of its material obligations under the
Demographic Data Agreement or Materially Limits or Prohibits the use by IMGIS of
Demographic Data, then AOL shall pay to IMGIS the Fully Burdened Costs of the
provision by IMGIS Personnel of such Development Services plus [*] of such
costs.
5.3 ORIGINAL WORK. Any Work Products either shall be the original work of
IMGIS and its Personnel or shall be items licensed by Third Parties that IMGIS
has the right to provide to AOL and that IMGIS identifies as such to AOL in
writing. IMGIS shall
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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not disclose to AOL, or induce AOL to use, the trade secrets or other
confidential information of any Third Parties, except to the extent that the
Technology includes Software licensed from Third Parties which IMGIS has the
right to provide to AOL.
5.4 WORK FOR HIRE.
(a) The Parties intend that each Work Product that is a work of
authorship shall be deemed a "work made for hire" within the meaning of the
copyright laws of the United States and any similar laws of other jurisdictions.
To the extent, if any, that IMGIS or its Personnel have rights in any Work
Product notwithstanding the foregoing, including because a Work Product does not
qualify as a "work made for hire," IMGIS hereby irrevocably assigns to AOL, and
agrees that AOL shall be the sole and exclusive owner of, all right, title and
interest in and to the Work Product, including all patent, copyright, trade
secret and other proprietary rights therein that may be secured in any place
under laws now or hereafter in effect.
(b) To the extent that IMGIS provides Development Services in support
of any modification of the Technology, AOL hereby grants to IMGIS a perpetual,
worldwide, nonexclusive, nontransferable license to use, reproduce, adapt,
transmit, perform and display such modification in connection with the provision
of such Development Services and for no other purpose without AOL's prior
written approval. In the event that IMGIS desires to integrate such modification
in the Technology and obtains AOL's approval thereto, then IMGIS shall reimburse
AOL for any payment made by AOL for such Development Services, or waive such
payment by AOL, in consideration for the grant of such license to IMGIS. IMGIS
may exercise its rights under the foregoing license through Personnel who are
obligated by written agreement to maintain such modification in confidence and
restrict their use of such modification pursuant to terms comparable to those
set forth in Article 13.
(c) IMGIS shall have valid and enforceable written agreements with all
of its Personnel providing Development Services hereunder containing
confidentiality and nondisclosure obligations comparable in scope to those set
forth in Article 13 and giving IMGIS all rights and authority necessary to
effectuate the provisions of this Section 5.4. IMGIS shall provide copies of
these agreements to AOL upon AOL's request.
(d) To the extent that IMGIS delivers to AOL any Improvements,
designs, drawings, specifications, documentation, computer software, reports,
training materials, inventions, discoveries and other items that are not Work
Products, such items shall be deemed included in the Technology and licensed
pursuant to Section 2.1 above.
5.5 CHANGE MANAGEMENT PROCESS. Notwithstanding the foregoing provisions of
this Article 5, in the event that AOL implements a version of the Technology
containing any modification to the source code for the Software that adds a
substantially new feature or function to the version of the Technology used by
IMGIS (in contrast to merely correcting what are colloquially known as "bugs" in
such Software or making any other
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minor modification to an existing feature or function) then: (a) IMGIS shall not
be obligated to provide Development Services or Technical Support Services for
such Improvement; and (b) in the event that AOL does not request, or IMGIS does
not agree to provide, such Services, the Parties shall work together to devise a
change management process to facilitate the technical support and maintenance of
AOL's version of the Technology containing such Improvement.
ARTICLE 6
AD SERVING SERVICES
6.1 SCOPE OF SERVICES. At AOL's discretion and upon AOL's written request
with the provision of reasonable advance notice to IMGIS, IMGIS shall provide to
AOL interactive advertisement serving, trafficking, targeting and related
services (collectively, "Ad Serving Services") for: (a) the AOL Network; (b) the
interactive sites of AOL Affiliates; and (c) the Covered AOL Partner Sites.
6.2 FEES FOR AD SERVING SERVICES.
(a) Provided that, at the time any Ad Serving Services are requested
by AOL or are to be performed by IMGIS, AOL is in compliance with all of its
material obligations under the Demographic Data Agreement and does not
Materially Limit or Prohibit the use by IMGIS of Demographic Data, IMGIS shall
provide the Ad Serving Services requested by AOL for no additional consideration
other than reimbursement of the Fully Burdened Costs of the provision by IMGIS
Personnel of such Ad Serving Services, provided, however, that in the event that
IMGIS agrees to provide any Ad Serving Services to any Third Party that is
similarly situated to AOL at a rate that is more favorable to such Third Party
than the consideration payable by AOL under this subpart (a), then IMGIS shall
provide the Ad Serving Services requested by AOL at such Third Party's rate.
(b) If, at the time any Ad Serving Services are requested by AOL or
are to be performed by IMGIS: (i) the Implementation Date has not yet
occurred under the Demographic Data Agreement and no more than twelve months
have passed since the execution of the Demographic Data Agreement, then AOL
shall pay to IMGIS the Fully Burdened Costs of the provision by IMGIS
Personnel of such Ad Serving Services plus [*] of such costs; or (ii) if the
Implementation Date has not yet occurred under the Demographic Data Agreement
and more than twelve months have passed since the execution of the
Demographic Data Agreement, then AOL shall pay to IMGIS the Fully Burdened
Costs of the provision by IMGIS Personnel of such Ad Serving Services plus [*]
of such costs.
(c) If, following the occurrence of the Implementation Date, at the
time any Ad Serving Services are requested by AOL or are to be performed by
IMGIS, AOL is not in compliance with all of its material obligations under the
Demographic Data
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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Agreement or Materially Limits or Prohibits the use by IMGIS of Demographic
Data, then AOL shall pay to IMGIS the Fully Burdened Costs of the provision by
IMGIS Personnel of such Ad Serving Services plus [*] of such costs.
6.3 PROVISION OF SERVICES TO OTHER SITES OF AOL PARTNERS. In addition to
the foregoing, upon the request of an AOL Partner, IMGIS agrees to provide Ad
Serving Services to the interactive sites of such AOL Partner which are not
Covered AOL Partner Sites on terms and at rates no less favorable than those
offered by IMGIS to any Third Party that is similarly situated to such AOL
Partner in terms of the volume of advertisements to be served by IMGIS for such
Third Party.
6.4 REIMBURSEMENT FOR AD SERVING SERVICES. In addition to the fees for Ad
Serving Services provided for in Section 6.2 above, AOL shall reimburse the
following costs incurred by IMGIS in the provision of Ad Serving Services
requested by AOL for the purposes set forth in Section 6.1 above, and, at AOL's
option, shall provide financing to IMGIS for such costs on mutually agreeable
terms, but in any event on terms no less favorable to IMGIS than such terms as
are commercially available to entities similarly situated to IMGIS:
(a) Reimbursement for IMGIS' incremental costs for any modification
of the IMGIS AdForce System required to meet AOL's needs for the
provision of Ad Serving Services (other than capitalized costs,
which if financed at the time such costs are incurred, shall be
reimbursed at the time such costs are amortized), excluding any
modifications required to scale the Software or other Technology
to meet AOL's needs;
(b) Reimbursement for IMGIS' incremental costs for any additional
equipment that IMGIS must purchase or lease solely to meet AOL's
needs for the provision of Ad Serving Services for so long as
necessary to meet AOL's needs (and, if AOL provides financing for
such equipment, then, at AOL's option, AOL may become the lessor
of such equipment to IMGIS), unless AOL determines, in its sole
discretion, to lease such equipment on its own; and
(c) Reimbursement for any additional incremental bandwidth costs
incurred by IMGIS solely in connection with the provision of Ad
Serving Services to AOL.
ARTICLE 7
AOL MARKETING EFFORTS
7.1 AOL MARKETING EFFORTS. AOL shall use commercially reasonable efforts to
encourage AOL Partners (but AOL shall not be obligated to actively solicit AOL
Partners)
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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to use the IMGIS AdForce System for the serving and management of Internet
advertisements, subject to agreement between IMGIS and such AOL Partners on the
terms and conditions of such use.
7.2 COMMISSIONS. If, as a result of marketing efforts by AOL, an AOL
Partner or any other Person enters into an agreement with IMGIS to utilize the
IMGIS AdForce System, then, provided that, as of the time that IMGIS enters into
such agreement with such AOL Partner or other Person, AOL is in compliance with
all of its material obligations under the Demographic Data Agreement and does
not Materially Limit or Prohibit the use by IMGIS of Demographic Data, IMGIS
shall pay to AOL on a quarterly basis the following commissions on the gross
amount of the consideration charged by IMGIS to such AOL Partner or other Person
for use of the IMGIS AdForce System:
(a) For the first year of such agreement, the greater of [*] and [*];
and
(b) For each succeeding year of such agreement, the greater of [*]
and [*].
7.3 COMMISSION SHARING. Notwithstanding the provisions of Section 7.2
above, if AOL and any employee or agent of IMGIS or any other Third Party claims
commissions with respect to the same Person (and such Person has not entered
into an agreement with IMGIS solely as a result of AOL marketing efforts), IMGIS
shall not be required to pay total commissions to AOL and such Third Party in
excess of the amount specified in Section 7.2 and IMGIS may apportion the
applicable commission specified in Section 7.2 between AOL and the Third Party
in such manner as IMGIS determines in good faith to be equitable.
ARTICLE 8
SALE OF ADVERTISEMENTS ON BEHALF OF IMGIS' CUSTOMERS
8.1 OBLIGATIONS OF IMGIS. IMGIS shall use commercially reasonable efforts
to encourage IMGIS Customers to grant to IMGIS the right to sell interactive
advertisements on their behalf and to obtain the right to assign to AOL the
right to sell such interactive advertisements. Prior to approaching an IMGIS
Customer about obtaining the right to sell interactive advertisements on behalf
of such IMGIS Customer, IMGIS shall discuss with AOL and with no other Person,
within a time period to be agreed upon by the Parties, whether AOL desires to
have IMGIS assign to AOL the right to sell interactive advertisements on behalf
of such IMGIS Customer.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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8.2 ASSIGNMENT OF RIGHTS TO AOL. In the event that IMGIS obtains the right
to sell interactive advertisements on behalf of any IMGIS Customer and AOL
agrees to have IMGIS assign such right to AOL, IMGIS shall grant to AOL, and AOL
shall obtain, the exclusive right (as to IMGIS and Persons deriving rights
through IMGIS) to sell interactive advertisements on behalf of such IMGIS
Customer to the same extent that IMGIS is entitled to sell such interactive
advertisements; provided, however, that (a) such right to sell interactive
advertisements shall convert to a nonexclusive right if AOL fails to meet
reasonable performance milestones for advertisement sales to be mutually agreed
upon by the Parties within 30 days after the date of IMGIS' assignment to AOL of
its right to sell interactive advertisements on behalf of such IMGIS Customer
and (b) such right shall revert to IMGIS in its entirety in the event that, and
for so long as, AOL ceases to be in compliance with all of its material
obligations under the Demographic Data Agreement or Materially Limits or
Prohibits the use by IMGIS of Demographic Data.
8.3 REVENUE SHARING AND OTHER CONSIDERATION. AOL shall pay to IMGIS, on a
quarterly basis, [*] of all revenues received by AOL from the
sale of interactive advertisements on behalf of an IMGIS Customer, net of
selling commissions, expenses related to sales, and amounts payable to operators
of the relevant interactive sites. As consideration for the satisfaction by AOL
of additional performance milestones for advertisement sales to be mutually
agreed upon by the Parties within 30 days after the date of IMGIS' assignment to
AOL of its right to sell interactive advertisements on behalf of such IMGIS
Customer, IMGIS and AOL shall agree to either (i) a reduction in the percentage
of revenues payable by AOL from the sale of interactive advertisements on behalf
of such IMGIS Customer or (ii) the issuance to AOL of warrants to purchase
IMGIS' common stock (in addition to those being issued to AOL simultaneously
with the execution of this Agreement), provided that IMGIS has conducted an
initial public offering of its common stock as of the time of such issuance.
ARTICLE 9
PAYMENT PROVISIONS
9.1 PAYMENT PROCEDURES.
(a) Unless otherwise agreed to in writing by the Parties, all payments
due by AOL for the provision of Services by IMGIS hereunder shall be due and
payable 30 days after the receipt by AOL of a proper invoice therefor from
IMGIS, which invoice shall include such detail and supporting documentation as
AOL may reasonably request.
(b) Unless otherwise agreed to in writing by the Parties: (i) all
payments due by IMGIS under Article 7 in connection with IMGIS' entrance into an
agreement for use of the IMGIS AdForce System with an AOL Partner or other
Person as a result of AOL marketing efforts shall be paid to AOL within 60 days
after the end of the calendar quarter during which such agreement is entered
into and within 60 days after the end of each succeeding calendar quarter
thereafter; and (ii) all payments due by AOL
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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under Article 8 in connection with the sale of interactive advertisements on
behalf of an IMGIS Customer shall be paid to IMGIS within 60 days after the end
of the calendar quarter during which IMGIS assigns to AOL its right to sell
interactive advertisements on behalf of such IMGIS Customer and within 60 days
after the end of each succeeding calendar quarter thereafter.
(c) All payments due to the payee Party hereunder shall be paid to the
payee Party in U.S. Dollars by wire transfer, or by such other method mutually
agreed upon by the Parties, in each case at the expense of the payor Party, for
value no later than the due date thereof (with 24 hours advance notice of each
wire transfer) to such bank account or accounts as the payee Party shall
designate in writing within a reasonable period of time prior to such due date.
9.2 LATE PAYMENT. Without limiting the payee Party's rights to pursue any
other remedies at law or in equity, if the payor Party fails to pay any payment
required under this Agreement on or before the due date therefor, then the payor
Party shall pay annually compounded interest on such amount at an annual rate
equal to the lower of (a) the highest rate permitted by applicable law and (b)
the lowest prime rate as published by The Wall Street Journal on or nearest to
such due date plus three percent (3%), which interest shall accrue from the date
the payment not timely made became due until the date such payment is paid in
full.
9.3 APPLICATION OF PAYMENTS. Any payments received by the payee Party shall
be applied first to the satisfaction of the oldest of any unpaid, accrued
interest charges and, following payment of all such interest charges, to the
satisfaction of the oldest of any unpaid fees or other amounts due hereunder.
9.4 TAXES.
(a) All payments required to be made by the payor Party under this
Agreement shall be made free and clear of, and without deduction for, any and
all taxes that are levied on the transfer of such payments to the payee Party.
If any withholding or deductions are required by applicable law, payments shall
be made such that, after such withholding or deductions, the net amount that the
payee Party receives is equal to the amount due hereunder. The payor Party shall
file any information or tax returns with respect to such taxes, and the payor
Party shall indemnify the payee Party from any interest or other payments, fines
or penalties relating to or resulting from any failure, delay or error of the
payor Party in doing so.
(b) IMGIS shall be responsible for the payment of any and all
transfer, sales, use or similar taxes that are levied on or in connection with
the transfer of the Technology to AOL, including any Improvements.
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9.5 BOOKS AND RECORDS. Each Party shall keep full, true and accurate books
of account containing all particulars and reasonable supporting documentation,
in the case of IMGIS, in connection with the provision of Services hereunder and
the determination of any amounts payable to AOL under Article 7, and, in the
case of AOL, in connection with the determination of any amounts payable to
IMGIS under Article 8. All such books of account and reasonable supporting
documentation shall be located at the principal place of business of such Party
and shall be open for inspection by the other Party (the "auditing Party") or
any independent certified public accountant retained by the auditing Party, at a
time mutually acceptable to the Parties during normal business hours but no more
frequently than once each calendar year for three years following the end of the
calendar year to which they pertain (and access shall not be denied thereafter
if reasonably available). If such records are insufficient or any such
inspection discloses a discrepancy in favor of the auditing Party of five
percent (5%) or more of the amounts actually due for any period, then, in
addition to any other rights and remedies available to the auditing Party under
this Agreement, the audited Party shall pay or refund to the auditing Party the
amount of such discrepancy as well as the reasonable cost of such inspection
promptly following such Party's receipt from the auditing Party of the bill or
invoice for such inspection.
ARTICLE 10
REPRESENTATIONS AND WARRANTIES
10.1 MUTUAL REPRESENTATIONS AND WARRANTIES. Each Party represents and
warrants to the other Party that:
(a) Such Party has the full corporate right, power and authority to
execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby;
(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of
such Party;
(c) This Agreement has been duly executed and delivered by an
authorized officer of such Party, and is a legal, valid and
binding obligation of such Party enforceable against it in
accordance with its terms, except as enforcement may be limited
by general principles of equity (regardless of whether such
enforceability is considered in a proceeding at law or in equity)
and the effect of applicable bankruptcy, insolvency, moratorium
and other similar laws of general application relating to or
affecting creditors' rights generally, including, without
limitation, the effect of statutory or other laws regarding
fraudulent conveyances and preferential transfers;
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(d) Such Party's execution, delivery and performance of this
Agreement shall not constitute a breach or default under any
contract or agreement to which such Party is a party or by which
it is bound or otherwise violate the rights of any Third Party;
and
(e) No consent, approval or authorization of or from any governmental
entity or any other Person not a Party to this Agreement, whether
prescribed by law, regulation, contract or agreement, is required
for such Party's execution, delivery and performance of this
Agreement or consummation of the transactions contemplated
hereby.
10.2 ADDITIONAL REPRESENTATIONS AND WARRANTIES OF IMGIS. IMGIS further
represents and warrants to AOL that:
(a) WORKMANLIKE SERVICES. The Services shall be provided in a
workmanlike manner, in accordance with the standards of care and
diligence and the level of skill, knowledge and judgment normally
practiced by nationally-recognized information technology
services firms in performing services of a similar nature;
(b) NONINFRINGEMENT. The Technology does not, and any Improvements
provided by IMGIS, any Work Products and AOL's use of the
Technology and Work Products as authorized herein shall not,
infringe any copyright, trade secret or other proprietary rights
(except patent rights) of any Third Party or otherwise conflict
with the rights of any Third Party, and, to the best of IMGIS'
knowledge, the Technology does not, and any Improvements provided
by IMGIS, any Work Products and AOL's use of the Technology and
Work Products shall not, infringe any patent of any Third Party;
(c) NO LITIGATION. There is no action, suit, proceeding or
arbitration pending, and, to the best of IMGIS' knowledge, there
is no action, suit, proceeding, arbitration or claim threatened,
concerning the Technology;
(d) NO LIENS OR ENCUMBRANCES. Except for the security interest in
favor of Silicon Valley Bank that has been previously disclosed
to AOL, the Technology is free from any security interests and
other liens and encumbrances of Third Parties arising from the
actions or inactions of IMGIS;
(e) NO UNAUTHORIZED CODE. The Technology does not, and any
Improvements provided by IMGIS shall not, contain any back door,
time bomb, drop dead device, protect codes, data destruct keys,
or other software routine designed to disable a computer program
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automatically with the passage of time or under the control of
any Person other than AOL. To the best of IMGIS' knowledge, the
Technology does not, and any Improvements provided by IMGIS shall
not, contain any virus, Trojan horse, worm or other software
routine designed to permit unauthorized access or to disable,
erase, modify, deactivate or otherwise harm software, hardware or
data; and IMGIS covenants that, prior to or at the time of the
delivery of any Technology (including any Improvement), IMGIS
shall test the Technology using a current version of a reputable
"antivirus" program and remove any such unauthorized codes; and
(f) YEAR 2000 COMPLIANCE. All Software and other operational items
included in the Technology shall: (i) properly execute with all
date data, whether from years in the same century or different
centuries, including by yielding correct results in arithmetic
operations, comparisons and sorting of date fields and in leap
year calculations; and (ii) not abnormally cease to execute or
return an error message due to date-related processing.
10.3 NO OTHER WARRANTIES. THE EXPRESS WARRANTIES IN THIS AGREEMENT SHALL BE
IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
ARTICLE 11
INDEMNIFICATION
11.1 INDEMNITY. AOL shall not be liable to IMGIS, any of its Affiliates or
any other Person for, and IMGIS shall indemnify and hold harmless AOL and all
AOL Affiliates, and their respective directors, officers, employees and agents
(collectively, the "AOL Indemnitees"), from and against any Losses incurred
arising out of or resulting from: (a) any infringement of any patent, copyright,
trade secret or other proprietary right by the Technology or any Work Product,
except to the extent that such infringement arises solely from any Improvement
developed by AOL, or by IMGIS to AOL's specifications if IMGIS could not
reasonably have conformed to such specifications while avoiding the
infringement; or (b) the presence of IMGIS' employees or agents on the premises
of AOL or an AOL Affiliate (except those Losses that result solely from the
gross negligence or willful misconduct of AOL or an AOL Affiliate), including,
but not limited to, Losses resulting from injuries to IMGIS' Personnel and
Losses resulting from injuries caused by IMGIS' Personnel.
11.2 PROCEDURE. Any AOL Indemnitee shall notify IMGIS promptly in writing
of an indemnifiable claim or cause of action under Section 11.1 above upon
receiving notice or being informed of the existence thereof; provided, however,
that failure to notify IMGIS of an indemnifiable claim or cause of action shall
not relieve IMGIS of its
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obligation to provide indemnification hereunder, except to the extent that such
failure prejudices IMGIS' ability to defend or settle such claim or cause of
action. IMGIS shall assume, at its cost and expense, the sole defense of such
claim or cause of action through counsel selected by IMGIS and reasonably
acceptable to AOL, except that in the case of a conflict of interest between
IMGIS and AOL, IMGIS shall, at IMGIS' cost and expense, provide separate counsel
for AOL selected by AOL. IMGIS shall maintain control of such defense, including
any decision as to settlement; provided that, in the event that IMGIS does not
maintain control of such defense on a timely basis, then, without prejudice to
any other rights and remedies available to AOL under this Agreement, AOL may
take over such defense with counsel of its choosing, at IMGIS' cost and expense.
AOL may, at its option and expense, participate in IMGIS' defense, and if AOL so
participates, the Parties shall cooperate with one another in such defense.
IMGIS shall bear the total costs of any court award or any settlement of such
claim or cause of action approved by IMGIS and all other costs, fees and
expenses related to the resolution thereof (including reasonable attorneys'
fees, except for attorneys' fees for which AOL is responsible in the event that
AOL participates in IMGIS' defense of such claim or cause of action).
11.3 ABATEMENT OF INFRINGEMENT. If IMGIS reasonably believes it necessary
to do so to minimize its liability under Section 11.1 above, IMGIS may, at its
expense, procure the right for AOL to continue using the Technology or any Work
Product, replace the Technology or any Work Product with a functionally
equivalent noninfringing item, or modify the Technology or any Work Product so
that it is functionally equivalent but noninfringing.
ARTICLE 12
LIMITATION ON LIABILITY
EXCEPT FOR A CLAIM OF INDEMNIFICATION PURSUANT TO ARTICLE 11 OR A BREACH OF
ANY OF THE WARRANTIES SET FORTH IN SECTION 10.2 ABOVE, NEITHER PARTY SHALL BE
LIABLE TO THE OTHER PARTY HEREUNDER FOR ANY INDIRECT, INCIDENTAL, SPECIAL, OR
CONSEQUENTIAL DAMAGES.
ARTICLE 13
CONFIDENTIALITY
13.1 CONFIDENTIALITY OBLIGATION. Each of AOL and IMGIS (the "Receiving
Party") shall keep, and shall cause their Affiliates to keep, strictly
confidential any information disclosed by the other Party (the "Disclosing
Party") or otherwise made available to the Receiving Party concerning the
Technology or either Party's performance of this Agreement or otherwise
concerning the business, operations, trade secrets or other proprietary
information of the Disclosing Party (whether in written media or otherwise)
("Confidential Information"), using the same degree of care that it uses to
protect its own
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confidential or proprietary information of a like nature but in no event less
than a reasonable degree of care. "Confidential Information" shall not include
information: (a) which is or becomes generally available to the public other
than as a result of disclosure thereof by the Receiving Party; (b) which is
lawfully received by the Receiving Party on a nonconfidential basis from a Third
Party that is not itself under any obligation of confidentiality or
nondisclosure to the Disclosing Party or any other Person with respect to such
information; (c) which is independently developed by the Receiving Party; or (d)
which was in the Receiving Party's possession prior to receipt from the
Disclosing Party. Each Party shall treat any Technology or Work Product owned by
or assigned to the other Party as Confidential Information of such Party.
13.2 NONDISCLOSURE OF CONFIDENTIAL INFORMATION. The Receiving Party shall
use Confidential Information solely for the purposes of this Agreement and shall
not disclose or disseminate any Confidential Information to any Person at any
time, except for disclosure to its Affiliates and to those of its own and its
Affiliates' directors, officers, employees, accountants, attorneys, advisers and
agents whose duties reasonably require them to have access to such Confidential
Information, provided that such directors, officers, employees, accountants,
attorneys, advisers and agents are bound to maintain the confidentiality of such
Confidential Information to the same extent as if they were Parties hereto.
13.3 EXCEPTION. The foregoing confidentiality and nondisclosure obligations
shall not apply to Confidential Information: (a) incidentally retained in the
memory of Persons to whom the Receiving Party is permitted to disclose
Confidential Information, other than as the result of an intentional effort to
commit Confidential Information to memory to circumvent the provisions of this
Article 13; or (b) which is required to be publicly disclosed by law or by
regulation; provided, however, that, in such event, the Receiving Party provides
the Disclosing Party with prompt advance notice of such disclosure so that the
Disclosing Party has the opportunity if it so desires to seek a protective order
or other appropriate remedy.
13.4 SURVIVAL. The confidentiality and nondisclosure obligations of this
Article 13 shall remain in effect for three years following the date hereof or
two years following the termination of this Agreement, whichever is greater,
except with respect to source code and related source code documentation, for
which the obligations of this Article 13 shall survive for so long as the source
code and documentation remain Confidential Information.
13.5 SOURCE CODE PROTECTION. The Receiving Party shall protect Confidential
Information consisting of source code and related source code documentation from
unauthorized use and disclosure to the same extent that it protects its own
source code (but no less than to a reasonable degree).
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13.6 OTHER BUSINESS ACTIVITIES.
(a) The Disclosing Party agrees that the Receiving Party may currently
or in the future acquire information, either independently developed or legally
received from Third Parties, which may be similar to the Confidential
Information. Nothing in this Agreement shall be construed as a representation
that the Receiving Party does not or shall not have such independently developed
or legally received information.
(b) Nothing in this Agreement shall be construed as a representation
or agreement to restrict reassignment of the Receiving Party's employees, or in
any manner to affect or limit either Party's present or future business
activities of any nature, including business activities which could be
competitive with the Disclosing Party.
(c) Nothing in this Agreement shall be construed as a representation
or agreement that the Receiving Party shall not develop or have developed for it
products, concepts, systems or techniques contemplated by or embodied in the
Confidential Information, provided that the Receiving Party does not violate any
of its obligations under this Agreement in connection with such development.
ARTICLE 14
TERM AND TERMINATION
14.1 TERM. This Agreement shall commence as of the date hereof and, unless
terminated in accordance with the provisions of Section 14.2 below, this
Agreement shall remain in full force and effect without expiration.
14.2 TERMINATION.
14.2.1 TERMINATION RIGHTS OF AOL. AOL shall have the right to
terminate this Agreement in the event of the breach by IMGIS of, or the failure
of IMGIS to perform, any of its material obligations hereunder and the failure
to remedy such breach or nonperformance within 60 days following the receipt of
written notice of such breach or nonperformance from AOL. Such termination shall
be immediately effective upon the receipt by IMGIS of written notice of
termination from AOL.
14.2.2 TERMINATION RIGHTS OF IMGIS. IMGIS shall have the right to
terminate this Agreement in the event of:
(a) The breach by AOL of, or the failure of AOL to perform, any
of its material obligations under this Agreement (except for
its obligations under Articles 3, 4, 5 and 6 above) and the
failure to remedy such breach or nonperformance within 60
days following the receipt of written notice of such breach
or nonperformance from IMGIS;
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(b) The breach by any wholly-owned subsidiary of AOL that is a
sublicensee of AOL's licenses hereunder and that is a
recipient of source code for the Software of, or the failure
of such subsidiary to perform, any of its material
obligations under its sublicense with AOL, the failure to
remedy such breach or nonperformance within 60 days
following the receipt of written notice of such breach or
nonperformance from AOL, and the failure of AOL to terminate
its sublicense with such subsidiary with 60 days of such
failure; or
(c) A "Data Agreement Material Breach" by AOL. For purposes of
this Agreement, a "Data Agreement Material Breach" means the
breach by AOL of, or the failure of AOL to perform, any of
its material obligations under the Demographic Data
Agreement, the failure of AOL to remedy such breach or
nonperformance within 60 days following the receipt of
written notice of such breach or nonperformance from IMGIS,
and, in the event that such breach or nonperformance is
disputed by the Parties, the final determination of such
breach or nonperformance by a court of competent
jurisdiction from which no further appeal may be taken.
Such termination shall be immediately effective upon the receipt by AOL of
written notice of termination from IMGIS.
14.2.3 IMGIS RIGHT TO DISCONTINUE SERVICES. IMGIS shall have the right
to discontinue the provision of Services pursuant to Sections 3.2, 4.1, 5.1 and
6.1 above for which it is entitled to reimbursement or other payment from AOL,
but shall not have the right to terminate this Agreement or the licenses granted
pursuant to Section 2.1 above, in the event of the material breach by AOL of its
obligation hereunder to reimburse or pay IMGIS for any Services and the failure
to remedy such breach within 60 days following the receipt of written notice of
such breach from IMGIS. Such discontinuation of Services shall be immediately
effective upon the receipt by AOL of written notice of discontinuation from
IMGIS.
14.3 EFFECT OF TERMINATION. Notwithstanding anything herein to the
contrary, in the event of the termination of this Agreement other than upon the
breach by AOL of any of its material obligations under Article 2 or Article 13
and the failure to remedy such breach within the time period set forth in
Section 14.2.2 above, AOL and all AOL Affiliates which are sublicensees of AOL's
license hereunder shall have the right, for a period of one year following
termination, to continue to exercise all license rights granted to them under
Section 2.1 above on all the same terms in effect pursuant to this Agreement
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immediately prior to termination and to retain any Confidential Information
necessary or useful for the exercise of such rights. Notwithstanding anything
herein to the contrary, IMGIS shall in no event be entitled to enjoin or seek to
enjoin any exercise by AOL or any such AOL Affiliate of the rights set forth in
this Section 14.3, and IMGIS hereby expressly waives any right to injunctive or
other equitable relief, whether based on statute, common law or otherwise,
arising out of any alleged default by AOL or any AOL Affiliate that would
adversely affect the exercise by AOL or any AOL Affiliate of its rights under
this Section 14.3.
14.4 RETURN OF CONFIDENTIAL INFORMATION. Within 30 calendar days
following the termination of this Agreement other than termination where Section
14.3 above would be applicable, each Party shall either deliver to the other
Party, or destroy, all copies of any Confidential Information of the other Party
embodied in a tangible medium that is in such Party's possession or under its
control, and shall furnish to the other Party an affidavit signed by an officer
of such Party certifying that, to the best of its knowledge, such delivery or
destruction has been fully effected.
14.5 SURVIVAL. All rights granted to and obligations undertaken by the
Parties hereunder shall terminate immediately upon the termination of this
Agreement, except for the rights and obligations provided for in Sections 14.3
and 14.4 above as well as the following rights and obligations, which shall
survive according to their terms:
(a) The obligation of the payor Party to pay any and all
payments accrued hereunder;
(b) The license to IMGIS granted in Section 5.4;
(c) The right of each Party to inspect the books and records of
the other Party to the extent provided in Section 9.5;
(d) The indemnification obligations of Article 11 and the
limitation on liability of Article 12;
(e) The confidentiality and nondisclosure obligations of Article
13; and
(f) The provisions of Sections 15.1, 15.7, 15.8, 15.10, 15.19
and 15.20 below.
In addition, termination of this Agreement shall not affect the remedies of the
Parties otherwise available at law or in equity in relation to any rights
accrued under this Agreement prior to termination.
24
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CONFIDENTIAL
ARTICLE 15
MISCELLANEOUS
15.1 ELECTRONIC REPOSSESSION. In no event shall IMGIS electronically
repossess, de-install, deactivate or disable any Technology in the absence of a
final, unappealable judgment of a court of competent jurisdiction that the
license rights granted under Section 2.1 above have been validly terminated.
15.2 PERIODIC DISCUSSIONS. Commencing within 30 days following the
execution of this Agreement and on a quarterly basis thereafter, AOL shall
engage in discussions with IMGIS concerning AOL's deployment of the Technology
and shall endeavor to provide IMGIS with non-binding, 180 day forecasts of the
Services that AOL intends to request from IMGIS hereunder. Within 45 days after
the Deployment Date, the Parties shall execute a more detailed development,
support and maintenance agreement with respect to IMGIS' obligations to provide
development, support and maintenance for the Technology, including, without
limitation, IMGIS' obligations for the delivery of Improvements and other
Technology, IMGIS' obligations to provide Development Services and Technical
Services, and IMGIS' obligations to cure any nonperformance or other failure
with respect to the Technology.
15.3 MUTUAL NON-SOLICITATION. For a period of one year following the date
hereof, without the prior written approval of the other Party, neither Party or
any of its Affiliates shall actively solicit for hire any Personnel of the other
Party with responsibility for the development or maintenance of the Technology
or Work Products or for the provision of interactive advertisement serving,
trafficking, targeting or related services, excluding independent contractors
that do not spend the majority of their time providing services to such Party.
The foregoing mutual non-solicitation covenant shall terminate at any time in
the event of the acquisition by a Third Party of more than fifty percent (50%)
of the voting power of IMGIS, the acquisition by a Third Party of all or
substantially all of the assets of IMGIS, or the consummation of a merger,
consolidation or similar corporate transaction of IMGIS with or into a Third
Party where the voting securities of IMGIS outstanding immediately prior to
consummation of such transaction are converted into cash or securities
possessing less than fifty percent (50%) of the voting power of the surviving
entity. The obligations of the Parties under this Section 15.3 shall not survive
the termination of this Agreement.
15.4 FAILURE TO ASSERT RIGHTS IN BANKRUPTCY. AOL's failure to assert its
rights to retain its benefits under this Agreement in accordance with 11 U.S.C.
Section 365(n)(1)(B) shall not be construed as a termination of this Agreement
by AOL under 11 U.S.C. Section 365(n)(1)(A).
15.5 FURTHER ASSURANCES. Upon the request of either Party, the other Party
shall sign and deliver any assignments or other necessary documents and
otherwise assist the requesting Party to obtain, maintain, perfect or enforce
any of the requesting Party's rights hereunder.
25
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CONFIDENTIAL
15.6 RELATIONSHIP OF THE PARTIES. Nothing in this Agreement is intended or
will be deemed to constitute a partnership, agency or joint venture relationship
between the Parties hereto.
15.7 APPLICABLE LAW. This Agreement shall be governed by the laws of the
Commonwealth of Virginia applicable to contracts made and to be performed
entirely within such jurisdiction and without giving effect to the choice or
conflict of laws rules or principles of the Commonwealth of Virginia or of any
other jurisdiction.
15.8 CONSENT TO JURISDICTION. Each of the Parties irrevocably submits to
the exclusive jurisdiction of the courts of the Commonwealth of Virginia and of
any United States federal court sitting in the Commonwealth of Virginia in any
action or proceeding arising out of or relating to this Agreement, and
irrevocably agrees that all claims in respect of such action or proceeding shall
be heard and determined in any such Virginia or United States federal court.
Each Party further agrees that service of any process, summons, notice or
document by registered mail to the address of such Party set forth in Section
15.10 below shall be effective service of process for any action or proceeding
brought against such Party in any such court. Each Party hereby irrevocably and
unconditionally waives any objection to the laying of venue of any action or
proceeding arising out of or relating to this Agreement in any such court and
further irrevocably and unconditionally waives and agrees not to plead or claim
in any such court that any such action or proceeding brought in any such court
has been brought in any inconvenient forum. Each Party further agrees that a
final, nonappealable judgment in any such action or proceeding shall be
conclusive and may be enforced in any other jurisdictions by suit on the
judgment or in any other manner provided by law.
15.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and may be executed by facsimile. All counterparts shall
collectively constitute one and the same Agreement.
15.10 NOTICES. In any case where any notice or other communication is
required or permitted to be given hereunder, such notice or communication shall
be in writing and deemed to have been duly given and delivered (a) if delivered
in person, on the date of such delivery, (b) if sent by confirmed facsimile
transmission (with answer back received), on the date of such facsimile
transmission, or (c) if sent by overnight express or registered or certified
mail (with return receipt requested), on the date of receipt of such mail, and
shall be sent to the following address (or such other address as either Party
may designate from time to time in writing):
26
<PAGE>
CONFIDENTIAL
If to AOL:
America Online, Inc.
22000 AOL Way
Dulles, VA 20166
Telephone: (703) 265 2365
Telefax: (703) 265 1202
Attention: Senior Vice President, Business Affairs
Copy to:
America Online, Inc.
22000 AOL Way
Dulles, VA 20166
Telephone: (703) 265 2120
Telefax: (703) 265 2208
Attention: General Counsel
If to IMGIS:
Imgis, Inc.
10101 N. DeAnza Boulevard
Suite 210
Cupertino, CA 95014
Telephone: (408) 873-3680
Telefax: (408) 873-3690
Attention: Charles W. Berger
Copy to :
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Telephone: (650) 494-0600
Telefax: (650) 494-1417
Attention: Gordon K. Davidson
15.11 FORCE MAJEURE. If any circumstance beyond the reasonable control of
either Party occurs which delays or renders impossible the performance of that
Party's obligations under this Agreement on the dates herein provided, such
obligation shall be postponed for such time as such performance necessarily has
had to be suspended or delayed on account thereof, provided such Party shall
notify the other Party in writing as soon as practicable, but in no event more
than ten days after the occurrence of such force majeure. In such event, the
Parties shall meet promptly to determine an equitable solution to the effects of
any such event, provided that such Party who fails because of force majeure to
perform its
27
<PAGE>
CONFIDENTIAL
obligations hereunder shall upon the cessation of the force majeure take all
reasonable steps within its power to resume with the least possible delay
compliance with its obligations. Events of force majeure shall include, without
limitation, war, revolution, invasion, insurrection, riots, mob violence,
sabotage or other civil disorders, acts of God, limitations imposed by exchange
control regulations or foreign investment regulations or similar regulations,
laws, regulations or rules of any government or governmental agency, and any
inordinate and unanticipated delays in the regulatory review or governmental
approval process that are within the control of such government or governmental
agency. In no event shall the failure or nonperformance of the Technology as
described in Section 4.3 above constitute an event of force majeure.
15.12 BINDING EFFECT; ASSIGNMENT. This Agreement may not be assigned, in
whole or in part, by either Party without the prior written consent of the other
Party, except that: (a) AOL may assign any of its rights or obligations
hereunder to a wholly-owned subsidiary of AOL without IMGIS' consent; and (b)
the rights and obligations of either Party under this Agreement may be assigned
without the other Party's consent to a Third Party acquiring all or
substantially all of the assets of the assigning Party or to the surviving
entity upon the consummation of any merger, consolidation or similar corporate
transaction of the assigning Party with or into a Third Party. Any attempted
assignment by either Party without the consent of the other Party in any
circumstances other than those described in the immediately preceding sentence
shall be null and void. This Agreement shall inure to the benefit of and be
binding upon each of the Parties hereto and their respective successors and
permitted assigns.
15.13 ENTIRE AGREEMENT. The terms and conditions herein contained
constitute the entire agreement between the Parties relating to the subject
matter of this Agreement and shall supersede all previous communications between
the Parties with respect to the subject matter of this Agreement, except for the
Letter Agreement between the Parties dated as of April 14, 1998 and the
Confidential Non-Disclosure Agreement between the Parties dated as of April 15,
1998, each of which shall survive according to their terms. Neither Party has
entered into this Agreement in reliance upon any representation, warranty,
covenant or undertaking of the other Party that is not set out or referred to in
this Agreement.
15.14 RECITALS. The recitals set forth at the start of this Agreement and
the terms and conditions incorporated in such recitals shall be deemed integral
parts of this Agreement, and all references in this Agreement to this Agreement
shall encompass such recitals and the terms and conditions incorporated in such
recitals.
15.15 AMENDMENT. This Agreement may be varied, amended or extended only by
the written agreement of the Parties through their duly authorized officers or
representatives, specifically referring to this Agreement.
28
<PAGE>
CONFIDENTIAL
15.16 SEVERABILITY. In the event that any provision of this Agreement is
held to be illegal, invalid or unenforceable in a final, unappealable order or
judgment (each such provision, an "invalid provision"), then such provision
shall be severed from this Agreement and shall be inoperative, and the Parties
promptly shall negotiate in good faith a lawful, valid and enforceable provision
that is as similar to the invalid provision as may be possible, while the
remaining provisions of this Agreement shall remain binding on the Parties
hereto.
15.17 HEADINGS. The descriptive headings of the several articles and
sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
15.18 NO WAIVER OF RIGHTS. No failure or delay on the part of either
Party in the exercise of any power or right hereunder shall operate as a waiver
thereof. No single or partial exercise of any right or power hereunder shall
operate as a waiver of such right or of any other right or power. The waiver by
either Party of a breach of any provision of this Agreement shall not operate or
be construed as a waiver of any other or subsequent breach hereunder.
15.19 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. All rights and
remedies granted to either Party under this Agreement are cumulative and in
addition to, and not in lieu of, any other rights or remedies otherwise
available to such Party at law or in equity. The Parties agree that any breach
by either Party of, or failure of either Party to perform, any obligation under
this Agreement shall constitute immediate and irreparable damage to the other
Party which cannot be fully and adequately compensated in money damages and
that, in the event of such breach or failure, the other Party shall be entitled
to injunctive relief and specific performance in addition to any other remedies
to which it may be entitled at law or in equity.
15.20 CONFIDENTIALITY OF AGREEMENT. Each Party shall maintain the
confidentiality of this Agreement and all provisions of this Agreement and,
without the prior consent of the other Party, neither Party shall make any press
release or other public announcement of or otherwise disclose this Agreement or
any of its provisions to any Third Party (a) other than to its Affiliates and to
its own and its Affiliates' directors, officers, employees, attorneys and
accountants, and to the lead underwriter engaged by IMGIS in connection with any
offering of securities of IMGIS, whose duties reasonably require familiarity
with this Agreement, provided that such Persons (including any such lead
underwriter) are bound to maintain the confidentiality of this Agreement, and
(b) except for such disclosure as may be required by applicable law or
regulation, in which case the disclosing Party shall provide the other Party
with prompt advance notice of such disclosure so that the other Party has the
opportunity if it so desires to seek a protective order or other appropriate
remedy; provided that, in connection with any offering of securities of IMGIS,
IMGIS shall provide in advance to AOL for review the form and content of any
disclosure of this Agreement or any of its provisions that may be required by
applicable law or regulation and, to the extent consistent with its disclosure
obligations under applicable law, include
29
<PAGE>
CONFIDENTIAL
such modifications to such disclosure as may be reasonably requested by AOL
(except that IMGIS may file this Agreement as an exhibit to its registration
statement if it would constitute a "material agreement" under applicable law or
regulation and IMGIS shall use its reasonable best efforts to obtain
confidential treatment of the portions of this Agreement that meet the SEC
qualifications for confidential treatment if so requested by AOL). The
confidentiality obligations of this Section 15.20 would apply, inter alia, to
any disclosure by IMGIS of this Agreement or of any provisions of this Agreement
to any customer or potential customer of IMGIS and any such disclosure would
constitute a breach of this Section 15.20. The Parties agree that any breach of
the provisions of this Section 15.20 by either Party, including, without
limitation, by any directors, officers or employees of such Party, would
constitute a breach by such Party of a material obligation hereunder for which
the other Party shall have the right, notwithstanding the provisions of Section
14.2 above, to immediately terminate this Agreement without allowance of any
period to remedy such breach, such termination to be immediately effective upon
the receipt by the breaching Party of written notice of termination from the
nonbreaching Party.
15.21 USAGE. Wherever any provision of this Agreement uses the term
"including" (or "includes"), such term shall be deemed to mean "including
without limitation" and "including but not limited to" (or "includes without
limitation" and "includes but is not limited to") regardless of whether the
words "without limitation" or "but not limited to" actually follow the term
"including" (or "includes").
30
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CONFIDENTIAL
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement
to executed by their duly authorized officers as of the date first above
written.
AMERICA ONLINE, INC.
By: /s/ David M. Colburn
--------------------
David M. Colburn
Senior Vice President, Business Affairs
IMGIS, INC.
By: /s/ Charles W. Berger
---------------------
Charles W. Berger
Chairman and Chief Executive Officer
31
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated February 5,
1999, except for Note 11, as to which the date is March , 1999, with respect to
AdForce, Inc. and our report dated October 29, 1998 with respect to StarPoint
Software, Inc. in the Registration Statement (Form S-1) and related Prospectus
of AdForce, Inc. for the registration of shares of its common stock.
Our audits also included the financial statement schedule of AdForce,
Inc. listed in Item 16(b). This schedule is the responsibility of AdForce's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
San Jose, California
--------------
The foregoing consent is in the form that will be signed upon the
completion of the reincorporation in Delaware described in Note 11 of Notes to
Financial Statements.
San Jose, California
March 2, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN ADFORCE INC.'S FORM S-1 REGISTRATION STATEMENT
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 10,045
<SECURITIES> 0
<RECEIVABLES> 2,195
<ALLOWANCES> 1,035
<INVENTORY> 0
<CURRENT-ASSETS> 11,780
<PP&E> 6,972
<DEPRECIATION> 2,764
<TOTAL-ASSETS> 19,875
<CURRENT-LIABILITIES> 3,805
<BONDS> 0
0
5
<COMMON> 5
<OTHER-SE> 12,971
<TOTAL-LIABILITY-AND-EQUITY> 19,875
<SALES> 0
<TOTAL-REVENUES> 4,286
<CGS> 0
<TOTAL-COSTS> 5,059
<OTHER-EXPENSES> 14,096
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 151
<INCOME-PRETAX> (15,020)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,020)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,020)
<EPS-PRIMARY> (5.28)
<EPS-DILUTED> (5.28)
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