<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 15, 1999
REGISTRATION NO. 333-73231
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
ADFORCE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7374 33-0694260
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification no.)
</TABLE>
10590 NORTH TANTAU AVENUE
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
10590 NORTH TANTAU AVENUE
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 OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
<S> <C> <C>
COMMON STOCK, $0.001 PAR VALUE PER SHARE...... $62,100,000 $17,264
</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.
(2) Includes $15,290 previously paid by the Registrant.
------------------
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 APRIL 15, 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
4,500,000 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 $10.00 and $12.00 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 675,000 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>
[OUTSIDE FRONT COVER]
The AdForce logo is centered at the top of the page. The logo appears as a
capital letter "A" without the horizontal line and without the bottom left half
of the letter, along with a crescent shape that wraps around the letter "A" on a
horizontal axis. The name "ADFORCE" appears below the logo.
[INSIDE FRONT COVER]
TITLE: THE ADFORCE ADVANTAGE
The page contains three sections of text bearing the headings "The AdForce
Advantage," "Advertisers and Ad Agencies" and "Web Sites and Ad Rep Firms." The
"AdForce Advantage" section reads: "Centralized, online, outsourced ad
management and delivery--AdForce's highly reliable, scalable technology
infrastructure and data centers currently deliver up to 210 million ads per day.
Our services offer sophisticated ad campaign design, inventory management,
targeting, delivery, tracking, measuring and reporting capabilities. By
outsourcing the technically complex and operationally demanding ad management
and delivery functions to AdForce, our customers can rely on our high
performance systems, technology and personnel while focusing on their own core
competencies." The "Advertisers and Ad Agencies" section reads: "AdForce allows
advertisers and ad agencies to plan and manage Internet advertising across
multiple Web sites. Our services allow our customers to reach large or targeted
audiences and to track, measure and report on their ad campaigns to maximize
return on advertising investments." A chart divided into three rows follows. The
first row contains two rectangles labeled "Advertisers" and "Ad Agencies." Each
rectangle is connected by a line to a large, rectangular bar on the second row
labeled "AdForce," which is connected by lines to five rectangles located in the
third row and labeled "Web Sites" and "Ad Rep Firms." The rectangle labeled "Ad
Agencies" located in the first row is connected to a large rectangular box to
the right. The box reads: "Key Ad Agency Customers: ModemMedia.PoppeTyson,
USWeb, VR Services, Carat Freeman, Bozell Worldwide." The five boxes located in
the third row are connected by a horizontal line to a large rectangular box to
the right. The box reads: "Key Web Site and Ad Rep Customers: 24/7 Media,
Adsmart, GeoCities, Netscape, Mapquest, Fortune City, Encompass, Netcom,
NHL.com, GoTo.com, Virtual Vegas, Spree.com, PGATOUR.com." The "Web Sites and Ad
Rep Firms" section reads: "AdForce helps Web sites and ad rep firms maximize the
value of their page view inventories. AdForce's advanced inventory management
system allows Web sites to accurately monitor sold and unsold inventory and to
sell that inventory more effectively."
[ICONS AT LEFT MARGIN UNDER SERVICES HEADING (PP. 35-36)]
Beginning on p. 35: 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 "Targeting" and contains a target
graphic. Fourth icon reads "Ad Delivery" and contains a truck graphic. Fifth
icon reads "Reporting" and contains a chart graphic. Sixth icon reads
"Transactions" and contains a lighthouse graphic. Seventh icon reads "Auditing
and Accounting" and contains an abacus graphic. Eighth icon reads "Analysis" and
contains a microscope graphic. Ninth icon reads "Inventory Management" and
contains a file boxes graphic.
[INSIDE BACK COVER]
TITLE: ADFORCE MAKE THE RIGHT IMPRESSION
The AdForce logo is centered at the top of the page. The logo is the same
logo as appears on the outside front cover of the prospectus. 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's closed-loop
ad management and delivery services help our customers 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, targeting, ad delivery, reporting, transactions, auditing
and accounting, analysis and inventory management.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary........................................... 4
Risk Factors................................................. 6
Forward-Looking Statements................................... 16
Use of Proceeds.............................................. 17
Dividend Policy.............................................. 17
Capitalization............................................... 18
Dilution..................................................... 19
Selected Financial Data...................................... 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 21
Business..................................................... 30
Management................................................... 43
Certain Transactions......................................... 54
Principal Stockholders....................................... 58
Description of Capital Stock................................. 60
Shares Eligible for Future Sale.............................. 63
Underwriting................................................. 65
Legal Matters................................................ 67
Experts...................................................... 67
Where You Can Find More Information.......................... 67
Index to Financial Statements................................ F-1
</TABLE>
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 centers currently deliver up to 210 million ads per day.
Our services offer sophisticated ad campaign design, inventory management,
targeting, delivery, tracking, measuring and reporting capabilities. Our
technology infrastructure and services 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;
- Modify ad campaigns based on 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 rely on our high
performance systems, technology and personnel while focusing on their own core
competencies.
Rapid expansion of the Internet has led to significant growth in
electronic commerce. 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 $603 million in 1998 to $5.3 billion in 2003.
Our objective is to be the primary technology and service infrastructure
for advertising and direct marketing on the Internet. We intend to achieve this
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. We delivered
13.2 billion ads in the first quarter of 1999. Through relationships with key
customers, including 24/7 Media, Adsmart, GeoCities, Netscape 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 as Imgis, Inc. on January 16, 1996 and
intend to reincorporate in Delaware as AdForce, Inc. in April 1999. Our address
is 10590 North Tantau Avenue, Cupertino, California 95014, and our telephone
number is (408) 873-3680. Information contained on our Web site is not a part of
this prospectus.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by AdForce.............. 4,500,000 shares
Common stock to be outstanding after this
offering..................................... 19,169,429 shares
Use of proceeds.............................. For general corporate purposes, including
working capital. See "Use of Proceeds."
Nasdaq National Market symbol................ ADFC
</TABLE>
--------------
ALL INFORMATION IN THIS PROSPECTUS RELATING TO ADFORCE'S OUTSTANDING
CAPITAL STOCK, OPTIONS AND WARRANTS IS AS OF MARCH 31, 1999. 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 AND THE REINCORPORATION OF ADFORCE IN DELAWARE, EACH OF WHICH
WILL OCCUR BEFORE THE CONSUMMATION OF THIS OFFERING. PLEASE SEE "CAPITALIZATION"
FOR A MORE COMPLETE DISCUSSION REGARDING ADFORCE'S CAPITAL STOCK, OPTIONS AND
WARRANTS. 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 QUARTERLY FINANCIAL DATA HAVE BEEN DERIVED
FROM UNAUDITED FINANCIAL STATEMENTS. 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 PRESENTED BELOW REFLECT THE RECEIPT OF THE
NET PROCEEDS FROM THE SALE OF THE 4,500,000 SHARES OF COMMON STOCK OFFERED BY
ADFORCE AT AN ASSUMED INITIAL PUBLIC OFFERING PRICE OF $11.00 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 YEARS ENDED DECEMBER THREE MONTHS
JANUARY 16, 1996 31, ENDED MARCH 31,
(INCEPTION) TO -------------------- --------------------
DECEMBER 31, 1996 1997 1998 1998 1999
----------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue...................................... $ -- $ 320 $ 4,286 $ 414 $ 3,220
Gross profit (loss).............................. -- (1,188) (773) (396) 1,066
Loss from operations............................. (3,383) (5,596) (14,869) (2,380) (4,770)
Net loss......................................... (3,452) (5,704) (15,020) (2,483) (4,843)
Basic and diluted net loss per share............. $ (1.40) $ (3.48) $ (5.28) $ (1.19) $ (1.22)
Weighted average common shares -- basic and
diluted........................................ 2,465 1,639 2,844 2,079 3,966
Pro forma basic and diluted net loss per share... $ (1.38) $ (0.36)
Pro forma weighted average common shares -- basic
and diluted.................................... 10,877 13,402
</TABLE>
<TABLE>
<CAPTION>
QUARTERS ENDED
-------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1998 1998 1998 1998 1999
--------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
QUARTERLY STATEMENT OF OPERATIONS DATA:
Net revenue................................................. $ 414 $ 784 $ 1,064 $ 2,024 $ 3,220
Gross profit (loss)......................................... (396) (616) (151) 390 1,066
Net loss.................................................... (2,483) (3,910) (3,807) (4,820) (4,843)
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................... $ 9,727 $ 54,662
Working capital......................................................................... 3,044 47,979
Total assets............................................................................ 23,339 68,274
Long-term portion of capital lease obligations.......................................... 5,183 5,183
Total stockholders' equity.............................................................. 9,449 54,384
</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 AND ADVERSELY AFFECT OUR BUSINESS AND QUARTERLY
AND ANNUAL RESULTS OF OPERATIONS 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 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 quarterly results of operations depend on a
variety of factors, many of which are beyond our control. Please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Fluctuations in Results of Operations" for a list of these 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 relative to our expenses, our business and quarterly and annual results
of operations would be materially and adversely affected.
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 at least the next two years. If our
revenue does not grow or grows more slowly than we anticipate, or if our
operating or capital expenditures exceed our expectations and cannot be reduced,
our business and quarterly and annual results of operations will be materially
and adversely affected. 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, $15.0 million for year ended December 31, 1998,
and $4.8 million for the three months ended March 31, 1999. As of March 31,
1999, our accumulated deficit was $29.0 million. We expect to continue to incur
significant operating expenditures, and capital expenditures of at least $9.0
million, for the remainder of 1999. 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.
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.
6
<PAGE>
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 business and quarterly and annual results of
operations 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 three largest customers for each quarter of 1998 represented 94%,
81%, 60% and 63% of our net revenue. In the first quarter of 1999, four of our
customers, 24/7 Media, Adsmart, GeoCities and Netscape, accounted for
approximately 77% of our net revenue. Our customer agreements, including those
with 24/7 Media, Adsmart, GeoCities and Netscape, can generally be terminated at
any time with little or no penalty. 24/7 Media, Adsmart and Netscape also use
other ad management and delivery systems for a portion of their ad delivery
needs and could reduce or eliminate their use of our services. Please see
"--Consolidation in the Internet Industry May Adversely Affect Our Relationships
with Our Customers."
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 and
quarterly and annual results of operations would be materially and adversely
affected if we lose any of these customers as a result of consolidation or if
our customers are required to use the proprietary ad delivery technologies of
the companies that acquire them or other ad delivery technologies. GeoCities,
one of our largest customers, has entered into an agreement to be acquired by
Yahoo!. Netscape, another of our largest customers, has been acquired by America
Online. 2CAN Media, another of our largest customers, has been 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 delivery technologies. 24/7
Media acquired its own ad delivery technology in 1998, and currently uses this
technology to serve a portion of its advertising needs. 24/7 Media has stated
that it is currently developing a next generation ad delivery technology that is
intended to serve as its sole ad delivery solution.
ANY INABILITY TO SCALE OUR TECHNOLOGY INFRASTRUCTURE WOULD ADVERSELY AFFECT OUR
BUSINESS
We must scale our technology infrastructure to meet the rapidly
expanding market for Internet advertising. If we are unable to scale our
technology infrastructure, we would have difficulty retaining existing customers
and attracting new customers, which would materially and adversely affect our
business and quarterly and annual results of operations. 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 current methods of Internet advertising.
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 most of our ads from our data center in Costa Mesa,
California, and began to deliver ads from our second data center in Cupertino,
California in April 1999. We may be unable to continue to scale our Costa Mesa
and Cupertino data centers 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 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 and quarterly and annual results of operations would be materially and
adversely affected. Please see "Business--Technology and Data Center Operations"
for detailed information on our system capacity.
7
<PAGE>
ANY INABILITY TO RESPOND TO RAPID TECHNOLOGICAL CHANGE WOULD ADVERSELY AFFECT
OUR BUSINESS
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 and quarterly and annual results
of operations 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 new and complex methods of Internet advertising. 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.
ANY INABILITY TO ATTRACT AD AGENCIES AND ADVERTISERS AS CUSTOMERS WOULD
ADVERSELY AFFECT OUR BUSINESS
We currently have no agreements with individual advertisers, and ad
agencies accounted for less than 5% of our net revenue in the first quarter of
1999. If we fail to attract advertisers and ad agencies as customers or do so
more slowly than we anticipate, we may not meet our financial projections or
those of securities analysts, which would materially and adversely affect our
business and quarterly and annual results of operations. 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 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.
WE MAY NOT COMPETE SUCCESSFULLY IN THE EXTREMELY COMPETITIVE MARKET FOR INTERNET
AD MANAGEMENT AND DELIVERY SERVICES
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 and quarterly and annual results of operations.
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;
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- 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. We have in the past and may in the future be forced to reduce
the prices for our services in order to compete, which could materially and
adversely affect our net revenue and gross margins.
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. 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, larger customer bases or significantly greater
financial, technical and marketing resources than we do. As a result, it is
possible that new competitors may emerge and rapidly acquire significant market
share.
MANY OF OUR CUSTOMERS HAVE LIMITED OPERATING HISTORIES, ARE UNPROFITABLE AND MAY
NOT BE ABLE TO PAY FOR OUR SERVICES
Many of our leading customers, including GeoCities, 24/7 Media and
Adsmart, have limited operating histories and have not achieved profitability.
If one or more of our customers is unable to pay for our services, or pays more
slowly than we anticipate, our business and quarterly and annual results of
operations could be materially and adversely affected. You should evaluate the
ability of our customers 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. In the past, some of
our customers have failed to pay for our services on a timely basis.
WE MAY EXPERIENCE SYSTEM FAILURES OR DELAYS THAT WOULD ADVERSELY AFFECT OUR
BUSINESS
Our operations depend 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 and
quarterly and annual results of operations. 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. Our business and quarterly and annual results of operations would be
materially and adversely affected by any serious and prolonged emergency.
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ANY INABILITY TO TARGET ADVERTISEMENTS WOULD ADVERSELY AFFECT OUR BUSINESS
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 and quarterly and
annual results of operations 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 pressure, which could deter some potential
customers from using our services.
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 have voiced concern over the implications of this type of
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
information, often referred to as cookies, on a user's hard drive. 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. Some 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 user information.
THE INTERNET MAY NOT BE ACCEPTED AS AN ADVERTISING MEDIUM, WHICH WOULD ADVERSELY
AFFECT OUR BUSINESS
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 and quarterly and annual results of operations would be materially and
adversely affected. 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.
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
advertisements placed on Web sites. If advertisers determine that those 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 and quarterly and annual results of
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operations, would be materially and adversely affected by Internet users'
widespread adoption of these software programs.
THE INTERNET INFRASTRUCTURE MAY NOT BE VIABLE OR CONTINUE TO GROW, WHICH WOULD
ADVERSELY AFFECT OUR BUSINESS
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. If the Internet infrastructure fails
to support the growth of the Internet, our business and quarterly and annual
results of operations, would be adversely affected. There are regularly 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.
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.
OUR MANAGEMENT TEAM MAY NOT WORK TOGETHER SUCCESSFULLY, AND WE MAY BE UNABLE TO
ATTRACT AND RETAIN KEY PERSONNEL WE NEED TO SUCCEED
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 other key
employees, would likely have a material adverse effect on our business and
quarterly and annual results of operations. Our future performance will depend,
in part, on our ability to integrate our newly hired executive officers
effectively into our management team. Our executive officers, who have worked
together for only a short time, may not 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 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.
ANY INABILITY TO MANAGE OUR GROWTH WOULD ADVERSELY AFFECT OUR BUSINESS
We have grown our workforce substantially, from 52 employees on March
31, 1998 to 109 employees on March 31, 1999, and we plan to continue to expand
our research and development, data center operations, sales, marketing and
customer service organizations. 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 and quarterly and annual results of
operations would be materially and
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adversely affected. 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. Please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for detailed information on our internal growth.
ANY INABILITY TO PROTECT OUR TECHNOLOGY WOULD ADVERSELY AFFECT OUR BUSINESS
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. If our
proprietary rights are infringed by a third party, the value of our services to
our customers would be diminished and additional competition might result from
the third party's use of those rights, which would materially and adversely
affect our business and quarterly and annual results of operations. We have
filed two patent applications in the United States. In addition, we have applied
to register 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 those trademarks, our use of these trademarks would be restricted
unless we entered into arrangements with the third-party owners, which might not
be possible on reasonable terms.
Our technology collects and utilizes data derived from user activity on
the Internet. Although we believe that we generally 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 this
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 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 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, proprietary rights
to third parties. In particular, we have licensed our proprietary software to
America Online and Euroserve Media. In addition, before 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 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 claims of these types in
the past, any claims or litigation, if they occur, could subject us to
significant liability for damages or could result in invalidation of our rights.
In addition, even if we were to prevail, litigation could be
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time-consuming and expensive to defend, and could result in diversion of our
time and attention, which could materially and adversely affect our business and
quarterly and annual results of operations. 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
entered into arrangements with the third parties responsible for the claims or
litigation, which might be unavailable on reasonable terms, if at all.
OUR CONTRACTUAL RELATIONSHIP WITH AMERICA ONLINE MAY ADVERSELY AFFECT OUR
BUSINESS
We have granted to America Online and its affiliates a royalty-free,
perpetual license to our ad management and delivery technology, including source
and object code, and any improvements to it that we make generally available to
our customers. 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 and quarterly and annual results of operations.
Please see "Certain Transactions" for detailed information on our relationship
with America Online.
GOVERNMENT REGULATION OF THE INTERNET MAY ADVERSELY AFFECT OUR BUSINESS
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 and quarterly and annual results of operations. 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 foreign
jurisdictions in an unpredictable manner.
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 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 and quarterly and annual results of operations.
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.
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POTENTIAL YEAR 2000 RISKS MAY ADVERSELY AFFECT OUR BUSINESS
Beginning in the year 2000, the date fields coded in 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 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 made any contingency plans to address these 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 and quarterly
and annual 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
and quarterly and annual results of operations. 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.
WE MAY NOT HAVE ENOUGH FUTURE CAPITAL TO EXECUTE OUR BUSINESS OBJECTIVES
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 materially and adversely affect our business and quarterly and
annual results of operations. We are devoting at least an additional $9.0
million to our data center facilities in Costa Mesa and Cupertino, California
during the remainder of 1999, and will need to devote additional 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. We also expect to make significant investments in
sales and marketing and the development of new services. The failure to generate
sufficient cash flows or to raise sufficient funds to finance growth could
require us to delay or abandon some or all of our plans or forego new market
opportunities, making it difficult for us to respond to competitive pressures.
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.
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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. The market
price of our common stock is likely to be subject 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, 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, the
market price of our common stock could be materially and adversely affected for
reasons unrelated to our business or results of operations. 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.
AN ACTIVE PUBLIC MARKET FOR OUR COMMON STOCK MAY NOT DEVELOP
Before 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, which could affect your ability to sell your
shares and which could depress the market price of your shares. 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.
PROVISIONS IN OUR CHARTER DOCUMENTS MAY DETER ACQUISITION BIDS FOR ADFORCE
We have adopted a classified board of directors. In addition, our
stockholders are unable to act by written consent or to fill any vacancy on the
board of directors. Our stockholders cannot call special meetings of
stockholders to remove any director or the entire board of directors without
cause. These provisions and other provisions of 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 and our 5% stockholders will beneficially own, in the
aggregate, approximately 56.4% 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.
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 March 31, 1999, upon completion
of this offering we will have outstanding 19,169,429 shares of common stock,
assuming no exercise of the underwriters' over-allotment option. Of these
shares, 5,207,368 will be eligible for immediate sale in the public market. 180
days from the date of this prospectus, an additional 13,962,061 shares will be
eligible for sale in the public market. These share numbers do not include
3,575,445 shares subject to outstanding options and warrants and 3,361,938
shares reserved for future issuance under our stock plans as of March 31, 1999.
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FORWARD-LOOKING STATEMENTS
Some of the 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 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 4,500,000
shares of common stock offered by us will be $44,935,000, at an assumed initial
public offering price of $11.00 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 $51,840,250.
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 engaged in any negotiations with
respect to any transactions of this type. Pending these uses, we intend to
invest the net proceeds from this offering in short-term, interest-bearing,
investment-grade securities. Please see "Risk Factors--We May Not Have Enough
Future Capital to Execute Our Business Objectives."
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 future.
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CAPITALIZATION
The following table shows (1) the actual capitalization of AdForce as of
March 31, 1999, (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 4,500,000 shares of common stock offered by AdForce at an
assumed initial public offering price of $11.00 per share and after deducting
the estimated underwriting discounts and commissions and offering expenses.
The information shown in the table below is qualified by, and should be
read along with, our more detailed financial statements and the related notes
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term portion of capital lease obligations............ $ 5,183 $ 5,183 $ 5,183
--------- ----------- -----------
Stockholders' equity:
Preferred stock; 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; 40,000,000 shares authorized, 5,202,311
shares issued and outstanding, actual; 100,000,000
shares authorized, pro forma and pro forma as
adjusted; 14,669,429 shares issued and outstanding,
pro forma; 19,169,429 shares issued and outstanding,
pro forma as adjusted................................. 5 15 19
Additional paid-in capital.............................. 44,234 44,229 89,160
Deferred stock compensation............................. (5,713) (5,713) (5,713)
Note receivable from stockholder........................ (63) (63) (63)
Accumulated deficit..................................... (29,019) (29,019) (29,019)
--------- ----------- -----------
Total stockholders' equity............................ 9,449 9,449 54,384
--------- ----------- -----------
Total capitalization................................ $ 14,632 $ 14,632 $ 59,567
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
The outstanding share information shown 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;
- 2,280,759 shares of common stock issuable upon the exercise of
outstanding stock options, at a weighted average per share exercise
price of $1.12;
- 861,938 shares of common stock available for future grant under the
1997 Stock 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.
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DILUTION
The pro forma net tangible book value of AdForce as of March 31, 1999
was $5.6 million, or $0.38 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 14,669,429 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 4,500,000 shares
of our common stock at an assumed initial public offering price of $11.00 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
March 31, 1999 would have been approximately $50.5 million, or $2.63 per share.
This represents an immediate increase in pro forma net tangible book value of
$2.25 per share to existing stockholders and an immediate dilution of $8.37 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............................ $ 11.00
Pro forma net tangible book value per share as of March 31, 1999......... $ 0.38
Increase per share attributable to new investors......................... 2.25
---------
Pro forma net tangible book value per share after offering................. 2.63
---------
Dilution per share to new investors........................................ $ 8.37
---------
---------
</TABLE>
The following table summarizes as of March 31, 1999, 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 new 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 PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ 14,669,429 76.5% $31,179,000 38.6% $ 2.13
New investors........................ 4,500,000 23.5 49,500,000 61.4 11.00
--------- ----------- ---------- -----------
Total.............................. 19,169,429 100.0% $80,679,000 100.0%
--------- ----------- ---------- -----------
--------- ----------- ---------- -----------
</TABLE>
The foregoing discussion and tables assume no exercise of any stock
options or warrants outstanding as of March 31, 1999. As of March 31, 1999,
there were options and warrants outstanding to purchase a total of 3,575,445
shares of common stock with a weighted average exercise price of $2.96 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.
19
<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 the
related notes 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. The statement of operations data for the three
months ended March 31, 1998 and 1999 and the balance sheet data as of March 31,
1999 are derived from unaudited financial statements included elsewhere in this
prospectus and, in the opinion of our management, include all adjustments,
consisting only of normal recurring adjustments, that are necessary for a fair
presentation of the results of operations for these periods. Historical results
are not necessarily indicative of future results.
<TABLE>
<CAPTION>
PERIOD FROM YEARS ENDED DECEMBER THREE MONTHS
JANUARY 16, 1996 31, ENDED MARCH 31,
(INCEPTION) TO -------------------- --------------------
DECEMBER 31, 1996 1997 1998 1998 1999
----------------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue............................................... $ -- $ 320 $ 4,286 $ 414 $ 3,220
Cost of revenue:
Data center operations.................................. -- 1,508 4,439 709 1,915
Amortization of intangible assets and deferred stock
compensation.......................................... -- -- 620 101 239
------ --------- --------- --------- ---------
Total cost of revenue................................. -- 1,508 5,059 810 2,154
------ --------- --------- --------- ---------
Gross profit (loss)....................................... -- (1,188) (773) (396) 1,066
Operating expenses:
Research and development................................ 1,561 2,236 4,665 818 2,244
Marketing and selling................................... 1,485 1,054 4,863 613 1,773
General and administrative.............................. 337 1,118 1,839 390 615
Amortization of intangible assets and deferred stock
compensation.......................................... -- -- 2,729 163 1,204
------ --------- --------- --------- ---------
Total operating expenses.............................. 3,383 4,408 14,096 1,984 5,836
------ --------- --------- --------- ---------
Loss from operations...................................... (3,383) (5,596) (14,869) (2,380) (4,770)
Interest expense, net..................................... (69) (108) (151) (103) (73)
------ --------- --------- --------- ---------
Net loss.................................................. $ (3,452) $ (5,704) $ (15,020) $ (2,483) $ (4,843)
------ --------- --------- --------- ---------
------ --------- --------- --------- ---------
Basic and diluted net loss per share...................... $ (1.40) $ (3.48) $ (5.28) $ (1.19) $ (1.22)
------ --------- --------- --------- ---------
------ --------- --------- --------- ---------
Weighted average shares of common stock outstanding used
in computing basic and diluted net loss per share....... 2,465 1,639 2,844 2,079 3,966
------ --------- --------- --------- ---------
------ --------- --------- --------- ---------
Pro forma basic and diluted net loss per share............ $ (1.38) $ (0.36)
--------- ---------
--------- ---------
Weighted average shares used in computing pro forma basic
and
diluted net loss per share.............................. 10,877 13,402
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------- MARCH 31,
1996 1997 1998 1999
--------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................... $ 681 $ 1,680 $ 10,045 9,727
Working capital (deficit)................................................... (22) 1,173 7,975 3,044
Total assets................................................................ 1,855 4,269 19,875 23,339
Long-term portion of capital lease obligations.............................. -- 1,744 3,089 5,183
Total stockholders' equity.................................................. 1,078 1,375 12,981 9,449
</TABLE>
20
<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.
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 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,
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 our 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. Adsmart 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% of
our net revenue. By the first quarter of 1999, our top four customers, 24/7
Media, Adsmart, GeoCities and Netscape, accounted for 23%, 21%, 20% and 12% of
our net revenue. 24/7 Media has stated that it is currently developing a next
generation ad delivery technology that is intended to serve as its sole ad
delivery solution. It has also stated that, unless and until the development of
and transition to its own ad delivery technology is complete, it will be
primarily dependent on us to deliver ads to its networks and Web sites.
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 intend to
begin marketing our services 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 expected ad volumes than average generally are charged a lower rate
on each 1,000 ads delivered. 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 lower rates charged to higher-volume customers were
the primary reasons for this decline. We expect those factors to cause future
declines in average rates charged.
We believe our centralized ad management system is substantially less
expensive than on-site ad delivery alternatives available to most individual Web
sites. Our average cost to manage and deliver each ad is significantly
influenced by the 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 generally decline over the long term. In the second
quarter of 1999, our second data center will be made operational, potentially
increasing our costs to deliver each ad in the near term. In addition, a portion
of our research and development efforts is devoted to improving the performance
and efficiency of our systems. We believe that these favorable economies for
centralized ad management will increase if greater and greater ad volumes are
delivered by
21
<PAGE>
our system. During 1998, the average cost to deliver each ad declined more
significantly than the decrease in the average rate charged, resulting in
steadily improving gross margins.
In the operating areas of research and development, marketing and
selling, 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 for options granted after
February 1998. As of March 31, 1999, we had recorded aggregate deferred stock
compensation of $7.8 million. This deferred stock compensation is being
amortized over the vesting periods of the stock options. AdForce recognized a
total of $1.0 million and $1.1 million in stock compensation expense during 1998
and the three months ended March 31, 1999. In addition, we recorded stock
compensation expense of $1.4 million during 1998 related to unvested founders'
stock that was not repurchased. Since a portion of this expense was related to
persons involved in running our 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 periods from amortization of deferred stock
compensation as of March 31, 1999 are anticipated to be approximately $2.7
million, $1.9 million, $900,000 and $200,000 for the remaining nine months of
1999 and for 2000, 2001 and 2002.
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 of $1.7 million and personnel-related assets of $740,000, which are
being amortized over the respective lives of those assets, and in-process
technology of $100,000 that 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.
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, $15.0 million for year ended December 31, 1998, and $4.8 million for
the three months ended March 31, 1999. As of March 31, 1999, our accumulated
deficit was $29.0 million. We expect to continue to incur significant operating
expenditures, and capital expenditures of at least $9.0 million, for the
remainder of 1999. 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 at least the next two years.
22
<PAGE>
RESULTS OF OPERATIONS
The following table shows for the periods presented the dollar amounts
of certain line items from our unaudited statements of operations and also shows
these dollar amounts as a percentage of net revenue for those periods. Figures
below are rounded to the nearest whole percentage, and thus line items
representing 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, MAR. 31,
1998 1998 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net revenue............................ $ 414 $ 784 $ 1,064 $ 2,024 $ 3,220
Cost of revenue:
Data center operations............... 709 1,235 1,044 1,451 1,915
Amortization of intangible assets and
deferred stock compensation........ 101 165 171 183 239
----------- ----------- ----------- ----------- -----------
Total cost of revenue.............. 810 1,400 1,215 1,634 2,154
----------- ----------- ----------- ----------- -----------
Gross profit (loss).................... (396) (616) (151) 390 1,066
Operating expenses:
Research and development............. 818 972 1,241 1,634 2,244
Marketing and selling................ 613 1,221 1,389 1,640 1,773
General and administrative........... 390 453 509 487 615
Amortization of intangible assets and
deferred stock compensation........ 163 571 554 1,441 1,204
----------- ----------- ----------- ----------- -----------
Total operating expenses........... 1,984 3,217 3,693 5,202 5,836
----------- ----------- ----------- ----------- -----------
Loss from operations................... (2,380) (3,833) (3,844) (4,812) (4,770)
Interest income (expense), net......... (103) (77) 37 (8) (73)
----------- ----------- ----------- ----------- -----------
Net loss............................... $ (2,483) $ (3,910) $ (3,807) $ (4,820) $ (4,843)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
<CAPTION>
AS A PERCENTAGE OF NET REVENUE
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenue............................ 100% 100% 100% 100% 100%
Cost of revenue:
Data center operations............... 171 158 98 72 59
Amortization of intangible assets and
deferred stock compensation........ 24 21 16 9 7
----------- ----------- ----------- ----------- -----------
Total cost of revenue.............. 196 179 114 81 67
----------- ----------- ----------- ----------- -----------
Gross margin........................... (96) (79) (14) 19 33
Operating expenses:
Research and development............. 198 124 117 81 70
Marketing and selling................ 148 156 131 81 55
General and administrative........... 94 58 48 24 19
Amortization of intangible assets and
deferred stock compensation........ 39 73 52 71 37
----------- ----------- ----------- ----------- -----------
Total operating expenses........... 479 410 347 257 181
----------- ----------- ----------- ----------- -----------
Loss from operations................... (575) (489) (361) (238) (148)
Interest income (expense), net....... (25) (10) 3 -- (2)
----------- ----------- ----------- ----------- -----------
Net loss............................... (600 )% (499 )% (358 )% (238 )% (150 )%
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
23
<PAGE>
NET REVENUE
We experienced revenue growth in each quarter of 1998 and the first
quarter of 1999. When compared to the immediately preceding quarter, quarterly
net revenue grew by 97%, 89%, 36%, 90% and 59% during the first, second, third
and fourth quarters of 1998 and the first quarter of 1999. 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, partially offset by
declines in the average rates charged for delivering those 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 lower rates charged to higher-volume
customers. In 1998, we added several large customers with significant ad
volumes. We expect 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
its own 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. As a result, 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. The growth
in net revenue between the fourth quarter of 1998 and the first quarter of 1999
was due to increases in revenue from 24/7 Media, Netscape, Adsmart and MapQuest.
The increases in revenue were the result of increased ad volumes. The increase
in ad volumes was partially offset by a decrease in the average rate charged to
deliver 1,000 ads. We expect that future revenue growth, if any, will not be as
dramatic as in recent periods. 24/7 Media has stated that it is currently
developing a next generation ad delivery technology that is intended to serve as
its sole ad delivery solution. It has also stated that, unless and until the
development of and transition to its own ad delivery technology is complete, it
will be primarily dependent on us to deliver ads to its networks and Web sites.
Our net revenue increased from $320,000 in 1997 to $4.3 million in 1998,
and was $3.2 million in the first quarter of 1999. We had no revenue in 1996.
The 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 resulted
from significant pricing pressure from competitors and volume-based pricing
discounts.
Our net revenue increased from $414,000 in the first quarter of 1998 to
$3.2 million in the first quarter of 1999. This increase in net revenue was
primarily due to the increased number of ads that we delivered on behalf of our
customers, offset in part by a decline in the average rates charged for
delivering these ads. The increase in ad volume resulted both from the addition
of new customers and from
24
<PAGE>
increasing ad volumes for existing and new customers. The decline in the average
rates charged resulted from significant pricing pressure from competitors and
lower rates charged to higher-volume customers.
GROSS PROFIT (LOSS)
Gross margin increased sequentially from negative 96% in the first
quarter of 1998 to negative 79% in the second quarter of 1998 to negative 14% in
the third quarter of 1998 to positive 19% in the fourth quarter of 1998 and to
positive 33% in the first quarter of 1999. Although our average rates charged
declined during 1998 and the first quarter of 1999 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 the results of these efforts are 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 over the long-term, although on a quarterly basis these costs may
fluctuate. In April 1999, we opened our second data center in order to provide
additional capacity and operational redundancy. The expenses associated with
operating this second data center will increase cost of revenue, and, as such,
will have a negative impact on gross margin in future periods.
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 an intangible asset
acquired in the purchase of StarPoint. The related intangible asset was
technology that has been deployed in our ad delivery system. This asset is being
amortized over its estimated useful life of three years.
Our gross margin was negative 371% in 1997, negative 18% in 1998 and
positive 33% in the first quarter of 1999. The improvement in gross margin from
1997 to 1998 to the first quarter of 1999 was primarily due to increased revenue
resulting from increased ad volumes 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
each quarter from the first quarter of 1998 to the first quarter of 1999, as
personnel were added to enhance the features and performance of our services. In
the fourth quarter of 1998 and the first quarter of 1999, 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 1996, $2.2 million in
1997, $4.7 million in 1998 and $2.2 million in the first quarter of 1999. 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 and the first quarter of
1999 consisted primarily of personnel and related costs, as well as costs for
promotional activities associated with raising brand awareness. In 1998 and the
first quarter of 1999, marketing and selling expenses increased across all
25
<PAGE>
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 1996 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 1996, $1.1
million in 1997, $4.9 million in 1998 and $1.8 million in the first quarter of
1999. The decline in marketing and selling expenses from 1996 to 1997 was
primarily the result of the absence in 1997 of expenses related to key word
rights that was recorded in 1996. The increase in marketing and selling expenses
from 1997 to 1998 to the first quarter of 1999 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 quarter, general and administrative expenses were lower in the fourth
quarter of 1998 than in the third quarter of 1998. General and administrative
expenses in the first quarter of 1999 were higher than those in the first
quarter of 1998. Our general and administrative expenses were $337,000 in 1996,
$1.1 million in 1997, $1.8 million in 1998 and $615,000 in the first quarter of
1999. 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 and in the first quarter of 1999,
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 1996, $108,000 in 1997, $151,000 in
1998 and $73,000 in the first quarter of 1999. In each period, interest expense
resulted primarily from interest on bridge financings and capital equipment
leases, offset in part in 1997, 1998 and the first quarter of 1999 by interest
income earned on cash balances resulting from equity and capital lease
financings.
26
<PAGE>
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. 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;
- 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. The addition of these centers may increase the average cost to
deliver ads. 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 costs and expenses, then our business and quarterly
and annual results of operations 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 1996, $5.6
million in 1997, and $9.6 million in 1998. Net cash provided by operating
activities was $348,000 in the first quarter of 1999. In each annual period,
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. In the first quarter of 1999, cash provided by operating
activities resulted primarily from increases in deferred revenue and accounts
payable. The increase in deferred revenue was due to a cash prepayment by a
large customer for ad management and delivery services to be provided while the
increase in accounts payable related to the general increase in business
volumes, as well as increased payables to outside professional service providers
related to our initial public
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offering. Net cash used in investing activities was $1.4 million in 1996,
$163,000 in 1997, $1.2 million in 1998 and $343,000 in the first quarter of
1999. In each period, net cash used in investing activities was primarily the
result of capital expenditures for equipment used in operating our primary data
center from which ads are managed and delivered.
Net cash provided by financing activities was $4.3 million in 1996, $6.7
million in 1997, $19.1 million in 1998. Net cash used in financing activities
was $323,000 in the first quarter of 1999. In 1996, 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. In the first quarter of 1999, cash used in financing
activities was the result of payments on capital lease obligations, partially
offset by proceeds received from the issuance of common stock.
At March 31, 1999, our principal sources of liquidity were $9.7 million
of cash and cash equivalents and $2.8 million of availability under an equipment
lease line. At that date, we had commitments of $132,000 for capital
expenditures. These commitments are primarily related to equipping a second data
center and to existing facilities expansion. We expect capital expenditures to
be approximately $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
March 31, 1999, we had minimum lease payment obligations, including interest, of
$9.1 million under capital leases and $11.6 million under operating leases. 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, the 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 we are not successful in raising capital when we need it 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
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
adopted SOP No. 98-1 beginning January 1, 1999. The adoption of SOP No. 98-1 did
not 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 adopted SOP No. 98-5 beginning January 1, 1999. The adoption of SOP
No. 98-5 did not 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 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 not
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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. In the third
quarter of 1999, we intend to implement internal Year 2000 testing procedures
for our software, and we may learn that 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. We expect the costs
associated with these testing procedures to be approximately $250,000. 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 performance warranties, 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. We typically use industry-standard
third-party hardware and software. 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 or made any contingency plans to address
these risks. Further, we have not deferred any of our ongoing development
efforts to address Year 2000 issues. However, unanticipated costs associated
with any Year 2000 compliance may exceed our present expectations, which could
materially and adversely affect our business and quarterly and annual results of
operations.
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 materially and adversely affect our business and quarterly and
annual results of operations. 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 and quarterly and annual
results of operations.
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BUSINESS
THIS SECTION CONTAINS FORWARD-LOOKING STATEMENTS, INCLUDING BUT NOT
LIMITED TO STATEMENTS WITH RESPECT TO FUTURE EVENTS AND OUR PLANS AND
OBJECTIVES.
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 centers currently deliver up to 210 million ads per day.
Our services, AdForce for Advertisers and AdForce for Publishers, offer
sophisticated ad campaign design, inventory management, targeting, delivery,
tracking, measuring and reporting capabilities. Our technology infrastructure
and services 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;
- Modify ad campaigns based on 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 rely on 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. We delivered
13.2 billion ads in the first quarter of 1999. Our net revenue increased
sequentially from $414,000 in the first quarter of 1998 to $3.2 million in the
first quarter of 1999. Through relationships with key customers, including 24/7
Media, Adsmart, GeoCities, Netscape 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
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, 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. 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. 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 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 and
direct marketing. Jupiter Communications, another online research firm,
estimates that spending on
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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 $603 million in 1998 to $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 medium with no
geographic boundaries, the Internet enables advertisers to reach large audiences
in the U.S. and internationally. The Internet also affords advertisers the
opportunity to target ads to specific geographic regions, to specific interest
groups by targeting multiple Web sites with specific characteristics, and to
consumers with specific demographic profiles.
INTERACTIVITY. Unlike the broadcast model of traditional media, the
Internet is a truly interactive mass medium. Advertisers can receive immediate
feedback on the effectiveness of their ad campaigns and can complete 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
while the campaign is being delivered. Advertisers can measure the number of
times a user views a particular ad, how often the user responds or clicks
through to that ad and ultimately makes a purchase or other transaction, and
various 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 returns on their
investments that are higher than returns currently achievable through
traditional media.
GREATER FLEXIBILITY AND REDUCED COSTS. Internet ad campaigns typically
are less time-consuming, less expensive and easier to produce than advertising
in traditional media. This allows Internet advertisers to 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 Web sites to obtain the necessary reach, number of ad impressions
and target audience. This complex and labor-intensive process includes
identifying Web 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.
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, complex data centers with
multiple 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
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, with larger portal Web sites
delivering hundreds of millions of ads per day. Increasing ad management and
delivery capabilities at these Web sites requires significant investment in
technology operations infrastructure. The failure to develop a scalable solution
can limit revenue growth for these Web 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 or transactions that result. Advertisers, ad agencies and other
parties prefer third-party verification of ad delivery results to use as a basis
for determining ad 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 extremely
important 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
We provide the technology infrastructure and services that we believe
advertisers, ad agencies, Web sites and ad rep firms need to exploit the
advantages of Internet advertising and direct marketing. Our turnkey solutions
for advertisers, ad agencies, Web sites and ad rep firms offer sophisticated ad
campaign design, inventory management, targeting, delivery, 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. We delivered 13.2 billion ads in the first quarter
of 1999. To date, we have increased our 30-day ad impression rate to over 5.6
billion, with per day volumes of up to 210 million. Our key Web site customers
include GeoCities and Netscape, our key ad rep firm customers include 24/7 Media
and Adsmart, and our key ad agency customers include
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ModemMedia.PoppeTyson. 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 results in
advertising billings, is audited by a third party to ensure that
advertisers and ad agencies can have confidence in our results.
- The user interface of AdForce for Advertisers, which is installed on
our customers' personal computers, permits communications with our
systems over the Internet and assists 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 and type of media, and the times at which and
frequency with which their ads should appear. Through this interface,
advertisers and ad agencies also can 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 by
making a purchase or 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 spending. 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 more relevant, less repetitious and more likely
to match a particular user's interests. These capabilities allow ad
agencies to differentiate themselves from their competitors, provide
additional 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 infrastructure to scale as Internet advertising has grown has been a
competitive advantage. In addition, by steadily increasing our ad volumes in
1998 and in the first quarter of 1999, 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 opened an additional data center in April 1999 that
significantly increases our ad delivery capacity. Our core technology has been
designed to facilitate developing new features and functionality. During the
remainder of 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 revenue streams from new
customers. Our current customers, including 24/7 Media, Adsmart, GeoCities and
Netscape, substantially increased their Internet traffic during 1998, and we
expect our revenue from these customers will increase to the extent their Web
traffic continues to grow by continuing to provide them 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 featuring
audio, video and animation. We intend to attract and retain new customers by
promoting AdForce 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 services through online and
traditional 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 infrastructure advertisers use to efficiently
schedule and effectively deliver complex campaigns on the
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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 database of user profiles that
ad agencies and advertisers can use to target their ad campaigns. 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 within the next 12 months. 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 will substitute an encrypted code for
all personally identifiable information.
TARGET ADDITIONAL ADVERTISING MEDIA. As other forms of media such as
interactive television and addressable cable boxes converge with the Internet,
we may be able to build on our knowledge and 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 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:
[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 Web 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. Our automated Inventory Management
System 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, the system 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, the
system regularly adjusts for variations in site traffic and
updates available inventory while factoring in other ad
campaigns. Our system ensures that all ad campaigns are
delivered on schedule, so Web sites get maximum value for
their inventory.
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[icon] TARGETING. Serving ads from a central data center, we can
employ more comprehensive targeting databases than local ad
servers. This allows us to offer more targeting options and
far greater targeting accuracy. Our customers can target
campaigns using a range of criteria, including domain/industry
code, content area, keyword, geography, schedule and
site-provided data. Our advanced targeting capabilities enable
Web sites to deliver valuable 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 deliver targeted ads. We have begun to
deliver ads featuring 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 the capacity to handle both
traffic growth and fluctuations.
[icon] TRANSACTIONS. Our transactions feature records user activities
such as click-throughs, 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 a readily usable format or in Microsoft Excel.
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
alternative 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 ad campaigns and to improve future media plans and their
return on advertising spending. Web sites and ad rep firms can
conduct analyses that help them to increase their revenues
from their Web traffic.
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PLANNED SERVICE ENHANCEMENTS
The primary service enhancements that we plan to implement in the next
12 months are:
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. Using
this information, advertisers will be able 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 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 will maintain user privacy by substituting all personally
identifiable information with an encrypted code allowing us to match an Internet
user anonymously to existing 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 our customers
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 ads on their home pages 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 delivery infrastructure employs advanced
technology and robust data centers 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 utilizing industry-standard hardware and
software and leading third-party technology wherever possible.
AD MANAGEMENT SUBSYSTEM. Our Ad Management Subsystem consists of our
user application software, our Inventory Management System and an Administrative
Database. The user application software 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 user application software to validate their desired ad
campaigns against our Inventory Management 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 ad campaign schedules.
Customer instructions delivered via the user application software 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 ad campaign schedules and ads from
the Administrative Database to the Targeting Database in the Ad Delivery
Subsystem. These processes are run nightly and periodically during each day to
update schedule information and place new ad campaigns into production. Because
we are able to run
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these processes many times each day, customers can insert new ad campaigns and
change existing ad campaigns within an hour of our 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 our Inventory Management System. 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 the Reporting Subsystem by logging requests with the Administrative
Database. We then make reports available to the customer through the user
application software or by e-mail.
DATA CENTER OPERATIONS
We deliver our services primarily from a central data center located at
our product development, operations and customer service and support 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. In April 1999, we moved our headquarters to and began operating our
second data center in a new facility in Cupertino, California.
We manage our system closely to ensure that we maintain excellent
performance and consistent ad delivery. Our system is 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 system 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
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. We also
protect our data by using an off-site data backup service.
We aggressively increased the capacity of our system throughout 1998 and
in the first quarter of 1999 by adding additional servers and 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. Our key customers include:
<TABLE>
<S> <C> <C>
AD AGENCIES WEB SITES AD REP FIRMS
- -------------------------- -------------------------- --------------------------
ModemMedia.PoppeTyson GeoCities 24/7 Media
USWeb Netscape Adsmart
VR Services MapQuest Euroserve-InterAd
Carat Freeman FortuneCity Adauction.com
Bozell Worldwide Encompass TVMV, Inc.
Netcom .tmc Ad Network
NHL.com
GoTo.com
Virtual Vegas
Spree.com
PGATOUR.com
</TABLE>
We typically are the primary or sole ad management and delivery service
provider for our Web site customers. For example, we deliver through our system
all paid advertisements for GeoCities and the majority of paid advertisements
for Netscape. In addition to our direct Web site customers, we deliver ads on
hundreds of Web sites that our ad rep firm customers represent, including such
sites as AT&T, Reuters-Yahoo, Blizzard Entertainment and Earthlink, which are
customers of 24/7 Media, and Raging Bull, Free Real Time, Net Zero, College Club
USA, The Learning Channel, UBID, 123 Greetings and SecureTax, which are
customers of Adsmart. We also reach a wide variety of additional Web sites on ad
campaigns we manage and deliver for our ad agency customers.
During 1998, 24/7 Media and GeoCities accounted for 40% and 16% of net
revenue. During the first quarter of 1999, 24/7 Media, Adsmart, GeoCities and
Netscape accounted for 23%, 21%, 20% and 12% of net revenue. Our business and
quarterly and annual results of operations 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. 24/7 Media has stated that it is
currently developing a next generation ad delivery technology that is intended
to serve as its sole ad delivery solution. It has also stated that, unless and
until the development of and transition to its own ad delivery technology is
complete, it will be primarily dependent on us to deliver ads to its networks
and Web sites.
SALES AND MARKETING
Our primary sales strategy is to sell directly to leading Web sites,
large ad agencies and ad rep firms. We sell our services in the United States
through a 20-person sales and marketing organization. These employees are
located in northern and southern California, New York and northern Virginia. In
addition, we utilize the sales organizations of our ad rep firm customers to
provide our services to the Web sites they represent.
We will continue to focus our sales and marketing efforts on
establishing service relationships with large, high volume users of Internet
advertising such as 24/7 Media, Adsmart, GeoCities and Netscape. In addition, we
are increasingly targeting sales to ad agencies and intend to begin marketing to
advertisers within the next 12 months. We rely on our sales and marketing
organization, 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.
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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 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, and are currently located in California and New York. We plan to
establish additional service and support sites as needed.
COMPETITION
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 and quarterly and annual results of operations.
Our ability to compete successfully in this market depends on many factors
within and beyond our control. Please see "Risk Factors--We May Not Compete
Successfully in the Extremely Competitive Market for Internet Ad Management and
Delivery Services" for a list of these factors. 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. Our principal competitor is DoubleClick, which
delivered over 8.0 billion ads in March 1999 as compared to the 5.6 billion ads
that we delivered in March 1999. Many of our current competitors, including
DoubleClick, have substantially greater capital resources, more name
recognition, more developed sales and marketing strategies, and management teams
that have a longer history of working together than we do.
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 has acquired Netscape, one of our major customers, and Yahoo! has
entered into an agreement to acquire GeoCities, another of our major customers.
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 and quarterly and annual
results of operations. In addition, 24/7 Media, another of our major customers,
acquired its own ad management and delivery technology in 1998, and currently
uses this technology to serve a portion of its advertising needs. 24/7 Media has
stated that it is currently developing a next generation ad delivery technology
that is intended to serve as its sole ad delivery solution. It has also stated
that, unless and until the development of and transition to its own ad delivery
technology is complete, it will be primarily dependent on us to deliver ads to
its networks and Web sites. 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 and quarterly and annual results of operations. 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 Adsmart
were to transition its business from us to Accipiter, it would materially and
adversely affect our business and quarterly and annual results of operations.
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 these companies were to enter the market, we might not be able to
compete against them effectively.
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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. If our
proprietary rights are infringed by a third party, the value of our services to
our customers would be diminished and additional competition might result from
the third party's use of those rights, which would materially and adversely
affect our business and quarterly and annual results of operations. We have
filed two patent applications in the United States. In addition, we have applied
to register 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 these trademarks, our use of these trademarks would be restricted
unless we entered into arrangements with the third-party owners, which might not
be possible on reasonable terms.
Our technology collects and utilizes data derived from user activity on
the Internet. Although we believe that we generally 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 this
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 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 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, proprietary rights
to third parties. In particular, we have licensed our proprietary software to
America Online and Euroserve Media. In addition, before 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 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 claims of these types in
the past, any claims and resultant litigation, if they occur, could subject us
to significant liability for damages or could result in invalidation of our
rights. In addition, even if we were to 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 and
quarterly and annual results of operations. 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
entered into arrangements with the third parties responsible for the claims or
litigation, which might be unavailable on reasonable terms, if at all.
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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.
However, we do 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 their adherence to those privacy statements. 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.
EMPLOYEES
As of March 31, 1999, we had 109 employees, including 53 in engineering
and data center operations, 20 in sales and marketing, 20 in customer service
and support and 16 in general and administrative. Other than as described in
"Management--Employment Agreements and Severance Agreements," none of these
individuals has an employment agreement with us. 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.
FACILITIES
Our headquarters, including our principal administrative and marketing
facilities, are located in approximately 41,151 square feet of space we have
subleased in Cupertino, California, which includes a data center with a
fully-installed infrastructure. This sublease extends through April 2003. We
intend to sublet on a short-term basis approximately 40% of the office space in
our new Cupertino headquarters. Our principal data center, product development,
operations and customer service and support 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 believe our Cupertino and
Costa Mesa facilities will be adequate to meet our needs for at least the next
12 months. 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.
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 shows the name, age and position of each of our
executive officers and directors 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............... 41 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............... 39 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. Before 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.
Before 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
aided 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, that
our board of directors will be divided 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 2000; the term of office of our Class II directors will expire at the annual
meeting of stockholders to be held in 2001; and the term of office of our Class
III directors will expire at the annual meeting of the stockholders to be held
in 2002. At each annual meeting of the stockholders, beginning with the 2000
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.
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 compensation committee reviews 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.
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DIRECTOR COMPENSATION
Our directors 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 our board of directors and committee
meetings of the board of directors.
In February 1999, our board of directors adopted, and in March 1999 our
stockholders approved, the 1999 Directors Stock Option Plan. We reserved a total
of 200,000 shares of common stock for issuance under the directors plan. Members
of our board of directors who are not our employees, or employees of any parent,
subsidiary or affiliate of AdForce, are eligible to participate in the directors
plan. Option grants under the directors plan are automatic and nondiscretionary,
and the exercise price of the options must equal the fair market value of our
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 that director
becomes a member of our board of directors. We will initially grant to each
eligible director who became 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 our stockholders that
occurs after the effective date of this offering. After the effective date of
this offering, immediately following each annual meeting of our stockholders
that occurs, each eligible director will automatically be granted an additional
option to purchase 5,000 shares of common stock if that director has served
continuously as a member of our board of directors for at least one year since
the date of that director's initial grant under the directors plan. The options
have ten year terms. They will terminate seven months after the director ceases
to provide services to us either as a director or a consultant, 12 months if the
termination is due to death or disability. All options granted under the
directors 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 every month after that date. Options will
stop vesting if a director ceases to provide services to us either as a director
or a consultant. If a merger or other transaction in which we are not the
surviving corporation occurs, all options issued under the directors plan will
accelerate and become exercisable in full. If a director does not exercise
options within seven months of the corporate transaction, the options will
expire.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Before February 26, 1999, our board of directors did not have a
compensation committee and all compensation decisions were made by the full
board of directors. Beginning on February 26, 1999, our compensation committee
has made 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 shows 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 $100,000 in 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
------------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($)(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.
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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OPTION GRANTS IN LAST FISCAL YEAR
The following table shows each stock option grant during 1998 to the
officers named in the Summary Compensation Table above.
All of these options were immediately exercisable and were incentive
stock options that 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. We may also finance
the option exercise by lending the optionee funds to pay the exercise price for
the purchased shares. These options 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% every month after that
date. 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.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------------------------------- ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM(2)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED(#) FISCAL YEAR(1) ($/SH) DATE 5%($) 10%($)
- --------------------------------- ------------- ----------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Charles W. Berger................ -- -- -- -- -- --
Chad E. Steelberg................ 1,000(3) 0.1% $ 1.50 07/25/08 $ 0(3) $ 0(3)
100,000(3) 6.5 1.50 08/14/08 0(3) 0(3)
John A. Tanner................... 45,000 2.9 0.70 06/10/08 19,810 50,203
</TABLE>
- --------------------------
(1) 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.
(2) 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.
(3) 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% every month after that date.
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% every month after that date. 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% every month after that date. 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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None of the officers named in the Summary Compensation Table above
exercised any option in 1998. The table below shows the number of shares of
common stock covered by both exercisable and unexercisable stock options held as
of December 31, 1998 by each of the officers named in the Summary Compensation
Table above. 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 $11.00 per share.
FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FY-END (#) FY-END ($)
--------------------------- --------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------- ------------ ------------- ----------- -------------------
<S> <C> <C> <C> <C>
Charles W. Berger..................... -- -- -- --
Chad E. Steelberg(1).................. -- -- -- --
John A. Tanner........................ 225,000(2) -- $2,398,500 $ 0
</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% every month
after that date. 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
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 plan.
It increased this number to 2,400,000 in July 1997 and 4,000,000 in December
1997. As of March 31, 1999, options to purchase 1,626,117 shares of our common
stock had been exercised, of which 52,216 shares were repurchased by AdForce,
options to purchase 1,564,161 shares of our common stock were outstanding under
the 1997 plan with a weighted average exercise price of $0.95 and 861,938 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 plan.
Options granted under the 1997 plan are subject to terms substantially similar
to those described below with respect to options to be granted under the 1999
plan. However, options granted under the 1997 plan become fully vested if not
assumed or substituted by the successor corporation in connection with a merger
or asset sale.
STARPOINT SOFTWARE, INC. 1996 STOCK PLAN. In connection with AdForce's
acquisition of StarPoint Software, Inc., AdForce assumed all options outstanding
under the StarPoint 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. 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 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 March 31, 1999, options
to purchase 17,116 shares of common stock had been exercised, and options to
purchase 6,598 shares of common stock were outstanding under the StarPoint plan.
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<PAGE>
1999 EQUITY INCENTIVE PLAN. In February 1999, our board of directors
adopted, and in March 1999 our stockholders approved, our 1999 plan. We reserved
2,000,000 shares for issuance under the 1999 plan. Our 1999 plan will become
effective on the effective date of this offering and will serve as the successor
to our 1997 plan.
Options granted under the 1997 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 plan or the StarPoint plan after the
effective date of this offering. In some cases, shares granted or issued under
the 1997 plan or the 1999 plan may again become available for grant or issuance
under the 1999 plan. Our 1999 plan will terminate in February 2009, unless
sooner terminated in accordance with its terms. Our compensation committee
administers our 1999 plan and has the authority to construe and interpret our
1999 plan and any agreement made under it, grant awards and make all other
determinations necessary for the administration of our 1999 plan.
Our 1999 plan provides for the grant of both incentive stock options
that qualify under Section 422 of the Internal Revenue Code, and nonqualified
stock options, as well as stock awards and stock bonuses. We can grant incentive
stock options only to employees. We can grant other awards to employees,
officers, directors, consultants, independent contractors and advisors. However,
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 our common stock on the date of grant. The
exercise price of nonqualified stock options must be at least equal to 85% of
the fair market value of our common stock on the date of grant. The maximum term
of options granted under our 1999 plan is ten years. Options granted under our
1999 plan generally expire three months after the termination of the optionee's
service. 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 directors plan.
1999 EMPLOYEE STOCK PURCHASE PLAN. In February 1999, our Board of
Directors adopted, and in March 1999 our stockholders approved, our purchase
plan. We reserved a total of 300,000 shares of common stock for issuance under
our purchase plan. On each January 1, the total number of shares reserved for
issuance will be increased automatically by the number of shares purchased under
our purchase plan in the preceding calendar year. The total number of shares
issued over the term of our purchase plan may not exceed 3,000,000 shares. Our
compensation committee administers our purchase plan and has the authority to
construe and interpret it. Our purchase plan will become effective on the
effective date of this offering.
Employees generally will be eligible to participate in our purchase plan
if they are employed for more than 20 hours per week and more than five months
in a calendar year. Under our purchase plan, we permit employees to acquire
shares of our common stock through payroll deductions. 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 purchase
plan. Participation in our purchase plan will end automatically upon termination
of employment for any reason. Each offering period under our 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 date of this offering. The first
purchase period may be more or less than six months long. Offering periods and
purchase periods after the date of this offering will begin on February 1 and
August 1. The purchase price under our purchase plan will be 85% of the lesser
of the fair market value of our common stock on the first day of the applicable
offering period or the last day of each
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<PAGE>
purchase period. Our purchase plan will terminate in February 2009, unless
earlier terminated pursuant to its terms. Our board of directors has the
authority to amend, terminate or extend the term of our purchase plan. However,
stockholder approval is required to increase the number of shares that may be
issued or to change the terms of eligibility. Our board of directors is also
able to make amendments to our purchase plan if the financial accounting
treatment for our purchase plan is different than the financial accounting
treatment in effect on the date that it adopted our purchase plan.
401(k) PLAN. We sponsor a defined contribution plan intended to qualify
under Section 401 of the Internal Revenue Code. All employees 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 15% 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 after that date as to 2.08% of the shares for so long as he remains in
service with 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 before that 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, if (1) a change of control
occurs, (2) Mr. Berger's option is assumed and (3) his employment is
involuntarily terminated or Mr. Berger resigns for good reason 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 termination. Under the letter agreement, 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, and 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
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<PAGE>
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 under AdForce's incentive 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 before 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, 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.
The vesting of Mr. Jackson's options will accelerate in the same manner as Mr.
Berger's upon the changes in control described on the preceding page.
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, instead 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 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;
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<PAGE>
- 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 regarding
unlawful dividends and stock purchases; or
- for any transaction from which the director derived an improper
personal benefit.
As permitted by Delaware law, our bylaws provide that:
- we must indemnify our directors and officers to the fullest extent
permitted by Delaware law, 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 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 Delaware law, subject to certain very limited exceptions; and
- the rights conferred in our bylaws are not exclusive.
In addition to the indemnification required in our certificate of
incorporation and bylaws, we intend to enter into indemnity agreements, prior to
the completion of this offering, with each of our current directors and
officers. These agreements provide 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 some of our 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
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 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
We have never 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 had or will have an interest other than as described
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,
respectively. 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 one of our principal stockholders,
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 indebtedness of AdForce
with the proceeds of the sale, AdForce entered into certain agreements with
certain of its founders. Pursuant to such agreements, AdForce repurchased 7,886
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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%, 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 one of our principal stockholders, 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 had an annual
interest rate of 8%.
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 amendments to our then effective articles of incorporation
that, if not amended, would have triggered some 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 Series
D preferred stock at an exercise price of $6.865 per share. The warrants are
exercisable on or before July 14, 2003. The
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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, which has been acquired by Adsmart. Two of AdForce's founders, Chad
Steelberg and Ryan Steelberg, worked for 2CAN Media, and now work for Adsmart.
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 or demographic data
agreement by America Online. For the duration of the license, if requested, we
will provide technical support, development services 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 America Online provides us access to demographic data
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 commercially
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. To date, America Online has not used our technology on
its sites and has not requested any services from us.
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. AdForce and America Online will establish a timetable and procedures 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. If we receive demographic information from America Online, the
demographic information will not identify the user by name or address, and will
only be able to be used for serving targeted ads to America Online users. We
cannot use the demographic data to serve ads from advertisers or Web sites that
America Online finds objectionable, or from advertisers or Web sites on a list
provided by America Online. America Online may add names to this list at will,
but expenditures of these advertisers and revenues of these sites cannot exceed
25% of available advertising dollars on the Internet. America Online reserves
the right to limit or discontinue access to demographic data in the event of
adverse publicity, regulation, legal claims or changes to
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America Online advertising and privacy policies. If we receive 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 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 this access.
We believe that the transactions described above were made on terms no
less favorable to us than could have been obtained from unaffiliated third
parties.
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PRINCIPAL STOCKHOLDERS
The following table shows certain information with respect to beneficial
ownership of our common stock as of March 31, 1999 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 officers named in the Summary Compensation
Table above; and (4) all executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the
SEC 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 following 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 March 31, 1999
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.
The following table assumes that the underwriters' over-allotment option
to purchase up to 675,000 shares from AdForce is not exercised.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
NUMBER OF SHARES ------------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OFFERING OFFERING
- ------------------------------------------------------ ---------------- ----------- -----------
<S> <C> <C> <C>
America Online, Inc.(1)............................... 2,476,326 15.8% 12.3%
360 Capital Partners, L.P.(2)......................... 1,268,500 8.6 6.6
Mark P. Gorenberg(3)
Funds affiliated with Hummer Winblad................ 1,222,836 8.3 6.4
Chad Steelberg(4)..................................... 1,163,620 7.9 6.1
J. Neil Weintraut(5)
21(st) Century Internet Fund, L.P................... 1,145,428 7.8 6.0
Eric Di Benedetto(6)
Funds affiliated with Convergence Ventures.......... 1,047,778 7.1 5.5
IBL Corporation(7).................................... 1,043,556 7.1 5.4
Charles W. Berger(8).................................. 900,000 6.1 4.7
Dirk A. Wray(9)....................................... 649,952 4.4 3.4
John A. Tanner(10).................................... 225,000 1.5 1.2
All executive officers and directors as a group (10
persons)(11)......................................... 6,080,994 38.5 30.0
</TABLE>
- ------------------------
(1) Represents 1,456,664 shares held of record by America Online, Inc. and
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.
(2) The address of 360 Capital Partners, L.P. is 360 East 22(nd) Street,
Lombard, Illinois 60148.
(3) Represents (a) 1,099,614 shares held of record by Hummer Winblad Venture
Partners II, L.P., (b) 70,774 shares held of record by Hummer Winblad
Venture Fund II, L.P., (c) 41,450 shares held of record by Hummer Winblad
Technology Fund II, L.P., (d) 7,314 shares held of record by Hummer Winblad
Technology Fund II-A, L.P, (e) 3,538 shares subject to a warrant held by
Hummer Winblad Venture Fund II, L.P. that is currently exercisable, (f) 124
shares subject to a warrant held by Hummer Winblad Technology Fund II, L.P.
that is currently exercisable, and (g) 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
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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.
(4) Includes 1,019,620 shares held of record by Mr. Steelberg and 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.
(5) 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 Management Partners, LLC, a 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.
(6) Represents (a) 991,332 shares held of record by Convergence Ventures I,
L.P., (b) 48,838 shares held of record by Convergence Entrepreneurs Fund I,
L.P., (c) 7,282 shares subject to a warrant held by Convergence Ventures I,
L.P. that is currently exercisable, and (d) 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.
(7) Represents 1,039,916 shares held of record by IBL Corporation and 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.
(8) Includes 468,750 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.
(9) Includes 530,952 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.
(10) Includes 225,000 shares subject to options exercisable within 60 days of
March 31, 1999 of which 140,625 remain subject to a repurchase right which
lapses at the rate of 2.08% per month until November 3, 2001. Mr. Tanner
is our Executive Vice President and Chief Financial Officer.
(11) Represents 4,954,702 shares held of record by current executive officers
and directors as a group and 1,126,292 shares subject to options or
warrants exercisable within 60 days of March 31, 1999 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, our authorized
capital stock will consist of 100,000,000 shares of common stock, and 5,000,000
shares of preferred stock. As of March 31, 1999, assuming the conversion of all
outstanding preferred stock into common stock, there were outstanding 14,669,429
shares of common stock held of record by 167 stockholders, options to purchase
2,280,759 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 for dividends at
times and in 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 our 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 for those shares, 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 the notes
to the 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 series, to fix the rights, preferences and
privileges of the shares of each series and any qualifications, limitations or
restrictions on those shares, 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 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 rights to
register of those shares. As a result of an Investors' Rights Agreement dated as
of July 15, 1998 between AdForce and certain of our stockholders, the
stockholders, holding an aggregate of 9,244,152 shares of our common stock
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 rights to register their shares that they may exercise at any time
after 180 days following the closing of this offering. Under the Investors'
Rights Agreement, holders of: (1) at least 30% of the voting power of the
outstanding Series B preferred stock, (2) 30% of the voting power of the
outstanding Series C preferred stock, (3) a majority of the voting power of the
outstanding Series D
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preferred stock or (4) a majority of the voting power of the outstanding Series
E preferred stock may demand, by written request, that we 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, or $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 Investors' Rights
Agreement, and holders of rights to acquire 100,176 shares of common stock, have
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 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 that
stockholder's 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. Section 203 prevents some 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 Section 203, a business combination
includes a merger or consolidation involving AdForce and the interested
stockholders and the sale of more than 10% of our assets. In general, Section
203 defines an interested stockholder as any entity or person owning 15% or more
of our outstanding voting stock and any entity or person affiliated with or
controlled by or controlling that entity or person.
A Delaware corporation may opt out of Section 203 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 Section 203. Section 203 could prohibit
or delay mergers or other takeover or change-in-control attempts with respect to
us and, accordingly, may discourage attempts to acquire us.
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CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
Our certificate of incorporation and bylaws provide for the division of
our board of directors into three classes as nearly equal in size as reasonably
possible with staggered three-year terms. Our stockholders are unable 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 that meeting and
may not be taken by written consent. Our stockholders are limited in their
ability to remove any director or the entire board of directors without cause.
Our 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,
stockholders that are entitled to cast not less than a majority of the total
number of votes entitled to be cast by all stockholders of that special meeting,
or by a majority of the members of the board of directors. These provisions of
our 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 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 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 our management. See "Risk
Factors--Provisions in Our Charter Documents May Deter Acquisition Bids for
AdForce."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services, LLC.
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SHARES ELIGIBLE FOR FUTURE SALE
Before 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 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. In addition, since few shares will be available for sale
immediately after this offering due to the 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 19,169,429
shares of common stock based on shares outstanding at March 31, 1999, assuming
no exercise of the underwriters' over-allotment option and no exercise of
outstanding options or warrants. Of this amount, 5,207,368 shares, including the
4,500,000 shares sold in this offering, will be freely tradable in the public
market without restriction or further registration under the Securities Act,
unless those shares are purchased by any of our affiliates. An affiliate of
AdForce is a person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
AdForce. Our current affiliates include the individuals and entities listed
under "Principal Stockholders" as well as our other executive officers. The
remaining 13,962,061 shares held by existing stockholders are subject to various
resale restrictions. Of these shares, 12,512,441 shares are subject to lock-up
agreements with the underwriters, under 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. An
additional 1,449,620 shares are subject to a 180-day lockup through agreements
directly with us that we have agreed to enforce if requested by the
underwriters. Beginning 180 days after the date of this prospectus, the
13,962,061 shares subject to various resale restrictions will be eligible for
sale in the public market under Rule 144 or Rule 701, although 6,411,366 shares
will be subject to volume limitations. The remaining shares subject to various
resale restrictions will become eligible for sale, subject to volume
limitations, on October 28, 1999.
RULE 144
In general, under Rule 144, beginning 90 days after the date of this
prospectus, an affiliate of AdForce 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, equal to
approximately 191,694 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 SEC.
Sales under Rule 144 are also subject to 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
63
<PAGE>
sell those shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144.
RULE 701
In general, under Rule 701 of the Securities Act, 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 those 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 rights to register their shares under the Securities Act. See
"Description of Capital Stock--Registration Rights." After registration, these
shares could be sold without restriction under the Securities Act.
STOCK OPTIONS
Promptly following this offering, we will file a registration statement
under the Securities Act covering all shares of common stock subject to
outstanding options or reserved for issuance under our 1999 plan, our directors
plan or our stock purchase plan. Based on the number of shares subject to
options outstanding at March 31, 1999 and currently reserved for issuance under
these plans, this registration statement would cover approximately 5,642,697
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.
64
<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 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........................................................... 4,500,000
-----------
-----------
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to certain conditions, 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 underwriters are committed to purchase all of the shares of common
stock offered by us if they purchase any shares.
The underwriters propose to offer the shares of common stock directly to
the public initially at the initial public offering price shown on the cover
page of this prospectus and to certain dealers at that 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 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 675,000 additional
shares of common stock at the initial public offering price, less the
underwriting discounts shown 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 by us. 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 this option only
to cover over-allotments made in connection with the sale of shares of common
stock offered by us.
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 of those
liabilities.
AdForce and its officers, directors and certain other stockholders, who
will own in the aggregate 12,512,441 shares of common stock after the offering,
have agreed that they will not, without the prior written consent of Hambrecht &
Quist LLC, offer, sell, or otherwise dispose of any shares of common
65
<PAGE>
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 these shares in the future could adversely affect
the market price of the common stock.
Of the 4,500,000 shares of common stock to be sold in this offering, the
underwriters have reserved for sale, at the price to public shown on the cover
page of this prospectus, up to 393,750 shares as follows: (1) at our request, up
to 258,750 shares for our directors, officers and business associates and (2) up
to an additional 135,000 shares for 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 any reserved shares that are not
so purchased on the same basis as the other shares to be sold in this offering.
Before this offering, you could not buy or sell our common stock on a
public market. The initial public offering price for the common stock will be
negotiated by AdForce and the underwriters. Among the factors to be considered
in determining the initial public offering price will be 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, and the present state of AdForce's
business operations and AdForce's management. The estimated initial public
offering price range shown on the cover of this preliminary prospectus is
subject to change as a result of changes in these factors.
Some of the persons participating in this offering may over-allot or
effect transactions that stabilize, maintain or otherwise affect the market
price of the common stock at levels above those that 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. Stabilizing transactions may be effected on the Nasdaq
National Market, in the over-the-counter market, or otherwise. Stabilizing
transactions, 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 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 amendments to our then
effective 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.
66
<PAGE>
LEGAL MATTERS
Fenwick & West LLP, Palo Alto, California, will pass upon the validity
of the shares of common stock offered by us. 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.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 with
respect to the common stock offered by us. This prospectus, which constitutes a
part of the registration statement, does not contain all of the information in
the registration statement or the exhibits and schedule that are part of the
registration statement. For further information with respect to AdForce and the
common stock, please see the registration statement and the exhibits and
schedule that are part of the registration statement. 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, as required by the Securities Exchange Act, we will file periodic reports,
proxy statements and other information with the SEC. These 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.
67
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
ADFORCE, INC.:
Report of Ernst & Young LLP, Independent Auditors.................................. F-2
Balance Sheets..................................................................... F-3
Statements of Operations........................................................... F-4
Statements of Stockholders' Equity................................................. F-5
Statements of Cash Flows........................................................... F-6
Notes to Financial Statements...................................................... F-7
STARPOINT SOFTWARE, INC.:
Report of Ernst & Young LLP, Independent Auditors.................................. F-25
Balance Sheets..................................................................... F-26
Statements of Operations........................................................... F-27
Statements of Shareholders' Equity (Net Capital Deficiency)........................ F-28
Statements of Cash Flows........................................................... F-29
Notes to Financial Statements...................................................... F-30
</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 April , 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
April 14, 1999
F-2
<PAGE>
ADFORCE, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
MARCH 31, PRO FORMA
----------- STOCKHOLDERS'
1999 EQUITY AT MARCH
----------- 31, 1999
-----------------
(UNAUDITED)
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 1,680 $ 10,045 $ 9,727
Accounts receivable, net of allowances of $131, $1,035, and $1,187
at December 31, 1997 and 1998 and March 31, 1999,
respectively.................................................... 239 1,160 1,348
Prepaid expenses and other current assets......................... 404 575 676
--------- --------- -----------
Total current assets................................................ 2,323 11,780 11,751
Property and equipment, net......................................... 1,946 4,208 7,219
Intangible assets, net.............................................. -- 3,602 3,364
Other non-current assets............................................ -- 285 1,005
--------- --------- -----------
Total assets........................................................ $ 4,269 $ 19,875 23,339
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................. $ 374 $ 1,078 $ 2,608
Accrued compensation and related benefits......................... 85 458 715
Deferred revenue.................................................. -- 10 2,369
Other accrued liabilities......................................... 192 799 679
Current portion of capital lease obligations...................... 499 1,460 2,336
--------- --------- -----------
Total current liabilities........................................... 1,150 3,805 8,707
Long-term portion of capital lease obligations...................... 1,744 3,089 5,183
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 March 31,
1999, and none pro forma, aggregate liquidation preference at
December 31, 1998 and March 31, 1999 of $1,507................ 1 1 1 $ --
Series B, 1,100,000 shares designated, 1,027,318 shares issued
and outstanding as of December 31, 1997 and 1998, and March
31, 1999, and none pro forma, aggregate liquidation preference
at December 31, 1998 and March 31, 1999 of $2,579............. 1 1 1 --
Series C, 1,725,000 shares designated, 1,275,000, 1,646,948, and
1,646,948 shares issued and outstanding as of December 31,
1997 and 1998, and March 31, 1999, respectively, and none pro
forma, aggregate liquidation preference at December 31, 1998
and March 31, 1999 of $7,790.................................. 1 1 1 --
Series D, 786,500 shares designated, 730,504 shares issued and
outstanding as of December 31, 1998 and March 31, 1999 and
none pro forma, aggregate liquidation preference at December
31, 1998 and March 31, 1999 of $10,030........................ -- 1 1 --
Series E, 1,238,163 shares designated, 728,332 shares issued and
outstanding as of December 31, 1998 and March 31, 1999 and
none pro forma, aggregate liquidation preference at December
31, 1998 and March 31, 1999 of $10,000........................ -- 1 1 --
Common stock, $0.001 par value: 40,000,000 shares authorized:
3,270,330, 5,016,603, and 5,202,311 shares issued and
outstanding as of December 31, 1997 and 1998 and March 31, 1999,
respectively, and 14,669,429 shares issued and outstanding pro
forma 3 5 5 15
Additional paid-in capital........................................ 10,623 39,879 44,234 44,229
Deferred stock compensation....................................... -- (2,662) (5,713) (5,713)
Note receivable from stockholder.................................. (98) (70) (63) (63)
Accumulated deficit............................................... (9,156) (24,176) (29,019) (29,019)
--------- --------- ----------- -------
Total stockholders' equity.......................................... 1,375 12,981 9,449 $ 9,449
--------- --------- ----------- -------
--------- --------- ----------- -------
Total liabilities and stockholders' equity.......................... $ 4,269 $ 19,875 $ 23,339
--------- --------- -----------
--------- --------- -----------
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
ADFORCE, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
PERIOD FROM YEARS ENDED DECEMBER
JANUARY 16, 1996 31, MARCH 31,
(INCEPTION) TO -------------------- --------------------
DECEMBER 31, 1996 1997 1998 1998 1999
----------------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue............................. $ -- $ 320 $ 4,286 $ 414 $ 3,220
Cost of revenue:
Data center operations................ -- 1,508 4,439 709 1,915
Amortization of intangible assets and
deferred stock compensation......... -- -- 620 101 239
------- --------- --------- --------- ---------
Total cost of revenue................. -- 1,508 5,059 810 2,154
------- --------- --------- --------- ---------
Gross profit (loss)..................... -- (1,188) (773) (396) 1,066
Operating expenses:
Research and development.............. 1,561 2,236 4,665 818 2,244
Marketing and selling................. 1,485 1,054 4,863 613 1,773
General and administrative............ 337 1,118 1,839 390 615
Amortization of intangible assets and
deferred stock compensation......... -- -- 2,729 163 1,204
------- --------- --------- --------- ---------
Total operating expenses................ 3,383 4,408 14,096 1,984 5,836
------- --------- --------- --------- ---------
Loss from operations.................... (3,383) (5,596) (14,869) (2,380) (4,770)
Interest income......................... -- 21 365 6 99
Interest expense........................ (69) (129) (516) (109) (172)
------- --------- --------- --------- ---------
Net loss................................ $ (3,452) $ (5,704) $ (15,020) $ (2,483) $ (4,843)
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Basic and diluted net loss per share.... $ (1.40) $ (3.48) $ (5.28) $ (1.19) $ (1.22)
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Weighted average shares of common stock
outstanding used in computing basic
and diluted net loss per share........ 2,465 1,639 2,844 2,079 3,966
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Pro forma basic and diluted net loss per
share................................. $ (1.38) $ (0.36)
--------- ---------
--------- ---------
Weighted average shares used in
computing pro forma basic and diluted
net loss per share.................... 10,877 13,402
--------- ---------
--------- ---------
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
ADFORCE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED
STOCK COMMON STOCK
---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- -----------
<S> <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
Issuance of common stock....................................................... -- -- 2,003,000 2
Repurchase of common stock..................................................... -- -- (1,612,900) (2)
Issuance of Series A convertible preferred stock upon conversion of note
payable, net of issuance costs of $97........................................ 600,457 1 -- --
Issuance of Series B convertible preferred stock............................... 110,000 -- -- --
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 -- --
Net loss....................................................................... -- -- -- --
--------- ----- --------- -----
Balances at December 31, 1996.................................................... 1,627,775 2 2,330,100 2
Issuance of common stock....................................................... -- -- 940,230 1
Forgiveness of stockholder note receivable..................................... -- -- -- --
Issuance of Series C convertible preferred stock, net of issuance costs of
$72.......................................................................... 1,275,000 1 -- --
Issuance of warrants........................................................... -- -- -- --
Net loss....................................................................... -- -- -- --
--------- ----- --------- -----
Balances at December 31, 1997.................................................... 2,902,775 3 3,270,330 3
Issuance of common stock....................................................... -- -- 868,439 1
Deferred stock compensation related to certain options granted to employees.... -- -- -- --
Amortization of deferred stock compensation.................................... -- -- -- --
Compensation related to acceleration of vesting of founders' stock............. -- -- -- --
Issuance of Series C convertible preferred stock and common stock in
acquisition.................................................................. 309,738 -- 877,834 1
Issuance of Series C convertible preferred stock, net of issuance costs of
$26.......................................................................... 62,210 -- -- --
Issuance of Series D convertible preferred stock, net of issuance costs of
$74.......................................................................... 730,504 1 -- --
Issuance of Series E convertible preferred stock, net of issuance costs of
$112......................................................................... 728,332 1 -- --
Forgiveness of stockholder note receivable..................................... -- -- -- --
Issuance of warrants........................................................... -- -- -- --
Net loss....................................................................... -- -- -- --
--------- ----- --------- -----
Balances at December 31, 1998.................................................... 4,733,559 5 5,016,603 5
Issuance of common stock (unaudited)........................................... -- -- 185,708 --
Deferred stock compensation related to certain options granted to employees,
net (unaudited).............................................................. -- -- -- --
Amortization of deferred compensation (unaudited).............................. -- -- -- --
Compensation related to acceleration of vesting of employee options
(unaudited).................................................................. -- -- -- --
Forgiveness of stockholder note receivable (unaudited)......................... -- -- -- --
Issuance of warrants (unaudited)............................................... -- -- -- --
Net loss (unaudited)........................................................... -- -- -- --
--------- ----- --------- -----
Balances at March 31, 1999 (unaudited)........................................... 4,733,559 $ 5 5,202,311 $ 5
--------- ----- --------- -----
--------- ----- --------- -----
<CAPTION>
NOTE
DEFERRED RECEIVABLE
ADDITIONAL STOCK FROM
PAID-IN CAPITAL COMPENSATION STOCKHOLDER
--------------- ------------- -------------
<S> <C> <C>
Issuance of common stock to founders in partial consideration for intellectual
property rights assigned to the Company...................................... $ 6 $ -- $ --
Issuance of common stock....................................................... 8 -- --
Repurchase of common stock..................................................... (6) -- --
Issuance of Series A convertible preferred stock upon conversion of note
payable, net of issuance costs of $97........................................ 1,408 -- --
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.......................................................................... 2,560 -- --
Net loss....................................................................... -- -- --
------- ------------- -------------
Balances at December 31, 1996.................................................... 4,526 -- --
Issuance of common stock....................................................... 116 -- (112)
Forgiveness of stockholder note receivable..................................... -- -- 14
Issuance of Series C convertible preferred stock, net of issuance costs of
$72.......................................................................... 5,958 -- --
Issuance of warrants........................................................... 23 -- --
Net loss....................................................................... -- -- --
------- ------------- -------------
Balances at December 31, 1997.................................................... 10,623 -- (98)
Issuance of common stock....................................................... 90 -- --
Deferred stock compensation related to certain options granted to employees.... 3,714 (3,714) --
Amortization of deferred stock compensation.................................... -- 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.................................................................. 1,684 -- --
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.......................................................................... 9,954 -- --
Issuance of Series E convertible preferred stock, net of issuance costs of
$112......................................................................... 9,887 -- --
Forgiveness of stockholder note receivable..................................... -- -- 28
Issuance of warrants........................................................... 2,251 --
Net loss....................................................................... -- -- --
------- ------------- -------------
Balances at December 31, 1998.................................................... 39,879 (2,662) (70)
Issuance of common stock (unaudited)........................................... 92 -- --
Deferred stock compensation related to certain options granted to employees,
net (unaudited).............................................................. 4,139 (4,139) --
Amortization of deferred compensation (unaudited).............................. -- 1,088 --
Compensation related to acceleration of vesting of employee options
(unaudited).................................................................. 124 -- --
Forgiveness of stockholder note receivable (unaudited)......................... -- -- 7
Issuance of warrants (unaudited)............................................... -- -- --
Net loss (unaudited)........................................................... -- -- --
------- ------------- -------------
Balances at March 31, 1999 (unaudited)........................................... $ 44,234 $ (5,713) $ (63)
------- ------------- -------------
------- ------------- -------------
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
------------- -------------
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....................................................... -- 5
Forgiveness of stockholder note receivable..................................... -- 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.................................................... (9,156) 1,375
Issuance of common stock....................................................... -- 91
Deferred stock compensation related to certain options granted to employees.... -- --
Amortization of deferred stock compensation.................................... -- 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
Issuance of warrants........................................................... 2,251
Net loss....................................................................... (15,020) (15,020)
------------- -------------
Balances at December 31, 1998.................................................... (24,176) 12,981
Issuance of common stock (unaudited)........................................... -- 92
Deferred stock compensation related to certain options granted to employees,
net (unaudited).............................................................. -- --
Amortization of deferred compensation (unaudited).............................. -- 1,088
Compensation related to acceleration of vesting of employee options
(unaudited).................................................................. -- 124
Forgiveness of stockholder note receivable (unaudited)......................... -- 7
Issuance of warrants (unaudited)............................................... -- --
Net loss (unaudited)........................................................... (4,843) (4,843)
------------- -------------
Balances at March 31, 1999 (unaudited)........................................... $ (29,019) $ 9,449
------------- -------------
------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
ADFORCE, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
PERIOD FROM YEARS ENDED DECEMBER
JANUARY 16, 1996 31, MARCH 31,
(INCEPTION) TO -------------------- --------------------
DECEMBER 31, 1996 1997 1998 1998 1999
----------------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................... $ (3,452) $ (5,704) $ (15,020) $ (2,483) $ (4,843)
Reconciliation of net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization.................... 158 797 3,006 568 940
Amortization of deferred stock compensation and
other compensation charges..................... -- -- 2,459 9 1,212
Loss on sale of assets........................... -- -- 281 -- 15
Acquired in-process technology................... 319 -- 100 -- --
Other non-cash charges........................... -- 14 51 7 7
Changes in operating assets and liabilities:
Accounts receivable............................ -- (239) (908) (210) (188)
Prepaid expenses and other current assets and
other non-current assets..................... (75) (329) (449) 155 (821)
Accounts payable............................... 566 (192) 239 (290) 1,530
Accrued compensation and related benefits...... 61 24 61 77 257
Deferred revenue............................... -- -- 10 -- 2,359
Other accrued liabilities...................... 150 42 577 388 (120)
------- --------- --------- --------- ---------
Net cash (used in) provided by operating
activities................................. (2,273) (5,587) (9,593) (1,779) 348
------- --------- --------- --------- ---------
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) (158) (343)
------- --------- --------- --------- ---------
Net cash used in investing activities........ (1,354) (163) (1,186) (158) (343)
------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale-leaseback transaction......... -- 1,033 -- -- --
Principal payments on capital lease
obligations.................................... -- (248) (923) (113) (415)
Proceeds from issuance of common stock, net...... 2 5 86 27 92
Proceeds from issuance of preferred stock, net... 3,014 5,959 19,594 269 --
Proceeds from issuance of notes payable.......... 1,757 -- 500 500 --
Repayment of notes payable....................... (465) -- (113) (113) --
------- --------- --------- --------- ---------
Net cash provided by (used in) financing
activities................................. 4,308 6,749 19,144 570 (323)
------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS...................................... 681 999 8,365 (1,367) (318)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD... -- 681 1,680 1,680 10,045
------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD......... $ 681 $ 1,680 $ 10,045 $ 313 $ 9,727
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the year for interest............. $ 69 $ 126 $ 457 $ 70 $ 116
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING/FINANCING ACTIVITIES
Property and equipment acquired under capital
leases........................................... $ -- $ 1,458 $ 3,389 $ 1,114 $ 3,370
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
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 $ 1,685 $ --
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
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 and $29,019,000 at December 31, 1998 and March 31, 1999,
respectively. 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.
INTERIM FINANCIAL INFORMATION
The financial information as of March 31, 1999 and for the three months
ended March 31, 1998 and 1999 is unaudited but includes all adjustments,
consisting only of normal recurring adjustments, that AdForce's management
considers necessary for a fair presentation of AdForce's operating results and
cash flows for such period. Results for the three month period ended March 31,
1999 are not necessarily indicative of results to be expected for the full
fiscal year of 1999 or for any future period.
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.
During the three months ended March 31, 1999 four customers accounted for 23%,
21%, 20%, and 12% of net revenue. Three of these customers accounted for
approximately 39%, 33%, and 12% of AdForce's net accounts receivable at March
31, 1999.
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 and
F-7
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
March 31, 1999, 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.
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 a data vendor. 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 and March 31, 1999, the Company has accumulated
amortization related to intangible assets of $849,000 and $1,087,000,
respectively.
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, $125,000, and $270,000 for the years
ended December 31, 1997 and 1998 and the three months ended March 31, 1999,
respectively.
F-8
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
To date, substantially all of AdForce's revenues have been generated
from the provision of Internet advertising management and delivery services for
its customers. AdForce recognizes revenues from these services 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. Prepaid amounts for
advertising management and delivery services are recorded as deferred revenue
until the related services are delivered.
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.
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
F-9
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
convertible preferred stock outstanding as of March 31, 1999 will automatically
be converted into an aggregate of 9,467,118 shares of common stock. Pro forma
stockholders' equity at March 31, 1999, as adjusted for the conversion of
convertible preferred stock, is disclosed on the balance sheet.
Historical and pro forma basic and diluted net loss per share are as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
PERIOD FROM YEARS ENDED DECEMBER
JANUARY 16, 1996 31, MARCH 31,
(INCEPTION) TO -------------------- --------------------
DECEMBER 31, 1996 1997 1998 1998 1999
------------------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Historical:
Net loss................................ $ (3,452) $ (5,704) $ (15,020) $ (2,483) $ (4,843)
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Basic and diluted shares:
Weighted average shares of common stock
outstanding........................... 3,665 2,836 4,443 3,720 5,108
Less weighted average shares subject to
repurchase............................ (1,200) (1,197) (1,599) (1,641) (1,142)
------- --------- --------- --------- ---------
Weighted average shares of common stock
outstanding used in computing basic
and diluted net per loss share........ 2,465 1,639 2,844 2,079 3,966
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Basic and diluted net loss per share.... $ (1.40) $ (3.48) $ (5.28) $ (1.19) $ (1.22)
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Pro forma:
Net loss................................ $ (15,020) $ (4,843)
--------- ---------
--------- ---------
Weighted average shares of common stock
outstanding used in computing basic
and diluted net loss per share........ 2,844 3,966
Adjusted to reflect the assumed
conversion of convertible preferred
stock from the date of issuance....... 8,033 9,436
--------- ---------
Weighted average shares used in
computing pro forma basic and diluted
net loss per share.................... 10,877 13,402
--------- ---------
--------- ---------
Pro forma basic and diluted net loss per
share................................. $ (1.38) $ (0.36)
--------- ---------
--------- ---------
</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, 3,217,546, and 3,575,445 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 and for the three
months ended March 31, 1999, respectively. The common equivalent shares from
options and warrants would be determined on a weighted average basis using the
treasury stock method.
F-10
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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, revenues from customers outside the United States were
$375,000. The majority of this revenue was from 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 implemented SOP No. 98-1 on January 1, 1999. The adoption
of SOP No. 98-1 did not 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 implemented SOP No. 98-5 on January 1, 1999. The adoption of
SOP No. 98-5 did not 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 does not currently hold any derivative instruments and
does 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)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
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 based on the price at which the Series C preferred stock was sold by
the Company in November 1997, (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
based on the deemed fair value of the Company's common stock at the time of
issuance, (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 of $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)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
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
--------- --------- MARCH 31,
-----------
1999
-----------
(UNAUDITED)
<S> <C> <C> <C>
Computer hardware and software.................. $ 2,648 $ 6,475 $ 9,727
Office furniture and equipment.................. 155 345 576
Leasehold improvements.......................... 76 152 363
--------- --------- -----------
2,879 6,972 10,666
Less accumulated depreciation and
amortization.................................. 933 2,764 3,447
--------- --------- -----------
$ 1,946 $ 4,208 $ 7,219
--------- --------- -----------
--------- --------- -----------
</TABLE>
As of December 31, 1997 and 1998 and March 31, 1999, property and
equipment included amounts acquired under capital leases of $2,491,000,
$5,140,000 and $8,510,000, respectively, with related accumulated amortization
of $740,000, $1,714,000, and $2,202,000, respectively. This includes property
and equipment with a net book value of $589,000 and $447,000 at December 31,
1998 and March 31, 1999, respectively, that was acquired in 1996 and financed in
1997 through a sale-leaseback transaction.
F-13
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
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 at any time
on or before July 14, 2003 (See Note 8). AdForce determined the fair value of
the warrants to be $3,686,000 using the Black-Scholes method. Approximately
$1,669,000 of the value of the warrant was attributable to the Series E
preferred stock agreement and approximately $2,019,000 of the value of the
warrant was attributable to the Demographic Data Agreement. The amount related
to the Demographic Data Agreement will be amortized to cost of revenue over the
three year term of the agreement beginning upon the earlier of commencement of
activities under the agreement or July 14, 1999.
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 date, 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 and certain
equipment under non-cancelable operating lease agreements that expire in April
2004. Rent expense was approximately $81,000, $210,000, $536,000, and $322,000
for the period from January 16, 1996 (inception) to December 31, 1996, for the
years ended December 31, 1997 and 1998 and for the three months ended March 31,
1999, respectively.
F-14
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
6. COMMITMENTS (CONTINUED)
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 and $169,000 in unused lease-line credit
remained available under these lease agreements at December 31, 1998 and March
31, 1999, respectively.
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>
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. A total of $1.4 million in borrowings were drawn under this arrangement
during the three month period ended March 31, 1999. Approximately $2.6 million
in unused lease-line credit remained available under this lease agreement at
March 31, 1999.
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-15
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
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.
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.
F-16
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
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, upon
the termination of employment of the respective founders. 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 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
F-17
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
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. The Company is recording
compensation expense related to the forgiveness of the note as the note is
forgiven.
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
NATURE OF RELATED UNDER EXPIRATION OF
PARTY CLASS OF STOCK TRANSACTION DATE OF ISSUANCE WARRANT EXERCISE PRICE EXERCISABILITY
- ---------------- ------------------- ------------------- ---------------- --------- -------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Vendor Common stock Recruiting services April 1997 6,142 $1.26 - $2.37 October 15, 2007
Vendor Series B Capital lease March 1997 27,889 $2.51 December 31, 2002
convertible agreement
preferred stock
Vendors Series C Capital lease December 1997 59,197 $4.73 December 31, 2002
convertible agreements through December
preferred stock 2, 2007
Vendor Series D Capital lease September 1998 10,925 $13.73 September 29, 2008
convertible agreement
preferred stock
Private Series D Series D July 1998 36,430 $13.73 July 14, 2003
Investors convertible convertible
preferred stock preferred stock
agreement
Private Series E Series E July 1998 509,831 $13.73 July 14, 2003
Investor/ convertible convertible
Vendor preferred stock preferred stock
agreement and
Demographic Data
Agreement
</TABLE>
F-18
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
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.
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 expenses 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.
F-19
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
A summary of activity under the Plan, the StarPoint Plan and non-plan
options 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
Shares authorized (unaudited).......... 710,000 -- -- --
Options granted (unaudited)............ (816,000) 816,000 $1.500-$7.500 $ 1.787
Options exercised (unaudited).......... -- (185,708) $0.125-$1.500 $ 0.495
Options canceled (unaudited)........... 265,170 (272,393) $0.125-$7.500 $ 0.993
------------- ------------ -------------
Balances at March 31, 1999 (unaudited)... 861,938 2,280,759 $0.125-$7.500 $ 1.121
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
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 during the
year ended December 31, 1998 and the three months ended March 31, 1999, AdForce
recorded deferred stock compensation of approximately $3,714,000 and $4,139,000,
respectively, between the exercise prices of
F-20
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
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
amounts are included as a reduction of stockholders' equity and are being
amortized on a graded vesting method. The compensation expense of $1,052,000 and
$1,088,000 during 1998 and the three months ended March 31, 1999, respectively,
relate to options awarded to employees in all operating expense categories, as
well as employees in data center operations. These amounts have not been
separately allocated between operating expense categories.
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, 1998 and
the three months ended March 31, 1999 with an exercise price equal to the fair
value of AdForce's common stock on the date of grant was $0.06, $0.06, and
$1.63, respectively. The weighted-average fair value of options granted during
1998 and during the three month period ended March 31, 1999 with an exercise
price below the deemed fair value of AdForce's common stock on the date of grant
was $3.70 and $6.31, respectively.
<TABLE>
<CAPTION>
1997 1998
--------- --------- THREE MONTHS
ENDED MARCH 31,
1999
----------------
(UNAUDITED)
<S> <C> <C> <C>
Pro forma net loss.................................... ($ 5,720) ($ 15,095) $ (4,887)
--------- --------- -------
--------- --------- -------
Pro forma basic and diluted net loss per share........ ($ 1.39) $ (0.36)
--------- -------
--------- -------
</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.
1999 EQUITY INCENTIVE PLAN
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.
F-21
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
1999 EMPLOYEE STOCK PURCHASE PLAN
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 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.
1999 DIRECTORS STOCK OPTION 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
F-22
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
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.
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-23
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
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 (UNAUDITED)
In February 1999, the Board of Directors approved the reincorporation in
the state of Delaware as AdForce, Inc. subject to stockholder approval.
F-24
<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.
/s/ Ernst & Young LLP
San Jose, California
October 29, 1998
F-25
<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-26
<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-27
<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-28
<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-29
<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-30
<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-31
<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 granted to directors, employees, and
certain consultants. Under the Plan, options to purchase common
F-32
<PAGE>
STARPOINT SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) (CONTINUED)
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.
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.
F-33
<PAGE>
STARPOINT SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. SUBSEQUENT EVENTS (CONTINUED)
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-34
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,500,000 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............. $ 17,264
NASD filing fee................................................. 6,000
Nasdaq National Market listing fee.............................. 95,000
Printing and engraving expenses................................. 150,000
Legal fees and expenses......................................... 450,000
Accounting fees and expenses.................................... 225,000
Blue sky fees and expenses...................................... 10,000
Transfer agent and registrar fees and expenses.................. 5,000
Road show expenses.............................................. 30,000
Miscellaneous................................................... 111,736
---------
Total......................................................... $1,100,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a court
to award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit 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
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
II-1
<PAGE>
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>
3 shareholders April 26, 1996 Common Stock 1,720,000 $ 8,600 Assignment of software
Washington Holdings,
L.P. April 26, 1996 Common Stock 2,000,000 10,000 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 1,200,914 1,503,500(5) Cancellation of debt
Stock owed by AdForce
6 investors December 5, 1996 Series B Preferred 2,054,636 2,578,568 Cash
Stock
</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 -- -- --(6)
55,778 shares of Series
B Preferred Stock
BridgeGate Group April 4, 1997 Warrant to purchase -- -- --(7)
6,142 shares of Common
Stock
Arun Swami June 4, 1997 Common Stock 2,400 300 Services rendered
6 investors July 2, 1997 Series C Preferred 1,733,616 4,100,002 Cash
Stock
2 investors November 25, 1997 Series C Preferred 816,384 1,930,748 Cash
Stock
Comdisco, Inc. December 2, 1997 Warrant to purchase -- -- --(8)
73,996 shares of Series
C Preferred Stock
2 investors December 17, 1997 Warrant to purchase -- -- --(9)
44,398 shares of Series
C Preferred Stock
Convergence Ventures I, February 3, 1998 Series C Preferred 60,994 144,251 Cash
L.P. Stock
Convergence February 3, 1998 Series C Preferred 42,284 100,002 Cash
Entrepreneurs Fund I, Stock
L.P.
9 shareholders February 13, 1998 Common Stock 877,834 -- Exchange for Common
Stock of StarPoint
Software, Inc.(10)
17 shareholders February 13, 1998 Series C Preferred 619,476 -- Exchange for Preferred
Stock Stock of StarPoint
Software, Inc.(10)
Comdisco, Inc. March 6, 1998 Series C Preferred 21,142 50,000 Cash
Stock
19 investors April 27, 1998 Series D Preferred 1,457,532 10,005,977 Cash and cancellation
Stock of debt owed by AdForce
19 investors July 15, 1998 Warrant to purchase -- -- --(11)
72,860 shares of Series
D Preferred Stock
America Online, Inc. July 15, 1998 Series E Preferred 1,456,664 9,999,998 Cash
Stock
America Online, Inc. July 15, 1998 Warrant to purchase -- -- --(12)
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 Option to purchase 960 -- -- --(13)
shares of Common Stock
Comdisco, Inc. September 29, 1998 Warrant to purchase -- -- --(14)
21,850 shares of
</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
- ----------------------- ------------------- ----------------------- --------- ----------- -----------------------
Series D Preferred
Stock
<S> <C> <C> <C> <C> <C>
Jane Anderson October 28, 1998 Series D Preferred 2,604 17,876 Services rendered
Communications Stock
Ulrich Schmidt October 28, 1998 Series D Preferred 872 5,986 Cash
Stock
Officers, directors, January 16, 1996 to Exercise of options to 1,643,233 $ 307,118 Cash(15)
employees and other March 31, 1999 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.
p(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 a warrant to
purchase 400,000 shares of Common Stock in exchange for a 50% interest in a
joint venture.
(5) Represents the cancellation of indebtedness owed by AdForce to IBL
Corporation in the amount of $997,500 and to Washington Holdings, L.P. in
the amount of $506,000.
(6) 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.
(7) Issued to BridgeGate Group as additional consideration for consulting
services performed for AdForce.
(8) Issued to Comdisco, Inc. as additional consideration to establish a credit
line for equipment acquisitions.
(9) 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.
(10) 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.
(11) 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.
(12) Issued to America Online, Inc. in connection with AdForce's Series E
Preferred Stock financing on July 15, 1998.
(13) Issued to Jane Anderson as consideration for consulting services performed
for Adforce.
(14) Issued to Comdisco, Inc. as additional consideration for the extension of a
credit line for equipment acquisitions.
(15) 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
March , 1999................................................................... 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 Restated 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*
Standard Form Office Lease by and between De Anza Plaza II, LLC and Imgis, Inc.
dated May 29, 1998.............................................................. 10.8*
Lease between Imgis, Inc., and Two Town Center Associates dated December 20,
1996............................................................................ 10.9
First Amendment to Lease between Imgis, Inc. and Two Town Center Associates dated
February 18, 1998............................................................... 10.10*
Second Amendment to Lease between Imgis, Inc. and Fifth Street Properties, LLC
dated February 18, 1999......................................................... 10.10.1
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*
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
DOCUMENT NUMBER
- ---------------------------------------------------------------------------------- ---------
<S> <C>
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*
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*+
Service Agreement between Imgis, Inc. (dba "AdForce") and 24/7 Media, Inc. dated
January 1, 1999................................................................. 10.25+
Services Agreement between Imgis, Inc. and 2CAN Media dated August 25, 1998....... 10.26*+
License Agreement by and between Imgis, Inc. and Netscape Communications
Corporation dated February 1, 1999.............................................. 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>
- ------------------------
* Previously filed.
** 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.
II-6
<PAGE>
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 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 Amendment to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Cupertino, State
of California, on the 14th day of April 1999.
<TABLE>
<S> <C> <C>
ADFORCE, INC.
By: /s/ JOHN A. TANNER
-----------------------------------------
John A. Tanner
Executive Vice President
and Chief Financial Officer
</TABLE>
Pursuant to the requirements of the Securities Act, this Amendment to
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, April 14, 1999
- ---------------------------- President and Chairman of
Charles W. Berger the Board
PRINCIPAL FINANCIAL OFFICER
AND
PRINCIPAL ACCOUNTING OFFICER:
/s/ JOHN A. TANNER Executive Vice President April 14, 1999
- ---------------------------- and Chief Financial
John A. Tanner Officer
ADDITIONAL DIRECTORS:
*/s/ ERIC DI BENEDETTO Director April 14, 1999
- ----------------------------
Eric Di Benedetto
*/s/ MARK P. GORENBERG Director April 14, 1999
- ----------------------------
Mark P. Gorenberg
*/s/ J. NEIL WEINTRAUT Director April 14, 1999
- ----------------------------
J. Neil Weintraut
*/s/ DIRK A. WRAY Director April 14, 1999
- ----------------------------
Dirk A. Wray
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ JOHN A. TANNER
-------------------------
John A. Tanner
ATTORNEY-IN-FACT
</TABLE>
II-8
<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
March , 1999................................................................... 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 Restated 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*
Standard Form Office Lease by and between De Anza Plaza II, LLC and Imgis, Inc.
dated May 29, 1998.............................................................. 10.8*
Lease between Imgis, Inc., and Two Town Center Associates dated December 20,
1996............................................................................ 10.9
First Amendment to Lease between Imgis, Inc. and Two Town Center Associates dated
February 18, 1998............................................................... 10.10*
Second Amendment to Lease between Imgis, Inc. and Fifth Street Properties, LLC
dated February 18, 1999......................................................... 10.10.1
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>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
EXHIBIT TITLE 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*+
Service Agreement between Imgis, Inc. (dba "AdForce") and 24/7 Media, Inc. dated
January 1, 1999................................................................. 10.25+
Services Agreement between Imgis, Inc. and 2CAN Media dated August 25, 1998....... 10.26*+
License Agreement by and between Imgis, Inc. and Netscape Communications
Corporation dated February 1, 1999.............................................. 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>
- ------------------------
* Previously filed
** To be supplied by amendment.
+ Confidential treatment has been requested.
<PAGE>
FIRST AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ADFORCE, INC.
AdForce, Inc., a Delaware corporation, hereby certifies that the First
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 First 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"
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
2
<PAGE>
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 and 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;
14
<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
15
<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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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, with or without
cause, by the holders of at least a majority of the shares then entitled to vote
at an election of directors; PROVIDED, HOWEVER, that a director may not be
removed without cause if the votes cast against removal of the director, or not
consenting in writing to the removal, would be sufficient to elect the director
if voted cumulatively (without regard to whether shares may otherwise be voted
cumulatively) at an election at which the same total number of votes were cast
(or, if the action is taken by written consent, all shares entitled to vote were
voted) and either the number of directors elected at the most recent annual
meeting of stockholders, or if greater, the number of directors for whom removal
is being sought, were then being elected.
(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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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 reasonably 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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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 Forty-Five Million (45,000,000) shares, consisting of
two classes: Forty Million (40,000,000) 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; PROVIDED HOWEVER, that a director may not be removed without
casuse if the votes cast against removal of the director would be sufficient
to elect the director if voted cumulative (without regard to whether shares
may otherwise be voted cumulatively) at an election at which the same total
number of votes
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were cast and either the number of directors elected at the most recent
annual meeting of stockholders, or if greater, the number of directors for
whom removal is being sought, were then being elected.
(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 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.
3
<PAGE>
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.
4
<PAGE>
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>
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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
i
<PAGE>
RESTATED BYLAWS
OF
ADFORCE, INC.
a Delaware corporation
TABLE OF CONTENTS (CONT'D)
<CAPTION>
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Section 2.4: Special Meetings . . . . . . . . . . . . . . . . . . . 8
Section 2.5: Telephonic Meetings Permitted. . . . . . . . . . . . . 9
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. . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.8: Secretary. . . . . . . . . . . . . . . . . . . . . . . 12
ii
<PAGE>
RESTATED BYLAWS
OF
ADFORCE, INC.
a Delaware corporation
TABLE OF CONTENTS (CONT'D)
<CAPTION>
PAGE
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<S> <C>
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. . . . . . . . . . . . . . . . . . . 13
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. . . . . . . . . . . . . . . 14
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
iii
<PAGE>
RESTATED BYLAWS
OF
ADFORCE, INC.
a Delaware corporation
TABLE OF CONTENTS (CONT'D)
<CAPTION>
PAGE
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<S> <C>
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. . . . . . . . . . . . 16
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, the holders of shares of the
Corporation that are entitled to cast not less a majority of the total number of
votes entitled to be cast by all stockholders at such meeting, 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
<PAGE>
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at 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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<PAGE>
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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<PAGE>
(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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<PAGE>
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 reasonably 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, with or without
cause, by the holders of a majority of the shares then entitled to vote at an
election of directors; PROVIDED, HOWEVER, that a director may not be removed
without cause if the votes cast against removal of the director, or not
consenting in writing to the removal, would be sufficient to elect the
director if voted cumulatively (without regard to whether shares may
otherwise be voted cumulatively) at an election at which the same total
number of votes were cast (or, if the action is taken by written consent, all
shares entitled to vote were voted) and either the number of directors
elected at the most recent annual meeting of stockholders, or if greater, the
number of directors for whom removal is being sought, were then being elected.
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
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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 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
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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 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;
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(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 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
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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 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.
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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.
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
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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 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
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stockholders, directors or members of a committee of directors need be
specified in any written waiver of notice.
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.
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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 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>
INDEMNITY AGREEMENT
This Indemnity Agreement (this "AGREEMENT"), dated as of _____________,
____, is made by and between AdForce, Inc., a Delaware corporation (the
"COMPANY"), and _________________, a director and/or officer of the Company (the
"INDEMNITEE").
RECITALS
A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors or officers of corporations unless
they are protected by comprehensive liability insurance and/or indemnification,
due to increased exposure to litigation costs and risks resulting from their
service to such corporations, and due to the fact that the exposure frequently
bears no reasonable relationship to the compensation of such directors and
officers;
B. Based upon their experience as business managers, the Board of
Directors of the Company (the "BOARD") has concluded that, to retain and attract
talented and experienced individuals to serve as officers and directors of the
Company, and to encourage such individuals to take the business risks necessary
for the success of the Company, it is necessary for the Company contractually to
indemnify officers and directors and to assume for itself maximum liability for
expenses and damages in connection with claims against such officers and
directors in connection with their service to the Company;
C. Section 145 of the General Corporation Law of Delaware, under which
the Company is organized (the "LAW"), empowers the Company to indemnify by
agreement its officers, directors, employees and agents, and persons who serve,
at the request of the Company, as directors, officers, employees or agents of
other corporations or enterprises, and expressly provides that the
indemnification provided by the Law is not exclusive; and
D. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director or officer of the Company free from undue
concern for claims for damages arising out of or related to such services to the
Company.
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. DEFINITIONS.
1.1 AGENT. For the purposes of this Agreement, "AGENT" of the
Company means any person who is or was a director or officer of the Company or a
subsidiary of the Company; or is or was serving at the request of, for the
convenience of, or to represent the interest of the Company or a subsidiary of
the Company as a director or officer of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise or an affiliate of the
<PAGE>
Company; or was a director or officer of a foreign or domestic corporation which
was a predecessor corporation of the Company, including, without limitation,
Imgis, Inc., a California corporation, or was a director or officer of another
enterprise or affiliate of the Company at the request of, for the convenience
of, or to represent the interests of such predecessor corporation. The term
"ENTERPRISE" includes any employee benefit plan of the Company, its
subsidiaries, affiliates and predecessor corporations.
1.2 EXPENSES. For purposes of this Agreement, "EXPENSES" includes
all direct and indirect costs of any type or nature whatsoever (including,
without limitation, all attorneys' fees and related disbursements and other
out-of-pocket costs) actually and reasonably incurred by the Indemnitee in
connection with the investigation, defense or appeal of a proceeding or
establishing or enforcing a right to indemnification or advancement of expenses
under this Agreement, Section 145 or otherwise; PROVIDED, HOWEVER, that expenses
shall not include any judgments, fines, ERISA excise taxes or penalties or
amounts paid in settlement of a proceeding.
1.3 PROCEEDING. For the purposes of this Agreement, "PROCEEDING"
means any threatened, pending or completed action, suit or other proceeding,
whether civil, criminal, administrative, investigative or any other type
whatsoever.
1.4 SUBSIDIARY. For purposes of this Agreement, "SUBSIDIARY"
means any corporation of which more than fifty percent (50%) of the outstanding
voting securities is owned directly or indirectly by the Company, by the Company
and one or more of its subsidiaries or by one or more of the Company's
subsidiaries.
2. AGREEMENT TO SERVE. The Indemnitee agrees to serve and/or continue to
serve as an agent of the Company, at the will of the Company (or under separate
agreement, if such agreement exists), in the capacity the Indemnitee currently
serves as an agent of the Company, faithfully and to the best of his ability, so
long as he is duly appointed or elected and qualified in accordance with the
applicable provisions of the charter documents of the Company or any subsidiary
of the Company; PROVIDED, HOWEVER, that the Indemnitee may at any time and for
any reason resign from such position (subject to any contractual obligation that
the Indemnitee may have assumed apart from this Agreement), and the Company or
any subsidiary shall have no obligation under this Agreement to continue the
Indemnitee in any such position.
3. DIRECTORS' AND OFFICERS' INSURANCE. The Company shall, to the extent
that the Board determines it to be economically reasonable, maintain a policy of
directors' and officers' liability insurance ("D&O INSURANCE"), on such terms
and conditions as may be approved by the Board.
4. MANDATORY INDEMNIFICATION. Subject to Section 9 below, the Company
shall indemnify the Indemnitee:
4.1 THIRD PARTY ACTIONS. If the Indemnitee is a person who was or
is a party or is threatened to be made a party to any proceeding (other than an
action by or in the right of the Company) by reason of the fact that he is or
was an agent of the Company, or by reason of
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anything done or not done by him in any such capacity, against any and all
expenses and liabilities of any type whatsoever (including, but not limited to,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) actually and reasonably incurred by him in connection with the
investigation, defense, settlement or appeal of such proceeding if he acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the Company and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful; and
4.2 DERIVATIVE ACTIONS. If the Indemnitee is a person who was or
is a party or is threatened to be made a party to any proceeding by or in the
right of the Company to procure a judgment in its favor by reason of the fact
that he is or was an agent of the Company, or by reason of anything done or not
done by him in any such capacity, against any amounts paid in settlement of any
such proceeding and all expenses actually and reasonably incurred by him in
connection with the investigation, defense, settlement or appeal of such
proceeding if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Company; EXCEPT that no
indemnification under this subsection shall be made in respect of any claim,
issue or matter as to which such person shall have been finally adjudged to be
liable to the Company by a court of competent jurisdiction due to willful
misconduct of a culpable nature in the performance of his duty to the Company,
unless and only to the extent that the Court of Chancery or the court in which
such proceeding was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such amounts which the
Court of Chancery or such other court shall deem proper; and
4.3 EXCEPTION FOR AMOUNTS COVERED BY INSURANCE. Notwithstanding
the foregoing, the Company shall not be obligated to indemnify the Indemnitee
for expenses or liabilities of any type whatsoever (including, but not limited
to, judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) to the extent such have been paid directly to the Indemnitee by D&O
Insurance.
5. PARTIAL INDEMNIFICATION AND CONTRIBUTION.
5.1 PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under
any provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding but is not entitled, however, to indemnification for all
of the total amount thereof, then the Company shall nevertheless indemnify the
Indemnitee for such total amount except as to the portion thereof to which the
Indemnitee is not entitled to indemnification.
5.2 CONTRIBUTION. If the Indemnitee is not entitled to the
indemnification provided in Section 4 for any reason other than the statutory
limitations set forth in the Law, then in respect of any threatened, pending or
completed proceeding in which the Company is jointly
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liable with the Indemnitee (or would be if joined in such proceeding), the
Company shall contribute to the amount of expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
and paid or payable by the Indemnitee in such proportion as is appropriate to
reflect (i) the relative benefits received by the Company on the one hand and
the Indemnitee on the other hand from the transaction from which such proceeding
arose and (ii) the relative fault of the Company on the one hand and of the
Indemnitee on the other hand in connection with the events which resulted in
such expenses, judgments, fines or settlement amounts, as well as any other
relevant equitable considerations. The relative fault of the Company on the one
hand and of the Indemnitee on the other hand shall be determined by reference
to, among other things, the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent the circumstances resulting in
such expenses, judgments, fines or settlement amounts. The Company agrees that
it would not be just and equitable if contribution pursuant to this Section 5
were determined by pro rata allocation or any other method of allocation which
does not take account of the foregoing equitable considerations.
6. MANDATORY ADVANCEMENT OF EXPENSES.
6.1 ADVANCEMENT. Subject to Section 9 below, the Company shall
advance all expenses incurred by the Indemnitee in connection with the
investigation, defense, settlement or appeal of any proceeding to which the
Indemnitee is a party or is threatened to be made a party by reason of the fact
that the Indemnitee is or was an agent of the Company or by reason of anything
done or not done by him in any such capacity. The Indemnitee hereby undertakes
to promptly repay such amounts advanced only if, and to the extent that, it
shall ultimately be determined that the Indemnitee is not entitled to be
indemnified by the Company under the provisions of this Agreement, the
Certificate of Incorporation or Bylaws of the Company, the Law or otherwise.
The advances to be made hereunder shall be paid by the Company to the Indemnitee
within thirty (30) days following delivery of a written request therefor by the
Indemnitee to the Company.
6.2 EXCEPTION. Notwithstanding the foregoing provisions of this
Section 6, the Company shall not be obligated to advance any expenses to the
Indemnitee arising from a lawsuit filed directly by the Company against the
Indemnitee if an absolute majority of the members of the Board reasonably
determines in good faith, within thirty (30) days of the Indemnitee's request to
be advanced expenses, that the facts known to them at the time such
determination is made demonstrate clearly and convincingly that the Indemnitee
acted in bad faith. If such a determination is made, the Indemnitee may have
such decision reviewed by another forum, in the manner set forth in Sections
8.3, 8.4 and 8.5 hereof, with all references therein to "indemnification" being
deemed to refer to "advancement of expenses," and the burden of proof shall be
on the Company to demonstrate clearly and convincingly that, based on the facts
known at the time, the Indemnitee acted in bad faith. The Company may not avail
itself of this Section 6.2 as to a given lawsuit if, at any time after the
occurrence of the activities or omissions that are the primary focus of the
lawsuit, the Company has undergone a change in control. For this purpose, a
change in control shall mean a given person or group of affiliated
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<PAGE>
persons or groups increasing their beneficial ownership interest in the Company
by at least twenty (20) percentage points without advance Board approval.
7. NOTICE AND OTHER INDEMNIFICATION PROCEDURES.
7.1 Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.
7.2 If, at the time of the receipt of a notice of the commencement
of a proceeding pursuant to Section 7.1 hereof, the Company has D&O Insurance in
effect, the Company shall give prompt notice of the commencement of such
proceeding to the insurers in accordance with the procedures set forth in the
respective policies. The Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of the Indemnitee, all
amounts payable as a result of such proceeding in accordance with the terms of
such D&O Insurance policies.
7.3 In the event the Company shall be obligated to advance the
expenses for any proceeding against the Indemnitee, the Company, if appropriate,
shall be entitled to assume the defense of such proceeding, with counsel
approved by the Indemnitee (which approval shall not be unreasonably withheld),
upon the delivery to the Indemnitee of written notice of its election to do so.
After delivery of such notice, approval of such counsel by the Indemnitee and
the retention of such counsel by the Company, the Company will not be liable to
the Indemnitee under this Agreement for any fees of counsel subsequently
incurred by the Indemnitee with respect to the same proceeding, PROVIDED that:
(a) the Indemnitee shall have the right to employ his own counsel in any such
proceeding at the Indemnitee's expense; (b) the Indemnitee shall have the right
to employ his own counsel in connection with any such proceeding, at the expense
of the Company, if such counsel serves in a review, observer, advice and
counseling capacity and does not otherwise materially control or participate in
the defense of such proceeding; and (c) if (i) the employment of counsel by the
Indemnitee has been previously authorized by the Company, (ii) the Indemnitee
shall have reasonably concluded that there may be a conflict of interest between
the Company and the Indemnitee in the conduct of any such defense or (iii) the
Company shall not, in fact, have employed counsel to assume the defense of such
proceeding, then the fees and expenses of the Indemnitee's counsel shall be at
the expense of the Company.
8. DETERMINATION OF RIGHT TO INDEMNIFICATION.
8.1 To the extent the Indemnitee has been successful on the merits
or otherwise in defense of any proceeding referred to in Section 4.1 or 4.2 of
this Agreement or in the defense of any claim, issue or matter described
therein, the Company shall indemnify the Indemnitee against expenses actually
and reasonably incurred by him in connection with the investigation, defense or
appeal of such proceeding, or such claim, issue or matter, as the case may be.
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8.2 In the event that Section 8.1 is inapplicable, or does not
apply to the entire proceeding, the Company shall nonetheless indemnify the
Indemnitee unless the Company shall prove by clear and convincing evidence to a
forum listed in Section 8.3 below that the Indemnitee has not met the applicable
standard of conduct required to entitle the Indemnitee to such indemnification.
8.3 The Indemnitee shall be entitled to select the forum in which
the validity of the Company's claim under Section 8.2 hereof that the Indemnitee
is not entitled to indemnification will be heard from among the following,
EXCEPT that the Indemnitee can select a forum consisting of the stockholders of
the Company only with the approval of the Company:
(a) A quorum of the Board consisting of directors who are
not parties to the proceeding for which indemnification is being sought;
(b) The stockholders of the Company;
(c) Legal counsel mutually agreed upon by the Indemnitee
and the Board, which counsel shall make such determination in a written opinion;
(d) A panel of three arbitrators, one of whom is selected
by the Company, another of whom is selected by the Indemnitee and the last of
whom is selected by the first two arbitrators so selected; or
(e) The Court of Chancery of Delaware or other court having
jurisdiction of subject matter and the parties.
8.4 As soon as practicable, and in no event later than thirty (30)
days after the forum has been selected pursuant to Section 8.3 above, the
Company shall, at its own expense, submit to the selected forum its claim that
the Indemnitee is not entitled to indemnification, and the Company shall act in
the utmost good faith to assure the Indemnitee a complete opportunity to defend
against such claim.
8.5 If the forum selected in accordance with Section 8.3 hereof is
not a court, then after the final decision of such forum is rendered, the
Company or the Indemnitee shall have the right to apply to the Court of Chancery
of Delaware, the court in which the proceeding giving rise to the Indemnitee's
claim for indemnification is or was pending or any other court of competent
jurisdiction, for the purpose of appealing the decision of such forum, PROVIDED
that such right is executed within sixty (60) days after the final decision of
such forum is rendered. If the forum selected in accordance with Section 8.3
hereof is a court, then the rights of the Company or the Indemnitee to appeal
any decision of such court shall be governed by the applicable laws and rules
governing appeals of the decision of such court.
8.6 Notwithstanding any other provision in this Agreement to the
contrary, the Company shall indemnify the Indemnitee against all expenses
incurred by the Indemnitee in connection with any hearing or proceeding under
this Section 8 involving the Indemnitee and
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<PAGE>
against all expenses incurred by the Indemnitee in connection with any other
proceeding between the Company and the Indemnitee involving the interpretation
or enforcement of the rights of the Indemnitee under this Agreement unless a
court of competent jurisdiction finds that each of the material claims and/or
defenses of the Indemnitee in any such proceeding was frivolous or not made in
good faith.
9. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
9.1 CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance
expenses to the Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by the Indemnitee and not by way of defense, EXCEPT with
respect to proceedings specifically authorized by the Board or brought to
establish or enforce a right to indemnification and/or advancement of expenses
arising under this Agreement, the charter documents of the Company or any
subsidiary or any statute or law or otherwise, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board finds it to be appropriate; or
9.2 UNAUTHORIZED SETTLEMENTS. To indemnify the Indemnitee
hereunder for any amounts paid in settlement of a proceeding unless the Company
consents in advance in writing to such settlement, which consent shall not be
unreasonably withheld; or
9.3 SECURITIES LAW ACTIONS. To indemnify the Indemnitee on
account of any suit in which judgment is rendered against the Indemnitee for an
accounting of profits made from the purchase or sale by the Indemnitee of
securities of the Company pursuant to the provisions of Section l6(b) of the
Securities Exchange Act of 1934 and amendments thereto or similar provisions of
any federal, state or local statutory law; or
9.4 UNLAWFUL INDEMNIFICATION. To indemnify the Indemnitee if a
final decision by a court having jurisdiction in the matter shall determine that
such indemnification is not lawful. In this respect, the Company and the
Indemnitee have been advised that the Securities and Exchange Commission takes
the position that indemnification for liabilities arising under the federal
securities laws is against public policy and is, therefore, unenforceable and
that claims for indemnification should be submitted to appropriate courts for
adjudication.
10. NON-EXCLUSIVITY. The provisions for indemnification and advancement
of expenses set forth in this Agreement shall not be deemed exclusive of any
other rights which the Indemnitee may have under any provision of law, the
Company's Certificate of Incorporation or Bylaws, the vote of the Company's
stockholders or disinterested directors, other agreements or otherwise, both as
to action in the Indemnitee's official capacity and to action in another
capacity while occupying his position as an agent of the Company, and the
Indemnitee's rights hereunder shall continue after the Indemnitee has ceased
acting as an agent of the Company and shall inure to the benefit of the heirs,
executors and administrators of the Indemnitee.
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11. GENERAL PROVISIONS.
11.1 INTERPRETATION OF AGREEMENT. It is understood that the
parties hereto intend this Agreement to be interpreted and enforced so as to
provide indemnification and advancement of expenses to the Indemnitee to the
fullest extent now or hereafter permitted by law, except as expressly limited
herein.
11.2 SEVERABILITY. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever, then: (a) the validity, legality and enforceability of the
remaining provisions of this Agreement (including, without limitation, all
portions of any paragraphs of this Agreement containing any such provision held
to be invalid, illegal or unenforceable that are not themselves invalid, illegal
or unenforceable) shall not in any way be affected or impaired thereby; and (b)
to the fullest extent possible, the provisions of this Agreement (including,
without limitation, all portions of any paragraphs of this Agreement containing
any such provision held to be invalid, illegal or unenforceable, that are not
themselves invalid, illegal or unenforceable) shall be construed so as to give
effect to the intent manifested by the provision held invalid, illegal or
unenforceable and to give effect to Section 11.1 hereof.
11.3 MODIFICATION AND WAIVER. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar), nor shall such waiver constitute a continuing waiver.
11.4 SUBROGATION. In the event of full payment under this
Agreement, the Company shall be subrogated to the extent of such payment to all
of the rights of recovery of the Indemnitee, who shall execute all documents
required and shall do all acts that may be necessary or desirable to secure such
rights and to enable the Company effectively to bring suit to enforce such
rights.
11.5 COUNTERPARTS. This Agreement may be executed in one or more
counter-parts, which shall together constitute one agreement.
11.6 SUCCESSORS AND ASSIGNS. The terms of this Agreement shall
bind, and shall inure to the benefit of, the successors and assigns of the
parties hereto.
11.7 NOTICE. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed duly
given: (a) if delivered by hand and signed for by the party addressee; or (b)
if mailed by certified or registered mail, with postage prepaid, on the third
business day after the mailing date. Addresses for notice to either party are
as shown on the signature page of this Agreement or as subsequently modified by
written notice.
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<PAGE>
11.8 GOVERNING LAW. This Agreement shall be governed exclusively
by and construed according to the laws of the State of California, as applied to
contracts between California residents entered into and to be performed entirely
within California.
11.9 CONSENT TO JURISDICTION. The Company and the Indemnitee each
hereby irrevocably consent to the jurisdiction of the courts of the State of
California for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement.
11.10 ATTORNEYS' FEES. In the event Indemnitee is required to bring
any action to enforce rights under this Agreement (including, without
limitation, the expenses of any Proceeding described in Section 3), the
Indemnitee shall be entitled to all reasonable fees and expenses in bringing and
pursuing such action, unless a court of competent jurisdiction finds each of the
material claims of the Indemnitee in any such action was frivolous and not made
in good faith.
IN WITNESS WHEREOF, the parties hereto have entered into this Indemnity
Agreement effective as of the date first written above.
ADFORCE, INC. INDEMNITEE:
By:________________________________ ___________________________________
Name:______________________________
Title:_____________________________
Address:___________________________ Address:___________________________
___________________________________ ___________________________________
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<PAGE>
ADFORCE, INC.
1999 EQUITY INCENTIVE PLAN
As Adopted February 18, 1999
1. PURPOSE. The purpose of this Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent and
Subsidiaries, by offering them an opportunity to participate in the Company's
future performance through awards of Options, Restricted Stock and Stock
Bonuses. Capitalized terms not defined in the text are defined in Section 23.
2. SHARES SUBJECT TO THE PLAN.
2.1 NUMBER OF SHARES AVAILABLE. Subject to Sections 2.2 and 18,
the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 2,000,000 Shares plus Shares that are subject to:
(a) issuance upon exercise of an Option but cease to be subject to such Option
for any reason other than exercise of such Option; (b) an Award granted
hereunder but are forfeited or are repurchased by the Company at the original
issue price; and (c) an Award that otherwise terminates without Shares being
issued. In addition, any authorized shares not issued or subject to outstanding
grants under the Imgis 1997 Stock Option Plan (the "PRIOR PLAN") on the
Effective Date (as defined below) and any shares issued under the Prior Plan
that are forfeited or repurchased by the Company or that are issuable upon
exercise of options granted pursuant to the Prior Plan 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 Prior Plan, but will be
available for grant and issuance under this Plan. At all times the Company
shall reserve and keep available a sufficient number of Shares as shall be
required to satisfy the requirements of all outstanding Options granted under
this Plan and all other outstanding but unvested Awards granted under this Plan.
2.2 ADJUSTMENT OF SHARES. In the event that the number of
outstanding shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under this Plan, (b) the
Exercise Prices of and number of Shares subject to outstanding Options, and (c)
the number of Shares subject to other outstanding Awards will be proportionately
adjusted, subject to any required action by the Board or the stockholders of the
Company and compliance with applicable securities laws; PROVIDED, HOWEVER, that
fractions of a Share will not be issued but will either be replaced by a cash
payment equal to the Fair Market Value of such fraction of a Share or will be
rounded up to the nearest whole Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted
only to employees (including officers and directors who are also employees) of
the Company or of a Parent or Subsidiary of the Company. All other Awards may
be granted to employees, officers, directors, consultants, independent
contractors and advisors of the Company or any Parent or Subsidiary of the
Company; PROVIDED such consultants, contractors and advisors render bona fide
services not in connection with the offer and sale of securities in a
capital-raising transaction. No person will be eligible to receive more than
1,500,000 Shares in any calendar year under this Plan pursuant to the grant of
Awards hereunder, other than new employees of the Company or of a Parent or
Subsidiary of the Company (including new employees who are also officers and
directors of the Company or any Parent or Subsidiary of the Company), who are
eligible to receive up to a maximum of 1,800,000 Shares in the calendar year in
which they commence their employment. A person may be granted more than one
Award under this Plan.
<PAGE>
4. ADMINISTRATION.
4.1 COMMITTEE AUTHORITY. This Plan will be administered by the
Committee or by the Board acting as the Committee. Subject to the general
purposes, terms and conditions of this Plan, and to the direction of the Board,
the Committee will have full power to implement and carry out this Plan.
Without limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and any other
agreement or document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations relating to this
Plan or any Award;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration subject to
Awards;
(f) determine whether Awards will be granted singly, in combination with,
in tandem with, in replacement of, or as alternatives to, other
Awards under this Plan or any other incentive or compensation plan of
the Company or any Parent or Subsidiary of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of Awards;
(i) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Award or any Award Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for the
administration of this Plan.
4.2 COMMITTEE DISCRETION. Any determination made by the Committee
with respect to any Award will be made in its sole discretion at the time of
grant of the Award or, unless in contravention of any express term of this Plan
or Award, at any later time, and such determination will be final and binding on
the Company and on all persons having an interest in any Award under this Plan.
The Committee may delegate to one or more officers of the Company the authority
to grant an Award under this Plan to Participants who are not Insiders of the
Company.
5. OPTIONS. The Committee may grant Options to eligible persons and
will determine whether such Options will be Incentive Stock Options within the
meaning of the Code ("ISO") or Nonqualified Stock Options ("NQSOS"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1 FORM OF OPTION GRANT. Each Option granted under this Plan will
be evidenced by an Award Agreement which will expressly identify the Option as
an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be in such form and
contain such provisions (which need not be the same for each Participant) as the
Committee may from time to time approve, and which will comply with and be
subject to the terms and conditions of this Plan.
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5.2 DATE OF GRANT. The date of grant of an Option will be the date
on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.
5.3 EXERCISE PERIOD. Options may be exercisable within the times
or upon the events determined by the Committee as set forth in the Stock Option
Agreement governing such Option; PROVIDED, HOWEVER, that no Option will be
exercisable after the expiration of ten (10) years from the date the Option is
granted; and PROVIDED FURTHER that no ISO granted to a person who directly or by
attribution owns more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or of any Parent or Subsidiary of the
Company ("TEN PERCENT STOCKHOLDER") will be exercisable after the expiration of
five (5) years from the date the ISO is granted. The Committee also may provide
for Options to become exercisable at one time or from time to time, periodically
or otherwise, in such number of Shares or percentage of Shares as the Committee
determines.
5.4 EXERCISE PRICE. The Exercise Price of an Option will be
determined by the Committee when the Option is granted and may be not less than
85% of the Fair Market Value of the Shares on the date of grant; provided that:
(i) the Exercise Price of an ISO will be not less than 100% of the Fair Market
Value of the Shares on the date of grant; and (ii) the Exercise Price of any ISO
granted to a Ten Percent Stockholder will not be less than 110% of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased may be made in accordance with Section 8 of this Plan.
5.5 METHOD OF EXERCISE. Options may be exercised only by delivery
to the Company of a written stock option exercise agreement (the
"EXERCISE AGREEMENT") in a form approved by the Committee (which need not be the
same for each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.
5.6 TERMINATION. Notwithstanding the exercise periods set forth in
the Stock Option Agreement, exercise of an Option will always be subject to the
following:
(a) If the Participant is Terminated for any reason except death or
Disability, then the Participant may exercise such Participant's
Options only to the extent that such Options would have been
exercisable upon the Termination Date no later than three (3) months
after the Termination Date (or such shorter or longer time period not
exceeding five (5) years as may be determined by the Committee, with
any exercise beyond three (3) months after the Termination Date
deemed to be an NQSO), but in any event, no later than the expiration
date of the Options.
(b) If the Participant is Terminated because of Participant's death or
Disability (or the Participant dies within three (3) months after a
Termination other than for Cause or because of Participant's
Disability), then Participant's Options may be exercised only to the
extent that such Options would have been exercisable by Participant
on the Termination Date and must be exercised by Participant (or
Participant's legal representative or authorized assignee) no later
than twelve (12) months after the Termination Date (or such shorter
or longer time period not exceeding five (5) years as may be
determined by the Committee, with any such exercise beyond (a) three
(3) months after the Termination Date when the Termination is for any
reason other than the Participant's death or Disability, or (b)
twelve (12) months after the Termination Date when the Termination is
for Participant's death or Disability, deemed to be an NQSO), but in
any event no later than the expiration date of the Options.
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(c) Notwithstanding the provisions in paragraph 5.6(a) above, if a
Participant is terminated for Cause, neither the Participant, the
Participant's estate nor such other person who may then hold the
Option shall be entitled to exercise any Option with respect to any
Shares whatsoever, after termination of service, whether or not after
termination of service the Participant may receive payment from the
Company or Subsidiary for vacation pay, for services rendered prior
to termination, for services rendered for the day on which
termination occurs, for salary in lieu of notice, or for any other
benefits. In making such determination, the Board shall give the
Participant an opportunity to present to the Board evidence on his
behalf. For the purpose of this paragraph, termination of service
shall be deemed to occur on the date when the Company dispatches
notice or advice to the Participant that his service is terminated.
5.7 LIMITATIONS ON EXERCISE. The Committee may specify a
reasonable minimum number of Shares that may be purchased on any exercise of an
Option, provided that such minimum number will not prevent Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.
5.8 LIMITATIONS ON ISO. The aggregate Fair Market Value
(determined as of the date of grant) of Shares with respect to which ISO are
exercisable for the first time by a Participant during any calendar year (under
this Plan or under any other incentive stock option plan of the Company, Parent
or Subsidiary of the Company) will not exceed $100,000. If the Fair Market
Value of Shares on the date of grant with respect to which ISO are exercisable
for the first time by a Participant during any calendar year exceeds $100,000,
then the Options for the first $100,000 worth of Shares to become exercisable in
such calendar year will be ISO and the Options for the amount in excess of
$100,000 that become exercisable in that calendar year will be NQSOs. In the
event that the Code or the regulations promulgated thereunder are amended after
the Effective Date of this Plan to provide for a different limit on the Fair
Market Value of Shares permitted to be subject to ISO, such different limit will
be automatically incorporated herein and will apply to any Options granted after
the effective date of such amendment.
5.9 MODIFICATION, EXTENSION OR RENEWAL. The Committee may modify,
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that any such action may not, without the
written consent of a Participant, impair any of such Participant's rights under
any Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered will be treated in accordance with Section 424(h)
of the Code. The Committee may reduce the Exercise Price of outstanding Options
without the consent of Participants affected by a written notice to them;
PROVIDED, HOWEVER, that the Exercise Price may not be reduced below the minimum
Exercise Price that would be permitted under Section 5.4 of this Plan for
Options granted on the date the action is taken to reduce the Exercise Price.
5.10 NO DISQUALIFICATION. Notwithstanding any other provision in
this Plan, no term of this Plan relating to ISO will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the
Company to sell to an eligible person Shares that are subject to restrictions.
The Committee will determine to whom an offer will be made, the number of Shares
the person may purchase, the price to be paid (the "PURCHASE PRICE"), the
restrictions to which the Shares will be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:
6.1 FORM OF RESTRICTED STOCK AWARD. All purchases under a
Restricted Stock Award made pursuant to this Plan will be evidenced by an Award
Agreement ("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form
(which need not be the same for each Participant) as the Committee will from
time to time approve, and will comply with and be subject to the terms and
conditions of this Plan. The offer of Restricted Stock will be accepted by the
Participant's execution and delivery of the Restricted Stock Purchase Agreement
and full payment for the Shares to the Company within thirty (30) days from the
date the Restricted Stock Purchase Agree-
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<PAGE>
ment is delivered to the person. If such person does not execute and deliver
the Restricted Stock Purchase Agreement along with full payment for the Shares
to the Company within thirty (30) days, then the offer will terminate, unless
otherwise determined by the Committee.
6.2 PURCHASE PRICE. The Purchase Price of Shares sold pursuant to
a Restricted Stock Award will be determined by the Committee on the date the
Restricted Stock Award is granted, except in the case of a sale to a Ten Percent
Stockholder, in which case the Purchase Price will be 100% of the Fair Market
Value. Payment of the Purchase Price may be made in accordance with Section 8
of this Plan.
6.3 TERMS OF RESTRICTED STOCK AWARDS. Restricted Stock Awards
shall be subject to such restrictions as the Committee may impose. These
restrictions may be based upon completion of a specified number of years of
service with the Company or upon completion of the performance goals as set out
in advance in the Participant's individual Restricted Stock Purchase Agreement.
Restricted Stock Awards may vary from Participant to Participant and between
groups of Participants. Prior to the grant of a Restricted Stock Award, the
Committee shall: (a) determine the nature, length and starting date of any
Performance Period for the Restricted Stock Award; (b) select from among the
Performance Factors to be used to measure performance goals, if any; and (c)
determine the number of Shares that may be awarded to the Participant. Prior to
the payment of any Restricted Stock Award, the Committee shall determine the
extent to which such Restricted Stock Award has been earned. Performance
Periods may overlap and Participants may participate simultaneously with respect
to Restricted Stock Awards that are subject to different Performance Periods and
having different performance goals and other criteria.
6.4 TERMINATION DURING PERFORMANCE PERIOD. If a Participant is
Terminated during a Performance Period for any reason, then such Participant
will be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Restricted Stock Award only to the extent earned as of the date of
Termination in accordance with the Restricted Stock Purchase Agreement, unless
the Committee will determine otherwise.
7. STOCK BONUSES.
7.1 AWARDS OF STOCK BONUSES. A Stock Bonus is an award of Shares
(which may consist of Restricted Stock) for services rendered to the Company or
any Parent or Subsidiary of the Company. A Stock Bonus may be awarded for past
services already rendered to the Company, or any Parent or Subsidiary of the
Company pursuant to an Award Agreement (the "STOCK BONUS AGREEMENT") that will
be in such form (which need not be the same for each Participant) as the
Committee will from time to time approve, and will comply with and be subject to
the terms and conditions of this Plan. A Stock Bonus may be awarded upon
satisfaction of such performance goals as are set out in advance in the
Participant's individual Award Agreement (the "PERFORMANCE STOCK BONUS
AGREEMENT") that will be in such form (which need not be the same for each
Participant) as the Committee will from time to time approve, and will comply
with and be subject to the terms and conditions of this Plan. Stock Bonuses may
vary from Participant to Participant and between groups of Participants, and may
be based upon the achievement of the Company, Parent or Subsidiary and/or
individual performance factors or upon such other criteria as the Committee may
determine.
7.2 TERMS OF STOCK BONUSES. The Committee will determine the
number of Shares to be awarded to the Participant. If the Stock Bonus is being
earned upon the satisfaction of performance goals pursuant to a Performance
Stock Bonus Agreement, then the Committee will: (a) determine the nature,
length and starting date of any Performance Period for each Stock Bonus; (b)
select from among the Performance Factors to be used to measure the performance,
if any; and (c) determine the number of Shares that may be awarded to the
Participant. Prior to the payment of any Stock Bonus, the Committee shall
determine the extent to which such Stock Bonuses have been earned. Performance
Periods may overlap and Participants may participate simultaneously with respect
to Stock Bonuses that are subject to different Performance Periods and different
performance goals and other criteria. The number of Shares may be fixed or may
vary in accordance with such performance goals and criteria as may be determined
by the Committee. The Committee may adjust the performance goals applicable to
the Stock Bonuses to take into account changes in law and accounting or tax
rules and to make such adjustments as
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the Committee deems necessary or appropriate to reflect the impact of
extraordinary or unusual items, events or circumstances to avoid windfalls or
hardships.
7.3 FORM OF PAYMENT. The earned portion of a Stock Bonus may be
paid currently or on a deferred basis with such interest or dividend equivalent,
if any, as the Committee may determine. Payment may be made in the form of cash
or whole Shares or a combination thereof, either in a lump sum payment or in
installments, all as the Committee will determine.
8. PAYMENT FOR SHARE PURCHASES.
8.1 PAYMENT. Payment for Shares purchased pursuant to this Plan
may be made in cash (by check) or, where expressly approved for the Participant
by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the Participant;
(b) by surrender of shares that either: (1) have been owned by
Participant for more than six (6) months and have been paid for
within the meaning of SEC Rule 144 (and, if such shares were
purchased from the Company by use of a promissory note, such note has
been fully paid with respect to such shares); or (2) were obtained by
Participant in the public market;
(c) by tender of a full recourse promissory note having such terms as may
be approved by the Committee and bearing interest at a rate
sufficient to avoid imputation of income under Sections 483 and 1274
of the Code; PROVIDED, HOWEVER, that Participants who are not
employees or directors of the Company will not be entitled to
purchase Shares with a promissory note unless the note is adequately
secured by collateral other than the Shares;
(d) by waiver of compensation due or accrued to the Participant for
services rendered;
(e) with respect only to purchases upon exercise of an Option, and
provided that a public market for the Company's stock exists:
(1) through a "same day sale" commitment from the Participant and a
broker-dealer that is a member of the National Association of
Securities Dealers (an "NASD DEALER") whereby the Participant
irrevocably elects to exercise the Option and to sell a portion
of the Shares so purchased to pay for the Exercise Price, and
whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the Exercise Price directly to the
Company; or
(2) through a "margin" commitment from the Participant and a NASD
Dealer whereby the Participant irrevocably elects to exercise
the Option and to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a loan from the NASD
Dealer in the amount of the Exercise Price, and whereby the
NASD Dealer irrevocably commits upon receipt of such Shares to
forward the Exercise Price directly to the Company; or
(f) by any combination of the foregoing.
8.2 LOAN GUARANTEES. The Committee may help the Participant pay
for Shares purchased under this Plan by authorizing a guarantee by the Company
of a third-party loan to the Participant.
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9. WITHHOLDING TAXES.
9.1 WITHHOLDING GENERALLY. Whenever Shares are to be issued in
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan,
payments in satisfaction of Awards are to be made in cash, such payment will be
net of an amount sufficient to satisfy federal, state, and local withholding tax
requirements.
9.2 STOCK WITHHOLDING. When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may in its
sole discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose will be made in accordance with the requirements
established by the Committee and be in writing in a form acceptable to the
Committee
10. PRIVILEGES OF STOCK OWNERSHIP.
10.1 VOTING AND DIVIDENDS. No Participant will have any of the
rights of a stockholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
will be a stockholder and have all the rights of a stockholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; PROVIDED, that if such
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock; PROVIDED, FURTHER, that the Participant will have no right to
retain such stock dividends or stock distributions with respect to Shares that
are repurchased at the Participant's Purchase Price or Exercise Price pursuant
to Section 12.
10.2 FINANCIAL STATEMENTS. The Company will provide financial
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Awards outstanding; PROVIDED, HOWEVER, the Company will not be
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
11. TRANSFERABILITY. Awards granted under this Plan, and any interest
therein, will not be transferable or assignable by Participant, and may not be
made subject to execution, attachment or similar process, otherwise than by will
or by the laws of descent and distribution or as determined by the Committee and
set forth in the Award Agreement with respect to Awards that are not ISOs.
During the lifetime of the Participant an Award will be exercisable only by the
Participant, and any elections with respect to an Award may be made only by the
Participant unless otherwise determined by the Committee and set forth in the
Award Agreement with respect to Awards that are not ISOs.
12. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right to repurchase a portion of or all Unvested Shares held by a Participant
following such Participant's Termination at any time within ninety (90) days
after the later of Participant's Termination Date and the date Participant
purchases Shares under this Plan, for cash and/or cancellation of purchase money
indebtedness, at the Participant's Exercise Price or Purchase Price, as the case
may be.
13. CERTIFICATES. All certificates for Shares or other securities
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or
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advisable, including restrictions under any applicable federal, state or foreign
securities law, or any rules, regulations and other requirements of the SEC or
any stock exchange or automated quotation system upon which the Shares may be
listed or quoted.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; PROVIDED, HOWEVER, that the Committee may
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or
from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, Shares (including
Restricted Stock) or other consideration, based on such terms and conditions as
the Committee and the Participant may agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not be
effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance.
Notwithstanding any other provision in this Plan, the Company will have no
obligation to issue or deliver certificates for Shares under this Plan prior to:
(a) obtaining any approvals from governmental agencies that the Company
determines are necessary or advisable; and/or (b) completion of any registration
or other qualification of such Shares under any state or federal law or ruling
of any governmental body that the Company determines to be necessary or
advisable. The Company will be under no obligation to register the Shares with
the SEC or to effect compliance with the registration, qualification or listing
requirements of any state securities laws, stock exchange or automated quotation
system, and the Company will have no liability for any inability or failure to
do so.
17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent or Subsidiary of the Company or limit in any way the right
of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.
18. CORPORATE TRANSACTIONS.
18.1 ASSUMPTION OR REPLACEMENT OF AWARDS BY SUCCESSOR. In the event
of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the stockholders of the Company or their relative stock
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the stockholders of the Company immediately prior to
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such merger (other than any stockholder that merges, or which owns or controls
another corporation that merges, with the Company in such merger) cease to own
their shares or other equity interest in the Company, (d) the sale of
substantially all of the assets of the Company, or (e) the acquisition, sale, or
transfer of more than 50% of the outstanding shares of the Company by tender
offer or similar transaction, any or all outstanding Awards may be assumed,
converted or replaced by the successor corporation (if any), which assumption,
conversion or replacement will be binding on all Participants. In the
alternative, the successor corporation may substitute equivalent Awards or
provide substantially similar consideration to Participants as was provided to
stockholders (after taking into account the existing provisions of the Awards).
The successor corporation may also issue, in place of outstanding Shares of the
Company held by the Participant, substantially similar shares or other property
subject to repurchase restrictions no less favorable to the Participant. In the
event such successor corporation (if any) refuses to assume or substitute
Awards, as provided above, pursuant to a transaction described in this
Subsection 18.1, such Awards will expire on such transaction at such time and on
such conditions as the Committee will determine. Notwithstanding anything in
this Plan to the contrary, the Committee may, in its sole discretion, provide
that the vesting of any or all Awards granted pursuant to this Plan will
accelerate upon a transaction described in this Section 18. If the Committee
exercises such discretion with respect to Options, such Options will become
exercisable in full prior to the consummation of such event at such time and on
such conditions as the Committee determines, and if such Options are not
exercised prior to the consummation of the corporate transaction, they shall
terminate at such time as determined by the Committee.
18.2 OTHER TREATMENT OF AWARDS. Subject to any greater rights
granted to Participants under the foregoing provisions of this Section 18, in
the event of the occurrence of any transaction described in Section 18.1, any
outstanding Awards will be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, or sale of assets.
18.3 ASSUMPTION OF AWARDS BY THE COMPANY. The Company, from time to
time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either; (a) granting an Award under this Plan in substitution of
such other company's award; or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under this Plan if the other company had applied the rules of
this Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award will remain unchanged
(EXCEPT that the exercise price and the number and nature of Shares issuable
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.
19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become effective
on the date on which the registration statement filed by the Company with the
SEC under the Securities Act registering the initial public offering of the
Company's Common Stock is declared effective by the SEC (the "EFFECTIVE DATE").
This Plan shall be approved by the stockholders of the Company (excluding Shares
issued pursuant to this Plan), consistent with applicable laws, within twelve
(12) months before or after the date this Plan is adopted by the Board. Upon
the Effective Date, the Committee may grant Awards pursuant to this Plan;
PROVIDED, HOWEVER, that: (a) no Option may be exercised prior to initial
stockholder approval of this Plan; (b) no Option granted pursuant to an increase
in the number of Shares subject to this Plan approved by the Board will be
exercised prior to the time such increase has been approved by the stockholders
of the Company; (c) in the event that initial stockholder approval is not
obtained within the time period provided herein, all Awards granted hereunder
shall be cancelled, any Shares issued pursuant to any Awards shall be cancelled
and any purchase of Shares issued hereunder shall be rescinded; and (d) in the
event that stockholder approval of such increase is not obtained within the time
period provided herein, all Awards granted pursuant to such increase will be
cancelled, any Shares issued pursuant to any Award granted pursuant to such
increase will be cancelled, and any purchase of Shares pursuant to such increase
will be rescinded.
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20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
herein, this Plan will terminate ten (10) years from the date this Plan is
adopted by the Board or, if earlier, the date of stockholder approval. This
Plan and all agreements thereunder shall be governed by and construed in
accordance with the laws of the State of California.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
terminate or amend this Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to this Plan; PROVIDED, HOWEVER, that the Board will not, without the approval
of the stockholders of the Company, amend this Plan in any manner that requires
such stockholder approval.
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the
Board, the submission of this Plan to the stockholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under this Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
23. DEFINITIONS. As used in this Plan, the following terms will have the
following meanings:
"AWARD" means any award under this Plan, including any Option,
Restricted Stock or Stock Bonus.
"AWARD AGREEMENT" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means the commission of an act of theft, embezzlement, fraud,
dishonesty or a breach of fiduciary duty to the Company or a Parent or
Subsidiary of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the Compensation Committee of the Board.
"COMPANY" means Adforce, Inc. or any successor corporation.
"DISABILITY" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXERCISE PRICE" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a share of
the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National Market,
its closing price on the Nasdaq National Market on the date of
determination as reported in THE WALL STREET JOURNAL;
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of
determination on the principal national securities
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exchange on which the Common Stock is listed or admitted to trading
as reported in THE WALL STREET JOURNAL;
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on the date of determination as reported in THE WALL
STREET JOURNAL;
(d) in the case of an Award made on the Effective Date, the price per
share at which shares of the Company's Common Stock are initially
offered for sale to the public by the Company's underwriters in the
initial public offering of the Company's Common Stock pursuant to a
registration statement filed with the SEC under the Securities Act;
or
(d) if none of the foregoing is applicable, by the Committee in good
faith.
"INSIDER" means an officer or director of the Company or any other
person whose transactions in the Company's Common Stock are subject to Section
16 of the Exchange Act.
"OPTION" means an award of an option to purchase Shares pursuant to
Section 5.
"PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of such
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.
"PARTICIPANT" means a person who receives an Award under this Plan.
"PERFORMANCE FACTORS" means the factors selected by the Committee
from among the following measures to determine whether the performance goals
established by the Committee and applicable to Awards have been satisfied:
(a) Net revenue and/or net revenue growth;
(b) Earnings before income taxes and amortization and/or earnings
before income taxes and amortization growth;
(c) Operating income and/or operating income growth;
(d) Net income and/or net income growth;
(e) Earnings per share and/or earnings per share growth;
(f) Total stockholder return and/or total stockholder return
growth;
(g) Return on equity;
(h) Operating cash flow return on income;
(i) Adjusted operating cash flow return on income;
(j) Economic value added; and
(k) Individual confidential business objectives.
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"PERFORMANCE PERIOD" means the period of service determined by the
Committee, not to exceed five years, during which years of service or
performance is to be measured for Restricted Stock Awards or Stock Bonuses.
"PLAN" means this Adforce, Inc. 1999 Equity Incentive Plan, as
amended from time to time.
"RESTRICTED STOCK AWARD" means an award of Shares pursuant to Section
6.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means shares of the Company's Common Stock reserved for
issuance under this Plan, as adjusted pursuant to Sections 2 and 18, and any
successor security.
"STOCK BONUS" means an award of Shares, or cash in lieu of Shares,
pursuant to Section 7.
"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.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan with
respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director, consultant, independent
contractor, or advisor to the Company or a Parent or Subsidiary of the Company.
An employee will not be deemed to have ceased to provide services in the case of
(i) sick leave, (ii) military leave, or (iii) any other leave of absence
approved by the Committee, provided, that such leave is for a period of not more
than 90 days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute or unless provided otherwise pursuant to
formal policy adopted from time to time by the Company and issued and
promulgated to employees in writing. In the case of any employee on an approved
leave of absence, the Committee may make such provisions respecting suspension
of vesting of the Award while on leave from the employ of the Company or a
Subsidiary as it may deem appropriate, except that in no event may an Option be
exercised after the expiration of the term set forth in the Option agreement.
The Committee will have sole discretion to determine whether a Participant has
ceased to provide services and the effective date on which the Participant
ceased to provide services (the "TERMINATION DATE").
"UNVESTED SHARES" means "Unvested Shares" as defined in the Award
Agreement.
"VESTED SHARES" means "Vested Shares" as defined in the Award
Agreement.
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NO. _______
ADFORCE, INC.
1999 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
This Stock Option Agreement (this "AGREEMENT") is made and entered into as
of the Date of Grant set forth below (the "DATE OF GRANT") by and between
Adforce, Inc., a Delaware corporation (the "COMPANY"), and the Optionee named
below ("OPTIONEE"). Capitalized terms not defined herein shall have the
meanings ascribed to them in the Company's 1999 Equity Incentive Plan (the
"PLAN").
OPTIONEE: ____________________________________________
SOCIAL SECURITY NUMBER: ____________________________________________
OPTIONEE'S ADDRESS: ____________________________________________
____________________________________________
TOTAL OPTION SHARES: ____________________________________________
EXERCISE PRICE PER SHARE: ____________________________________________
DATE OF GRANT: ____________________________________________
VESTING START DATE: ____________________________________________
EXPIRATION DATE: ____________________________________________
(unless earlier terminated under Section 3
hereof)
TYPE OF STOCK OPTION
(CHECK ONE): [ ] INCENTIVE STOCK OPTION
[ ] NONQUALIFIED STOCK OPTION
1. GRANT OF OPTION. The Company hereby grants to Optionee an option
(this "OPTION") to purchase up to the total number of shares of Common Stock of
the Company set forth above as Total Option Shares (collectively, the "SHARES")
at the Exercise Price Per Share set forth above (the "EXERCISE PRICE"), subject
to all of the terms and conditions of this Agreement and the Plan. If
designated as an Incentive Stock Option above, this Option is intended to
qualify as an "incentive stock option" ("ISO") within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "CODE"), to the extent
permitted under Code Section 422.
2. VESTING; EXERCISE PERIOD.
2.1 VESTING OF SHARES. This Option shall be exercisable as it vests.
Subject to the terms and conditions of the Plan and this Agreement, this Option
shall vest and become exercisable as to portions of the Shares as follows:
(a) this Option shall not be exercisable with respect to any of the Shares until
_________________, 19___ (the "First
<PAGE>
Vesting Date"); (b) if Optionee has continuously provided services to the
Company, or any Parent or Subsidiary of the Company, then on the First Vesting
Date, this Option shall become exercisable as to twenty-five percent (25%) of
the Shares; and (c) thereafter this Option shall become exercisable as to an
additional 2.08333% of the Shares on each monthly anniversary of the First
Vesting Date, provided that Optionee has continuously provided services to the
Company, or any Parent or Subsidiary of the Company, at all times during the
relevant month. This Option shall cease to vest upon Optionee's Termination
and Optionee shall in no event be entitled under this Option to purchase a
number of shares of the Company's Common Stock greater than the "Total Option
Shares."
2.2 VESTING OF OPTIONS. Shares that are vested pursuant to the
schedule set forth in Section 2.1 hereof are "Vested Shares." Shares that are
not vested pursuant to the schedule set forth in Section 2.1 hereof are
"Unvested Shares."
2.3 EXPIRATION. This Option shall expire on the Expiration Date set
forth above and must be exercised, if at all, on or before the earlier of the
Expiration Date or the date on which this Option is earlier terminated in
accordance with the provisions of Section 3 hereof.
3. TERMINATION.
3.1 TERMINATION FOR ANY REASON EXCEPT DEATH, DISABILITY OR CAUSE. If
Optionee is Terminated for any reason except Optionee's death, Disability or
Cause, then this Option, to the extent (and only to the extent) that it is
vested in accordance with the schedule set forth in Section 2.1 hereof on the
Termination Date, may be exercised by Optionee no later than three (3) months
after the Termination Date, but in any event no later than the Expiration Date.
3.2 TERMINATION BECAUSE OF DEATH OR DISABILITY. If Optionee is
Terminated because of death or Disability of Optionee (or the Optionee dies
within three (3) months after Termination other than for Cause or because of
Disability), then this Option, to the extent that it is vested in accordance
with the schedule set forth in Section 2.1 hereof on the Termination Date, may
be exercised by Optionee (or Optionee's legal representative or authorized
assignee) no later than twelve (12) months after the Termination Date, but in
any event no later than the Expiration Date. Any exercise after three months
after the Termination Date when the Termination is for any reason other than
Optionee's death or disability, within the meaning of Code Section 22(e)(3),
shall be deemed to be the exercise of a nonqualified stock option.
3.3 TERMINATION FOR CAUSE. If Optionee is Terminated for Cause, this
Option will expire on the Optionee's date of Termination.
3.4 NO OBLIGATION TO EMPLOY. Nothing in the Plan or this Agreement
shall confer on Optionee any right to continue in the employ of, or other
relationship with, the Company or any Parent or Subsidiary of the Company, or
limit in any way the right of the Company or any Parent or Subsidiary of the
Company to terminate Optionee's employment or other relationship at any time,
with or without Cause.
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4. MANNER OF EXERCISE.
4.1 STOCK OPTION EXERCISE AGREEMENT. To exercise this Option,
Optionee (or in the case of exercise after Optionee's death, Optionee's
executor, administrator, heir or legatee, as the case may be) must deliver to
the Company an executed stock option exercise agreement in the form attached
hereto as EXHIBIT A, or in such other form as may be approved by the Company
from time to time (the "EXERCISE AGREEMENT"), which shall set forth, INTER ALIA,
Optionee's election to exercise this Option, the number of shares being
purchased, any restrictions imposed on the Shares and any representations,
warranties and agreements regarding Optionee's investment intent and access to
information as may be required by the Company to comply with applicable
securities laws. If someone other than Optionee exercises this Option, then
such person must submit documentation reasonably acceptable to the Company that
such person has the right to exercise this Option.
4.2 LIMITATIONS ON EXERCISE. This Option may not be exercised unless
such exercise is in compliance with all applicable federal and state securities
laws, as they are in effect on the date of exercise. This Option may not be
exercised as to fewer than 100 Shares unless it is exercised as to all Shares as
to which this Option is then exercisable.
4.3 PAYMENT. The Exercise Agreement shall be accompanied by full
payment of the Exercise Price for the Shares being purchased in cash (by check),
or where permitted by law:
(a) by cancellation of indebtedness of the Company to the Optionee;
(b) by surrender of shares of the Company's Common Stock that either: (1)
have been owned by Optionee for more than six (6) months and have been
paid for within the meaning of SEC Rule 144 (and, if such shares were
purchased from the Company by use of a promissory note, such note has
been fully paid with respect to such shares); or (2) were obtained by
Optionee in the open public market; AND (3) are clear of all liens,
claims, encumbrances or security interests;
(c) by waiver of compensation due or accrued to Optionee for services
rendered;
(d) provided that a public market for the Company's stock exists: (1)
through a "same day sale" commitment from Optionee and a broker-dealer
that is a member of the National Association of Securities Dealers (an
"NASD DEALER") whereby Optionee irrevocably elects to exercise this
Option and to sell a portion of the Shares so purchased to pay for the
Exercise Price and whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the exercise price directly to the
Company; OR (2) through a "margin" commitment from Optionee and an
NASD Dealer whereby Optionee irrevocably elects to exercise this
Option and to pledge the Shares so purchased to the NASD Dealer in a
margin account as security for a loan from the NASD Dealer in the
amount of the Exercise Price, and whereby
3
<PAGE>
the NASD Dealer irrevocably commits upon receipt of such Shares to
forward the Exercise Price directly to the Company;
(e) by any combination of the foregoing.
4.4 TAX WITHHOLDING. Prior to the issuance of the Shares upon
exercise of this Option, Optionee must pay or provide for any applicable federal
or state withholding obligations of the Company. If the Committee permits,
Optionee may provide for payment of withholding taxes upon exercise of this
Option by requesting that the Company retain Shares with a Fair Market Value
equal to the minimum amount of taxes required to be withheld. In such case, the
Company shall issue the net number of Shares to the Optionee by deducting the
Shares retained from the Shares issuable upon exercise.
4.5 ISSUANCE OF SHARES. Provided that the Exercise Agreement
and payment are in form and substance satisfactory to counsel for the Company,
the Company shall issue the Shares registered in the name of Optionee,
Optionee's authorized assignee, or Optionee's legal representative, and shall
deliver certificates representing the Shares with the appropriate legends
affixed thereto.
5. NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. To the extent
this Option is an ISO, if Optionee sells or otherwise disposes of any of the
Shares acquired pursuant to the ISO on or before the later of (a) the date two
(2) years after the Date of Grant, and (b) the date one (1) year after transfer
of such Shares to Optionee upon exercise of this Option, then Optionee shall
immediately notify the Company in writing of such disposition.
6. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of this
Option and the issuance and transfer of Shares shall be subject to compliance by
the Company and Optionee with all applicable requirements of federal and state
securities laws and with all applicable requirements of any stock exchange on
which the Company's Common Stock may be listed at the time of such issuance or
transfer. Optionee understands that the Company is under no obligation to
register or qualify the Shares with the SEC, any state securities commission or
any stock exchange to effect such compliance.
7. NONTRANSFERABILITY OF OPTION. This Option 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 Optionee only by Optionee. The terms of
this Option shall be binding upon the executors, administrators, successors and
assigns of Optionee.
8. TAX CONSEQUENCES. Set forth below is a brief summary as of the
date the Board adopted the Plan of some of the federal tax consequences of
exercise of this Option and disposition of the Shares. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
OPTIONEE SHOULD CONSULT A TAX ADVISOR BEFORE EXERCISING THIS OPTION OR DISPOSING
OF THE SHARES.
4
<PAGE>
8.1 EXERCISE OF INCENTIVE STOCK OPTION. To the extent this
Option qualifies as an ISO, there will be no regular federal income tax
liability upon the exercise of this Option, although the excess, if any, of the
fair market value of the Shares on the date of exercise over the Exercise Price
will be treated as a tax preference item for federal income tax purposes and may
subject the Optionee to the alternative minimum tax in the year of exercise.
8.2 EXERCISE OF NONQUALIFIED STOCK OPTION. To the extent this
Option does not qualify as an ISO, there may be a regular federal income tax
liability upon the exercise of this Option. Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the
excess, if any, of the fair market value of the Shares on the date of exercise
over the Exercise Price. The Company may be required to withhold from
Optionee's compensation or collect from Optionee and pay to the applicable
taxing authorities an amount equal to a percentage of this compensation income
at the time of exercise.
8.3 DISPOSITION OF SHARES. The following tax consequences may
apply upon disposition of the Shares.
a. INCENTIVE STOCK OPTIONS. If the Shares are held for
more than twelve (12) months after the date of the transfer of the Shares
pursuant to the exercise of an ISO and are disposed of more than two (2) years
after the Date of Grant, any gain realized on disposition of the Shares will be
treated as capital gain for federal income tax purposes. If Shares purchased
under an ISO are disposed of within the applicable one (1) year or two (2) year
period, any gain realized on such disposition will be treated as compensation
income (taxable at ordinary income rates) to the extent of the excess, if any,
of the fair market value of the Shares on the date of exercise over the Exercise
Price.
b. NONQUALIFIED STOCK OPTIONS. If the Shares are held for
more than twelve (12) months after the date of the transfer of the Shares
pursuant to the exercise of an NQSO, any gain realized on disposition of the
Shares will be treated as long-term capital gain.
c. WITHHOLDING. The Company may be required to withhold
from Participant's compensation or collect from the Participant and pay to the
applicable taxing authorities an amount equal to a percentage of this
compensation income.
9. PRIVILEGES OF STOCK OWNERSHIP. Optionee shall not have any of
the rights of a stockholder with respect to any Shares until the Shares are
issued to Optionee.
10. INTERPRETATION. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or the Company to the Committee for
review. The resolution of such a dispute by the Committee shall be final and
binding on the Company and Optionee.
11. ENTIRE AGREEMENT. The Plan is incorporated herein by reference.
This Agreement and the Plan and the Exercise Agreement constitute the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof and supersede all prior understandings and agreements with respect
to such subject matter.
5
<PAGE>
12. NOTICES. Any notice required to be given or delivered to the
Company under the terms of this Agreement shall be in writing and addressed to
the Corporate Secretary of the Company at its principal corporate offices. Any
notice required to be given or delivered to Optionee shall be in writing and
addressed to Optionee at the address indicated above or to such other address as
such party may designate in writing from time to time to the Company. All
notices shall be deemed to have been given or delivered upon: personal
delivery; three (3) days after deposit in the United States mail by certified or
registered mail (return receipt requested); one (1) business day after deposit
with any return receipt express courier (prepaid); or one (1) business day after
transmission by facsimile.
13. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
under this Agreement. This Agreement shall be binding upon and inure to the
benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer set forth herein, this Agreement shall be binding upon
Optionee and Optionee's heirs, executors, administrators, legal representatives,
successors and assigns.
14. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of California, without regard
to that body of law pertaining to choice of law or conflict of law.
15. ACCEPTANCE. Optionee hereby acknowledges receipt of a copy of
the Plan and this Agreement. Optionee has read and understands the terms and
provisions thereof, and accepts this Option subject to all the terms and
conditions of the Plan and this Agreement. Optionee acknowledges that there may
be adverse tax consequences upon exercise of this Option or disposition of the
Shares and that the Company has advised Optionee to consult a tax advisor prior
to such exercise or disposition.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in
duplicate by its duly authorized representative and Optionee has executed this
Agreement in duplicate as of the Date of Grant.
ADFORCE, INC. OPTIONEE
By:
- ------------------------------------ ------------------------------------
(Signature)
- ------------------------------------ ------------------------------------
(Please print name) (Please print name)
- ------------------------------------
(Please print title)
7
<PAGE>
EXHIBIT A
STOCK OPTION EXERCISE AGREEMENT
<PAGE>
EXHIBIT A
ADFORCE, INC.
1999 EQUITY INCENTIVE PLAN (THE "PLAN")
STOCK OPTION EXERCISE AGREEMENT
I hereby elect to purchase the number of shares of Common Stock of ADFORCE,
INC. (the "COMPANY") as set forth below:
Optionee______________________________ Number of Shares Purchased:___________
Social Security Number:_______________ Purchase Price per Share:_____________
Address:______________________________ Aggregate Purchase Price:_____________
___________________________ Date of Option Agreement:_____________
___________________________
Type of Option: [ ] Incentive Stock Exact Name of Title to Shares:________
Option ______________________________________
[ ] Nonqualified Stock
Option
1. DELIVERY OF PURCHASE PRICE. Optionee hereby delivers to the Company the
Aggregate Purchase Price, to the extent permitted in the Option Agreement (the
"OPTION AGREEMENT") as follows (check as applicable and complete):
[ ] in cash (by check) in the amount of $_____________________, receipt of
which is acknowledged by the Company;
[ ] by cancellation of indebtedness of the Company to Optionee in the amount of
$___________________________________;
[ ] by delivery of ______________________________ fully-paid, nonassessable and
vested shares of the Common Stock of the Company owned by Optionee for at
least six (6) months prior to the date hereof (and which have been paid for
within the meaning of SEC Rule 144), or obtained by Optionee in the open
public market, and owned free and clear of all liens, claims, encumbrances
or security interests, valued at the current Fair Market Value of
$____________________ per share;
[ ] by the waiver hereby of compensation due or accrued to Optionee for
services rendered in the amount of $____________________________________ ;
[ ] through a "same-day-sale" commitment, delivered herewith, from Optionee and
the NASD Dealer named therein, in the amount of
$_______________________________; or
[ ] through a "margin" commitment, delivered herewith from Optionee and the
NASD Dealer named therein, in the amount of
$_________________________________________.
2. MARKET STANDOFF AGREEMENT. Optionee, if requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, agrees not to
sell or otherwise transfer or dispose of any Common Stock (or other securities)
of the Company held by Optionee during the period requested by the managing
underwriter following the effective date of a registration statement of the
Company filed under the Securities Act, provided that all officers and directors
of the Company are required to enter into similar agreements. Such agreement
shall be in writing in a form satisfactory to the Company and such underwriter.
The Company may impose stop-transfer instructions with respect to the shares (or
other securities) subject to the foregoing restriction until the end of such
period.
3. TAX CONSEQUENCES. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER ADVERSE
TAX CONSEQUENCES AS A RESULT OF OPTIONEE'S PURCHASE OR DISPOSITION OF THE
SHARES. OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX
CONSULTANT(S) OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR
DISPOSITION OF THE SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR
ANY TAX ADVICE.
4. ENTIRE AGREEMENT. The Plan and Option Agreement are incorporated herein by
reference. This Exercise Agreement, the Plan and the Option Agreement
constitute the entire agreement and understanding of the parties and supersede
in their entirety all prior understandings and agreements of the Company and
Optionee with respect to the subject matter hereof, and are governed by
California law except for that body of law pertaining to choice of law or
conflict of law.
Date:_______________________________ ________________________________________
SIGNATURE OF OPTIONEE
<PAGE>
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Stock Option Exercise
Agreement (the "AGREEMENT") and that I know its contents. I hereby consent to
and approve all of the provisions of the Agreement, and agree that the shares of
the Common Stock of Adforce, Inc. purchased thereunder (the "SHARES") and any
interest I may have in such Shares are subject to all the provisions of the
Agreement. I will take no action at any time to hinder operation of the
Agreement on these Shares or any interest I may have in or to them.
__________________________________ Date:__________________
SIGNATURE OF OPTIONEE'S SPOUSE
__________________________________
SPOUSE'S NAME - TYPED OR PRINTED
___________________________________
OPTIONEE'S NAME - TYPED OR PRINTED
<PAGE>
ADFORCE, INC.
1999 DIRECTORS STOCK OPTION PLAN
As Adopted February 18, 1999
1. PURPOSE. This 1999 Directors Stock Option Plan (this "PLAN") is
established to provide equity incentives for certain nonemployee members of the
Board of Directors of Adforce, Inc. (the "COMPANY"), who are described in
Section 6.1 below, by granting such persons options to purchase shares of stock
of the Company.
2. ADOPTION AND STOCKHOLDER APPROVAL. After this Plan is adopted by the
Board of Directors of the Company (the "BOARD"), this Plan will become effective
on the time and date (the "EFFECTIVE DATE") on which the registration statement
filed by the Company with the Securities and Exchange Commission ("SEC") under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), to register the
initial public offering of the Company's Common Stock is declared effective by
the SEC. This Plan shall be approved by the stockholders of the Company,
consistent with applicable laws, within twelve (12) months after the date this
Plan is adopted by the Board.
3. TYPES OF OPTIONS AND SHARES. Options granted under this Plan shall
be non-qualified stock options ("NQSOS"). The shares of stock that may be
purchased upon exercise of Options granted under this Plan (the "SHARES") are
shares of the Common Stock of the Company.
4. NUMBER OF SHARES. The maximum number of Shares that may be issued
pursuant to Options granted under this Plan (the "MAXIMUM NUMBER") is 200,000
Shares, subject to adjustment as provided in this Plan. If any Option is
terminated for any reason without being exercised in whole or in part, the
Shares thereby released from such Option shall be available for purchase under
other Options subsequently granted under this Plan. At all times during the
term of this Plan, the Company shall reserve and keep available such number of
Shares as shall be required to satisfy the requirements of outstanding Options
granted under this Plan; provided, however that if the aggregate number of
Shares subject to outstanding Options granted under this Plan plus the aggregate
number of Shares previously issued by the Company pursuant to the exercise of
Options granted under this Plan equals or exceeds the Maximum Number, then
notwithstanding anything herein to the contrary, no further Options may be
granted under this Plan until the Maximum Number is increased or the aggregate
number of Shares subject to outstanding Options granted under this Plan plus the
aggregate number of Shares previously issued by the Company pursuant to the
exercise of Options granted under this Plan is less than the Maximum Number.
5. ADMINISTRATION. This Plan shall be administered by the Board or by a
committee of not less than two members of the Board appointed to administer this
Plan (the "COMMITTEE"). As used in this Plan, references to the Committee shall
mean either such Committee or the Board if no Committee has been established.
The interpretation by the Committee of any of the provisions of this Plan or any
Option granted under this Plan shall be final and binding upon the Company and
all persons having an interest in any Option or any Shares purchased pursuant to
an Option.
6. ELIGIBILITY AND AWARD FORMULA.
6.1 ELIGIBILITY. Options shall be granted only to directors of the
Company who are not employees of the Company or any Parent, Subsidiary or
Affiliate of the Company, as those terms are defined in Section 17 below (each
such person referred to as an "OPTIONEE").
6.2 INITIAL GRANT. Each Optionee who first becomes a member of the
Board on or after the Effective Date will automatically be granted an Option for
10,000 Shares (an "INITIAL GRANT") on the date such Optionee first becomes a
member of the Board. Each Optionee who became a member of the Board prior to
the Effective Date will receive an Initial Grant immediately following the first
Annual Meeting of stockholders after the Effective Date.
<PAGE>
6.3 SUCCEEDING GRANTS. Immediately following each Annual Meeting
of stockholders, each Optionee will automatically be granted an Option for 5,000
Shares (a "SUCCEEDING GRANT"), provided the Optionee is a member of the Board on
such date and has served continuously as a member of the Board for a period of
at least one year since the date of such Optionee's Initial Grant.
7. TERMS AND CONDITIONS OF OPTIONS. Subject to the following and to
Section 6 above:
7.1 FORM OF OPTION GRANT. Each Option granted under this Plan
shall be evidenced by a written Stock Option Grant ("GRANT") in such form (which
need not be the same for each Optionee) as the Committee shall from time to time
approve, which Grant shall comply with and be subject to the terms and
conditions of this Plan.
7.2 VESTING. The date an Optionee receives an Initial Grant or a
Succeeding Grant is referred to in this Plan as the "START DATE" for such
Option.
(a) INITIAL GRANTS. Each Initial Grant will vest as to
twenty-five percent (25%) of the Shares on the first anniversary of the Start
Date for such Initial Grant, and as to 2.08333% of the Shares on each subsequent
monthly anniversary of the Start Date, so long as the Optionee continuously
remains a director or a consultant of the Company.
(b) SUCCEEDING GRANTS. Each Succeeding Grant will vest as to
twenty-five percent (25%) of the Shares on the first anniversary of the Start
Date for such Succeeding Grant, and as to 2.08333% of the Shares on each
subsequent monthly anniversary of the Start Date, so long as the Optionee
continuously remains a director or a consultant of the Company.
7.3 EXERCISE PRICE. The exercise price of an Option shall be the
Fair Market Value (as defined in Section 17.4) of the Shares, at the time that
the Option is granted.
7.4 TERMINATION OF OPTION. Except as provided below in this
Section, each Option shall expire ten (10) years after its Start Date (the
"EXPIRATION DATE"). The Option shall cease to vest when the Optionee ceases to
be a member of the Board or a consultant of the Company. The date on which the
Optionee ceases to be a member of the Board or a consultant of the Company shall
be referred to as the "TERMINATION DATE". An Option may be exercised after the
Termination Date only as set forth below:
(a) TERMINATION GENERALLY. If the Optionee ceases to be a
member of the Board or a consultant of the Company for any reason except death
of the Optionee or disability of the Optionee (whether temporary or permanent,
partial or total, as determined by the Committee), then each Option then held by
such Optionee, to the extent (and only to the extent) that it would have been
exercisable by the Optionee on the Termination Date, may be exercised by the
Optionee no later than seven (7) months after the Termination Date, but in no
event later than the Expiration Date.
(b) DEATH OR DISABILITY. If the Optionee ceases to be a
member of the Board or a consultant of the Company because of the death of the
Optionee or the disability of the Optionee (whether temporary or permanent,
partial or total, as determined by the Committee), then each Option then held by
such Optionee to the extent (and only to the extent) that it would have been
exercisable by the Optionee on the Termination Date, may be exercised by the
Optionee (or the Optionee's legal representative) no later than twelve (12)
months after the Termination Date, but in no event later than the Expiration
Date.
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<PAGE>
8. EXERCISE OF OPTIONS.
8.1 EXERCISE PERIOD. Subject to the provisions of Section 8.5
below, Options shall be exercisable as they vest; provided that the Committee
may provide that such Options shall be immediately exercisable subject to
repurchase in accordance with the vesting schedule set forth in Section 7.
8.2 NOTICE. Options may be exercised only by delivery to the
Company of an exercise agreement in a form approved by the Committee stating the
number of Shares being purchased, the restrictions imposed on the Shares and
such representations and agreements regarding the Optionee's investment intent
and access to information as may be required by the Company to comply with
applicable securities laws, together with payment in full of the exercise price
for the number of Shares being purchased.
8.3 PAYMENT. Payment for the Shares purchased upon exercise of an
Option may be made (a) in cash or by check; (b) by surrender of shares of Common
Stock of the Company that have been owned by the Optionee for more than six (6)
months (and which have been paid for within the meaning of SEC Rule 144 and, if
such shares were purchased from the Company by use of a promissory note, such
note has been fully paid with respect to such shares) or were obtained by the
Optionee in the open public market, having a Fair Market Value equal to the
exercise price of the Option; (c) by waiver of compensation due or accrued to
the Optionee for services rendered; (d) provided that a public market for the
Company's stock exists, through a "same day sale" commitment from the Optionee
and a broker-dealer that is a member of the National Association of Securities
Dealers (an "NASD DEALER") whereby the Optionee irrevocably elects to exercise
the Option and to sell a portion of the Shares so purchased to pay for the
exercise price and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the exercise price directly to the Company; (e) provided
that a public market for the Company's stock exists, through a "margin"
commitment from the Optionee and an NASD Dealer whereby the Optionee irrevocably
elects to exercise the Option and to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a loan from the NASD Dealer in the
amount of the exercise price, and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the exercise price directly to the
Company; or (f) by any combination of the foregoing.
8.4 WITHHOLDING TAXES. Prior to issuance of the Shares upon
exercise of an Option, the Optionee shall pay or make adequate provision for any
federal or state withholding obligations of the Company, if applicable.
8.5 LIMITATIONS ON EXERCISE. Notwithstanding the exercise periods
set forth in the Grant, exercise of an Option shall always be subject to the
following limitations:
(a) An Option shall not be exercisable unless such exercise
is in compliance with the Securities Act and all applicable state securities
laws, as they are in effect on the date of exercise.
(b) The Committee may specify a reasonable minimum number of
Shares that may be purchased upon any exercise of an Option, provided that such
minimum number will not prevent the Optionee from exercising the full number of
Shares as to which the Option is then exercisable.
9. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee,
an Option shall be exercisable only by the Optionee or by the Optionee's
guardian or legal representative, unless otherwise determined by the Committee.
No Option may be sold, pledged, assigned, hypothecated, transferred or disposed
of in any manner other than by will or by the laws of descent and distribution,
unless otherwise determined by the Committee.
10. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of the
rights of a stockholder with respect to any Shares subject to an Option until
the Option has been validly exercised. No adjustment shall be made for
dividends or distributions or other rights for which the record date is prior to
the date of exercise, except as provided in this Plan. The Company shall
provide to each Optionee a copy of the annual financial statements of the
- 3 -
<PAGE>
Company at such time after the close of each fiscal year of the Company as they
are released by the Company to its stockholders.
11. ADJUSTMENT OF OPTION SHARES. In the event that the number of
outstanding shares of Common Stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration,
the number of Shares available under this Plan and the number of Shares subject
to outstanding Options and the exercise price per share of such outstanding
Options and, unless otherwise determined by the Committee, the number of shares
subject to Initial Grants and Succeeding Grants shall be proportionately
adjusted, subject to any required action by the Board or stockholders of the
Company and compliance with applicable securities laws; provided, however, that
no fractional shares shall be issued upon exercise of any Option and any
resulting fractions of a Share shall be rounded up to the nearest whole Share.
12. NO OBLIGATION TO CONTINUE AS DIRECTOR. Nothing in this Plan or any
Option granted under this Plan shall confer on any Optionee any right to
continue as a director of the Company.
13. COMPLIANCE WITH LAWS. The grant of Options and the issuance of
Shares upon exercise of any Options shall be subject to and conditioned upon
compliance with all applicable requirements of law, including without limitation
compliance with the Securities Act, compliance with all other applicable state
securities laws and compliance with the requirements of any stock exchange or
national market system on which the Shares may be listed. The Company shall be
under no obligation to register the Shares with the SEC or to effect compliance
with the registration or qualification requirement of any state securities laws,
stock exchange or national market system.
14. ACCELERATION OF OPTIONS ON CERTAIN CORPORATE TRANSACTIONS. In the
event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the stockholders of the Company or their relative stock
holdings and the Options granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption, conversion or
replacement will be binding on all Optionees), (c) a merger in which the Company
is the surviving corporation but after which the stockholders of the Company
(other than any stockholder which merges (or which owns or controls another
corporation which merges) with the Company in such merger) cease to own their
shares or other equity interests in the Company, (d) the sale of substantially
all of the assets of the Company, or (e) the acquisition, sale or transfer of
more than 50% of the outstanding shares of the Company by tender offer or
similar transaction, the vesting of all options granted pursuant to this Plan
will accelerate and the options will become exercisable in full prior to the
consummation of such event at such times and on such conditions as the Committee
determines, and must be exercised, if at all, within seven months of the
consummation of said event. Any options not exercised within such seven-month
period shall expire.
15. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
terminate or amend this Plan or any outstanding option, provided that the Board
may not terminate or amend the terms of any outstanding option without the
consent of the Optionee. In any case, no amendment of this Plan may adversely
affect any then outstanding Options or any unexercised portions thereof without
the written consent of the Optionee.
16. TERM OF PLAN. Options may be granted pursuant to this Plan from time
to time within a period of ten (10) years from the Effective Date.
17. CERTAIN DEFINITIONS. As used in this Plan, the following terms shall
have the following meanings:
17.1 "PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of such
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.
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<PAGE>
17.2 "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.
17.3 "AFFILIATE" means any corporation that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, another corporation, where "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to cause the direction of the management and policies of
the corporation, whether through the ownership of voting securities, by contract
or otherwise.
17.4 "FAIR MARKET VALUE" means, as of any date, the value of a share
of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the
date of determination as reported in THE WALL STREET JOURNAL;
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of
determination on the principal national securities exchange on
which the Common Stock is listed or admitted to trading as
reported in THE WALL STREET JOURNAL;
(c) if such Common Stock is publicly traded but is not quoted on
the Nasdaq National Market nor listed or admitted to trading on
a national securities exchange, the average of the closing bid
and asked prices on the date of determination as reported in
THE WALL STREET JOURNAL;
(d) in the case of an Option granted on the Effective Date, the
price per share at which shares of the Company's Common Stock
are initially offered for sale to the public by the Company's
underwriters in the initial public offering of the Company's
Common Stock pursuant to a registration statement filed with
the SEC under the Securities Act; or
(e) if none of the foregoing is applicable, by the Committee in
good faith.
- 5 -
<PAGE>
INITIAL GRANT
ADFORCE, INC.
1999 DIRECTORS STOCK OPTION PLAN
DIRECTORS NONQUALIFIED INITIAL STOCK OPTION GRANT
This Stock Option Grant (this "GRANT") is made and entered into as of the
Date of Grant set forth below (the "DATE OF GRANT") by and between Adforce,
Inc., a Delaware corporation (the "COMPANY"), and the Optionee named below
("OPTIONEE"). Capitalized terms not defined herein shall have the meanings
ascribed to them in the Company's 1999 Director's Stock Option Plan (the
"PLAN").
Optionee:
------------------------------------------------
Optionee's Address:
------------------------------------------------
------------------------------------------------
Total Shares Subject to Option: 10,000
------------------------------------------------
Exercise Price Per Share:
------------------------------------------------
Date of Grant:
------------------------------------------------
Expiration Date:
------------------------------------------------
(unless earlier terminated under Section 4 hereof)
1. GRANT OF OPTION. The Company hereby grants to Optionee an option
(this "OPTION") to purchase up to the total number of shares of Common Stock of
the Company set forth above as Total Shares Subject to Option (collectively, the
"SHARES") at the Exercise Price Per Share set forth above (the "EXERCISE
PRICE"), subject to all of the terms and conditions of this Grant and the Plan.
2. EXERCISE AND VESTING OF OPTION. Subject to the terms and conditions
of the Plan and this Grant, this Option shall be exercisable as it vests.
Subject to the terms and conditions of the Plan and this Grant, this Option
shall vest as to 25% of the Shares on the first anniversary of the Date of Grant
and as to 2.08333% of the Shares on each monthly anniversary of the Date of
Grant, so long as the Optionee continuously remains a member of the Board of
Directors (a "BOARD MEMBER") or a consultant of the Company.
3. RESTRICTION ON EXERCISE. This Option may not be exercised unless such
exercise is in compliance with the Securities Act, and all applicable state
securities laws, as they are in effect on the date of exercise, and the
requirements of any stock exchange or national market system on which the
Company's Common Stock may be listed at the time of exercise. Optionee
understands that the Company is under no obligation to register, qualify or list
the Shares with the SEC, any state securities commission or any stock exchange
or national market system to effect such compliance.
<PAGE>
4. TERMINATION OF OPTION. Except as provided below in this Section, this
Option shall terminate and may not be exercised if Optionee ceases to be a Board
Member or consultant of the Company. The date on which Optionee ceases to be a
Board Member or consultant of the Company shall be referred to as the
"TERMINATION DATE."
4.1 TERMINATION GENERALLY. If Optionee ceases to be a Board Member
or consultant of the Company for any reason except death or disability, then
this Option, to the extent that it has vested as of the Termination Date, may be
exercised by Optionee no later than seven (7) months after the Termination Date,
but in no event later than the Expiration Date.
4.2 DEATH OR DISABILITY. If Optionee ceases to be a Board Member or
consultant of the Company because of the death of Optionee or the disability of
Optionee (whether temporary or permanent, partial or total, as determined by the
Committee) then this Option, to the extent that it has vested as of the
Termination Date, may be exercised by Optionee (or Optionee's legal
representative) no later than twelve (12) months after the Termination Date, but
in no event later than the Expiration Date.
5. MANNER OF EXERCISE.
5.1 EXERCISE AGREEMENT. This Option shall be exercisable by delivery
to the Company of an executed written Directors Stock Option Exercise Agreement
in the form attached hereto as EXHIBIT A, or in such other form as may be
approved by the Committee, which shall set forth Optionee's election to exercise
some or all of this Option, the number of Shares being purchased, any
restrictions imposed on the Shares and such other representations and agreements
as may be required by the Company to comply with applicable securities laws.
5.2 PAYMENT. Payment for the Shares purchased upon exercise of this
Option may be made (a) in cash or by check; (b) by surrender of shares of Common
Stock of the Company that have been owned by Optionee for more than six (6)
months (and which have been paid for within the meaning of SEC Rule 144 and, if
such shares were purchased from the Company by use of a promissory note, such
note has been fully paid with respect to such shares) or were obtained by the
Optionee in the open public market, having a Fair Market Value equal to the
Exercise Price of the Option; (c) by waiver of compensation due or accrued to
Optionee for services rendered; (d) provided that a public market for the
Company's stock exists, through a "same day sale" commitment from the Optionee
and a broker-dealer that is a member of the National Association of Securities
Dealers (an "NASD DEALER") whereby the Optionee irrevocably elects to exercise
the Option and to sell a portion of the Shares so purchased to pay for the
Exercise Price and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the Exercise Price directly to the Company; (e) provided
that a public market for the Company's stock exists, through a "margin"
commitment from the Optionee and an NASD Dealer whereby the Optionee irrevocably
elects to exercise the Option and to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a loan from the NASD Dealer in the
amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the Exercise Price directly to the
Company; or (f) by any combination of the foregoing.
-2-
<PAGE>
5.3 WITHHOLDING TAXES. Prior to the issuance of the Shares upon
exercise of this Option, Optionee shall pay or make adequate provision for any
applicable federal or state withholding obligations of the Company.
5.4 ISSUANCE OF SHARES. Provided that such notice and payment are in
form and substance satisfactory to counsel for the Company, the Company shall
cause the Shares to be issued in the name of Optionee or Optionee's legal
representative. To enforce any restrictions on Optionee's Shares, the Committee
may require Optionee to deposit all certificates, together with stock powers or
other instruments of transfer approved by the Committee appropriately endorsed
in blank, with the Company or an agent designated by the Company to hold in
escrow until such restrictions have lapsed or terminated, and the Committee may
cause a legend or legends referencing such restrictions to be placed on the
certificates.
6. NONTRANSFERABILITY OF OPTION. During the lifetime of the Optionee,
this Option shall be exercisable only by Optionee or by Optionee's guardian or
legal representative, unless otherwise permitted by the Committee. This Option
may not be sold, pledged, assigned, hypothecated, transferred or disposed of in
any manner other than by will or by the laws of descent and distribution.
7. INTERPRETATION. Any dispute regarding the interpretation of this
Grant shall be submitted by Optionee or the Company to the Committee that
administers the Plan, which shall review such dispute at its next regular
meeting. The resolution of such a dispute by the Committee shall be final and
binding on the Company and on Optionee. Nothing in the Plan or this Grant shall
confer on Optionee any right to continue as a Board Member or to provide
services to the Company as a consultant.
8. ENTIRE AGREEMENT. The Plan and the Directors Stock Option Exercise
Agreement in the form attached hereto as EXHIBIT A, and the terms and conditions
thereof, are incorporated herein by reference. This Grant, the Plan and the
Directors Stock Option Exercise Agreement constitute the entire agreement and
understanding of the parties hereto with respect to the subject matter hereof
and supersede all prior understandings and agreements with respect to such
subject matter.
ADFORCE, INC.
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
-3-
<PAGE>
ACCEPTANCE OF STOCK OPTION GRANT
Optionee hereby acknowledges receipt of a copy of the Plan, represents that
Optionee has read and understands the terms and provisions thereof, and accepts
this Option subject to all of the terms and conditions of the Plan and this
Grant. Optionee acknowledges that there may be adverse tax consequences upon
exercise of this Option or disposition of the Shares and that Optionee has been
advised by the Company that Optionee should consult a qualified tax advisor
prior to such exercise or disposition.
-----------------------------------
, Optionee
------------------------
[ACCEPTANCE SIGNATURE PAGE TO DIRECTORS NONQUALIFIED INITIAL STOCK OPTION GRANT]
-4-
<PAGE>
SUCCEEDING GRANT
ADFORCE, INC.
1999 DIRECTORS STOCK OPTION PLAN
DIRECTORS NONQUALIFIED SUCCEEDING STOCK OPTION GRANT
This Stock Option Grant (this "GRANT") is made and entered into as of the
Date of Grant set forth below (the "DATE OF GRANT") by and between Adforce,
Inc., a Delaware corporation (the "COMPANY"), and the Optionee named below
("OPTIONEE"). Capitalized terms not defined herein shall have the meanings
ascribed to them in the Company's 1999 Directors Stock Option Plan (the "PLAN").
Optionee:
------------------------------------------------
Optionee's Address:
------------------------------------------------
------------------------------------------------
Total Shares Subject to Option: 5,000
------------------------------------------------
Exercise Price Per Share:
------------------------------------------------
Date of Grant:
------------------------------------------------
Expiration Date:
------------------------------------------------
(unless earlier terminated under Section 4 hereof)
1. GRANT OF OPTION. The Company hereby grants to Optionee an option
(this "OPTION") to purchase up to the total number of shares of Common Stock of
the Company set forth above as Total Shares Subject to Option (collectively, the
"SHARES") at the Exercise Price Per Share set forth above (the "EXERCISE
PRICE"), subject to all of the terms and conditions of this Grant and the Plan.
2. EXERCISE AND VESTING OF OPTION. Subject to the terms and conditions
of the Plan and this Grant, this Option shall be exercisable as it vests.
Subject to the terms and conditions of the Plan and this Grant, this Option
shall vest as to 25% of the Shares on the first anniversary of the Date of Grant
and as to 2.08333% of the Shares on each monthly anniversary of the Date of
Grant, so long as the Optionee continuously remains a member of the Board of
Directors (a "BOARD MEMBER") or a consultant of the Company.
3. RESTRICTION ON EXERCISE. This Option may not be exercised unless such
exercise is in compliance with the Securities Act, and all applicable state
securities laws, as they are in effect on the date of exercise, and the
requirements of any stock exchange or national market system on which the
Company's Common Stock may be listed at the time of exercise. Optionee
understands that the Company is under no obligation to register, qualify or list
the Shares with the SEC, any state securities commission or any stock exchange
or national market system to effect such compliance.
<PAGE>
4. TERMINATION OF OPTION. Except as provided below in this Section, this
Option shall terminate and may not be exercised if Optionee ceases to be a Board
Member or consultant of the Company. The date on which Optionee ceases to be a
Board Member or consultant of the Company shall be referred to as the
"TERMINATION DATE."
4.1 TERMINATION GENERALLY. If Optionee ceases to be a Board Member
or consultant of the Company for any reason except death or disability, then
this Option, to the extent that it has vested as of the Termination Date, may be
exercised by Optionee no later than seven (7) months after the Termination Date,
but in no event later than the Expiration Date.
4.2 DEATH OR DISABILITY. If Optionee ceases to be a Board Member or
consultant of the Company because of the death of Optionee or the disability of
Optionee (whether temporary or permanent, partial or total, as determined by the
Committee) then this Option, to the extent that it has vested as of the
Termination Date, may be exercised by Optionee (or Optionee's legal
representative) no later than twelve (12) months after the Termination Date, but
in no event later than the Expiration Date.
5. MANNER OF EXERCISE.
5.1 EXERCISE AGREEMENT. This Option shall be exercisable by delivery
to the Company of an executed written Directors Stock Option Exercise Agreement
in the form attached hereto as EXHIBIT A, or in such other form as may be
approved by the Committee, which shall set forth Optionee's election to exercise
some or all of this Option, the number of Shares being purchased, any
restrictions imposed on the Shares and such other representations and agreements
as may be required by the Company to comply with applicable securities laws.
5.2 PAYMENT. Payment for the Shares purchased upon exercise of this
Option may be made (a) in cash or by check; (b) by surrender of shares of Common
Stock of the Company that have been owned by Optionee for more than six (6)
months (and which have been paid for within the meaning of SEC Rule 144 and, if
such shares were purchased from the Company by use of a promissory note, such
note has been fully paid with respect to such shares) or were obtained by the
Optionee in the open public market, having a Fair Market Value equal to the
Exercise Price of the Option; (c) by waiver of compensation due or accrued to
Optionee for services rendered; (d) provided that a public market for the
Company's stock exists, through a "same day sale" commitment from the Optionee
and a broker-dealer that is a member of the National Association of Securities
Dealers (an "NASD DEALER") whereby the Optionee irrevocably elects to exercise
the Option and to sell a portion of the Shares so purchased to pay for the
Exercise Price and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the Exercise Price directly to the Company; (e) provided
that a public market for the Company's stock exists, through a "margin"
commitment from the Optionee and an NASD Dealer whereby the Optionee irrevocably
elects to exercise the Option and to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a loan from the NASD Dealer in the
amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the Exercise Price directly to the
Company; or (f) by any combination of the foregoing.
-2-
<PAGE>
5.3 WITHHOLDING TAXES. Prior to the issuance of the Shares upon
exercise of this Option, Optionee shall pay or make adequate provision for any
applicable federal or state withholding obligations of the Company.
5.4 ISSUANCE OF SHARES. Provided that such notice and payment are in
form and substance satisfactory to counsel for the Company, the Company shall
cause the Shares to be issued in the name of Optionee or Optionee's legal
representative. To enforce any restrictions on Optionee's Shares, the Committee
may require Optionee to deposit all certificates, together with stock powers or
other instruments of transfer approved by the Committee appropriately endorsed
in blank, with the Company or an agent designated by the Company to hold in
escrow until such restrictions have lapsed or terminated, and the Committee may
cause a legend or legends referencing such restrictions to be placed on the
certificates.
6. NONTRANSFERABILITY OF OPTION. During the lifetime of the Optionee,
this Option shall be exercisable only by Optionee or by Optionee's guardian or
legal representative, unless otherwise permitted by the Committee. This Option
may not be sold, pledged, assigned, hypothecated, transferred or disposed of in
any manner other than by will or by the laws of descent and distribution.
7. INTERPRETATION. Any dispute regarding the interpretation of this
Grant shall be submitted by Optionee or the Company to the Committee that
administers the Plan, which shall review such dispute at its next regular
meeting. The resolution of such a dispute by the Committee shall be final and
binding on the Company and on Optionee. Nothing in the Plan or this Grant shall
confer on Optionee any right to continue as a Board Member or to provide
services to the Company as a consultant.
8. ENTIRE AGREEMENT. The Plan and the Directors Stock Option Exercise
Agreement in the form attached hereto as EXHIBIT A, and the terms and conditions
thereof, are incorporated herein by this reference. This Grant, the Plan and
the Directors Stock Option Exercise Agreement constitute the entire agreement
and understanding of the parties hereto with respect to the subject matter
hereof and supersede all prior understandings and agreements with respect to
such subject matter.
ADFORCE, INC.
By:
-----------------------
Name:
-----------------------
Title:
-----------------------
-3-
<PAGE>
ACCEPTANCE OF STOCK OPTION GRANT
Optionee hereby acknowledges receipt of a copy of the Plan, represents that
Optionee has read and understands the terms and provisions thereof, and accepts
this Option subject to all of the terms and conditions of the Plan and this
Grant. Optionee acknowledges that there may be adverse tax consequences upon
exercise of this Option or disposition of the Shares and that Optionee has been
advised by the Company that Optionee should consult a qualified tax advisor
prior to such exercise or disposition.
-----------------------------------
, Optionee
------------------------
[ACCEPTANCE SIGNATURE PAGE TO DIRECTORS
NONQUALIFIED SUCCEEDING STOCK OPTION GRANT]
-4-
<PAGE>
EXHIBIT A
DIRECTORS STOCK OPTION EXERCISE AGREEMENT
<PAGE>
Exhibit A
ADFORCE, INC.
1999 DIRECTORS STOCK OPTION PLAN (THE "PLAN")
DIRECTORS STOCK OPTION EXERCISE AGREEMENT
I hereby elect to purchase the number of shares of Common Stock of ADFORCE, INC.
(the "COMPANY") as set forth below:
<TABLE>
<S> <C>
Optionee: Number of Shares Purchased:
---------------------------------- ------------------
Social Security Number: Purchase Price per Share:
-------------------- --------------------
Address: Aggregate Purchase Price:
----------------------------------- --------------------
Date of Stock Option Grant:
- -------------------------------------------- ------------------
Type of Stock Option: Nonqualified Stock Exact Name of Title to Shares:
Option --------------
- -------------------------------------------------------------------------------------------
</TABLE>
1. DELIVERY OF PURCHASE PRICE. Optionee hereby delivers to the Company the
Aggregate Purchase Price, to the extent permitted in the Directors Nonqualified
Stock Option Grant referred to above (the "GRANT") as follows (check as
applicable and complete):
[ ] in cash or by check in the amount of $___________________________,
receipt of which is acknowledged by the Company;
[ ] by delivery of _______________________ fully-paid, nonassessable and vested
shares of the Common Stock of the Company owned by Optionee for at least
six (6) months prior to the date hereof (and which have been paid for
within the meaning of SEC Rule 144), or obtained by Optionee in the open
public market, and owned free and clear of all liens, claims, encumbrances
or security interests, valued at the current Fair Market Value of
$___________________ per share;
[ ] by the waiver hereby of compensation due or accrued to Optionee for
services rendered in the amount of $_______________________________;
[ ] through a "same-day-sale" commitment, delivered herewith, from Optionee and
the NASD Dealer named therein, in the amount of
$______________________________; or
[ ] through a "margin" commitment, delivered herewith from Optionee and
the NASD Dealer named therein, in the amount of
$______________________________________.
2. MARKET STANDOFF AGREEMENT. Optionee, if requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, agrees not to
sell or otherwise transfer or dispose of any Common Stock (or other securities)
of the Company held by Optionee during the period requested by the managing
underwriter following the effective date of a registration statement of the
Company filed under the Securities Act, provided that all officers and directors
of the Company are required to enter into similar agreements. Such agreement
shall be in writing in a form satisfactory to the Company and such underwriter.
The Company may impose stop-transfer instructions with respect to the shares (or
other securities) subject to the foregoing restriction until the end of such
period.
3. TAX CONSEQUENCES. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER ADVERSE TAX
CONSEQUENCES AS A RESULT OF OPTIONEE'S PURCHASE OR DISPOSITION OF THE SHARES.
OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX CONSULTANT(S)
OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE
SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE.
4. ENTIRE AGREEMENT. The Plan and the Grant are incorporated herein by
reference. This Agreement, the Plan and the Grant constitute the entire
agreement of the parties and supersede in their entirety all prior
understandings and agreements of the Company and Optionee with respect to the
subject matter hereof, and are governed by California law except for that body
of law pertaining to conflict of laws.
Date:
------------------------------ ----------------------------------------
SIGNATURE OF OPTIONEE
<PAGE>
ADFORCE, INC.
1999 DIRECTORS STOCK OPTION PLAN
SPOUSE'S CONSENT
I acknowledge that I have read the foregoing Directors Stock Option
Exercise Agreement (the "AGREEMENT") and that I know its contents. I hereby
consent to and approve all of the provisions of the Agreement and agree that the
shares of the Common Stock of Adforce, Inc. purchased thereunder (the "SHARES")
and any interest I may have in such Shares are subject to all the provisions of
the Agreement. I will take no action at any time to hinder operation of the
Agreement on these Shares or any interest I may have on them.
Date:
- ------------------------------------ --------------------------------
SIGNATURE OF OPTIONEE'S SPOUSE
- -----------------------------------
SPOUSE'S NAME - TYPED OR PRINTED
- -----------------------------------
OPTIONEE'S NAME - TYPED OR PRINTED
<PAGE>
ADFORCE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
As Adopted February 18, 1999
1. ESTABLISHMENT OF PLAN. Adforce, Inc. (the "COMPANY") proposes to grant
options for purchase of the Company's Common Stock to eligible employees of the
Company and its Participating Subsidiaries (as hereinafter defined) pursuant to
this Employee Stock Purchase Plan (this "PLAN"). For purposes of this Plan,
"PARENT CORPORATION" and "SUBSIDIARY" shall have the same meanings as "parent
corporation" and "subsidiary corporation" in Sections 424(e) and 424(f),
respectively, of the Internal Revenue Code of 1986, as amended (the "CODE").
"PARTICIPATING SUBSIDIARIES" are Parent Corporations or Subsidiaries that the
Board of Directors of the Company (the "BOARD") designates from time to time as
corporations that shall participate in this Plan. The Company intends this Plan
to qualify as an "employee stock purchase plan" under Section 423 of the Code
(including any amendments to or replacements of such Section), and this Plan
shall be so construed. Any term not expressly defined in this Plan but defined
for purposes of Section 423 of the Code shall have the same definition herein.
A total of 300,000 shares of the Company's Common Stock is reserved for
issuance under this Plan. In addition, on each January 1, the aggregate number
of shares of the Company's Common Stock reserved for issuance under the Plan
shall be increased automatically by the number of shares purchased under this
Plan in the preceding calendar year; PROVIDED that the aggregate number of
shares issued over the term of this Plan shall not exceed 3,000,000 shares.
Such number shall be subject to adjustments effected in accordance with Section
14 of this Plan.
2. PURPOSE. The purpose of this Plan is to provide eligible employees of
the Company and Participating Subsidiaries with a convenient means of acquiring
an equity interest in the Company through payroll deductions, to enhance such
employees' sense of participation in the affairs of the Company and
Participating Subsidiaries, and to provide an incentive for continued
employment.
3. ADMINISTRATION. This Plan shall be administered by the Compensation
Committee of the Board (the "COMMITTEE"). Subject to the provisions of this
Plan and the limitations of Section 423 of the Code or any successor provision
in the Code, all questions of interpretation or application of this Plan shall
be determined by the Committee and its decisions shall be final and binding upon
all participants. Members of the Committee shall receive no compensation for
their services in connection with the administration of this Plan, other than
standard fees as established from time to time by the Board for services
rendered by Board members serving on Board committees. All expenses incurred in
connection with the administration of this Plan shall be paid by the Company.
4. ELIGIBILITY. Any employee of the Company or the Participating
Subsidiaries is eligible to participate in an Offering Period (as hereinafter
defined) under this Plan except the following:
(a) employees who are not employed by the Company or a Participating
Subsidiary (10) days before the beginning of such Offering Period, except that
employees who are employed on the Effective Date of the Registration Statement
filed by the Company with the Securities and Exchange Commission ("SEC") under
the Securities Act of 1933, as amended (the "SECURITIES ACT") registering the
initial public offering of the Company's Common Stock shall be eligible to
participate in the first Offering Period under the Plan;
(b) employees who are customarily employed for twenty (20) hours or
less per week;
(c) employees who are customarily employed for five (5) months or less
in a calendar year;
(d) employees who, together with any other person whose stock would be
attributed to such employee pursuant to Section 424(d) of the Code, own stock or
hold options to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any of
its Participating Subsidiaries or who, as a result of being granted an option
under this Plan with respect to such Offering Period,
<PAGE>
would own stock or hold options to purchase stock possessing five percent (5%)
or more of the total combined voting power or value of all classes of stock of
the Company or any of its Participating Subsidiaries; and
(e) individuals who provide services to the Company or any of its
Participating Subsidiaries as independent contractors who are reclassified as
common law employees for any reason EXCEPT FOR federal income and employment tax
purposes.
5. OFFERING DATES. The offering periods of this Plan (each, an "OFFERING
PERIOD") shall be of twenty-four (24) months duration commencing on February 1
and August 1 of each year and ending on January 31 and July 31 of each year;
PROVIDED, HOWEVER, that notwithstanding the foregoing, the first such Offering
Period shall commence on the first business day on which price quotations for
the Company's Common Stock are available on the Nasdaq National Market (the
"FIRST OFFERING DATE") and shall end on January 31, 2001. Except for the first
Offering Period, each Offering Period shall consist of four (4) six month
purchase periods (individually, a "PURCHASE PERIOD") during which payroll
deductions of the participants are accumulated under this Plan. The first
Offering Period shall consist of no more than five and no fewer than three
Purchase Periods, any of which may be greater or less than six months as
determined by the Committee. The first business day of each Offering Period is
referred to as the "OFFERING DATE". The last business day of each Purchase
Period is referred to as the "PURCHASE DATE". The Committee shall have the
power to change the duration of Offering Periods with respect to offerings
without stockholder approval if such change is announced at least fifteen (15)
days prior to the scheduled beginning of the first Offering Period to be
affected.
6. PARTICIPATION IN THIS PLAN. Eligible employees may become participants
in an Offering Period under this Plan on the first Offering Date after
satisfying the eligibility requirements by delivering a subscription agreement
to the Company's treasury department (the "TREASURY DEPARTMENT") not later than
five (5) days before such Offering Date. Notwithstanding the foregoing, the
Committee may set a later time for filing the subscription agreement authorizing
payroll deductions for all eligible employees with respect to a given Offering
Period. An eligible employee who does not deliver a subscription agreement to
the Treasury Department by such date after becoming eligible to participate in
such Offering Period shall not participate in that Offering Period or any
subsequent Offering Period unless such employee enrolls in this Plan by filing a
subscription agreement with the Treasury Department not later than five (5) days
preceding a subsequent Offering Date. Once an employee becomes a participant in
an Offering Period, such employee will automatically participate in the Offering
Period commencing immediately following the last day of the prior Offering
Period unless the employee withdraws or is deemed to withdraw from this Plan or
terminates further participation in the Offering Period as set forth in Section
11 below. Such participant is not required to file any additional subscription
agreement in order to continue participation in this Plan.
7. GRANT OF OPTION ON ENROLLMENT. Enrollment by an eligible employee in
this Plan with respect to an Offering Period will constitute the grant (as of
the Offering Date) by the Company to such employee of an option to purchase on
the Purchase Date up to that number of shares of Common Stock of the Company
determined by dividing (a) the amount accumulated in such employee's payroll
deduction account during such Purchase Period by (b) the lower of
(i) eighty-five percent (85%) of the fair market value of a share of the
Company's Common Stock on the Offering Date (but in no event less than the par
value of a share of the Company's Common Stock), or (ii) eighty-five percent
(85%) of the fair market value of a share of the Company's Common Stock on the
Purchase Date (but in no event less than the par value of a share of the
Company's Common Stock), PROVIDED, HOWEVER, that the number of shares of the
Company's Common Stock subject to any option granted pursuant to this Plan
shall not exceed the lesser of (x) the maximum number of shares set by the
Committee pursuant to Section 10(c) below with respect to the applicable
Purchase Date, or (y) the maximum number of shares which may be purchased
pursuant to Section 10(b) below with respect to the applicable Purchase Date.
The fair market value of a share of the Company's Common Stock shall be
determined as provided in Section 8 below.
8. PURCHASE PRICE. The purchase price per share at which a share of
Common Stock will be sold in any Offering Period shall be eighty-five percent
(85%) of the lesser of:
(a) The fair market value on the Offering Date; or
- 2 -
<PAGE>
(b) The fair market value on the Purchase Date.
For purposes of this Plan, the term "FAIR MARKET VALUE" means, as of any
date, the value of a share of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the
date of determination as reported in THE WALL STREET JOURNAL;
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of
determination on the principal national securities exchange on
which the Common Stock is listed or admitted to trading as
reported in THE WALL STREET JOURNAL;
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on the date of determination as reported in THE WALL
STREET JOURNAL; or
(d) if none of the foregoing is applicable, by the Board in good
faith, which in the case of the First Offering Date will be the
price per share at which shares of the Company's Common Stock
are initially offered for sale to the public by the Company's
underwriters in the initial public offering of the Company's
Common Stock pursuant to a registration statement filed with the
SEC under the Securities Act.
9. PAYMENT OF PURCHASE PRICE; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE OF
SHARES.
(a) The purchase price of the shares is accumulated by regular payroll
deductions made during each Offering Period. The deductions are made as a
percentage of the participant's compensation in one percent (1%) increments not
less than two percent (2%), nor greater than ten percent (10%) or such lower
limit set by the Committee. Compensation shall mean all W-2 cash compensation,
including, but not limited to, base salary, wages, commissions, overtime, shift
premiums and bonuses, plus draws against commissions, PROVIDED, HOWEVER, that
for purposes of determining a participant's compensation, any election by such
participant to reduce his or her regular cash remuneration under Sections 125 or
401(k) of the Code shall be treated as if the participant did not make such
election. Payroll deductions shall commence on the first payday of the Offering
Period and shall continue to the end of the Offering Period unless sooner
altered or terminated as provided in this Plan.
(b) A participant may increase or decrease the rate of payroll deductions
during an Offering Period by filing with the Treasury Department a new
authorization for payroll deductions, in which case the new rate shall become
effective for the next payroll period commencing more than fifteen (15) days
after the Treasury Department's receipt of the authorization and shall continue
for the remainder of the Offering Period unless changed as described below.
Such change in the rate of payroll deductions may be made at any time during an
Offering Period, but not more than one (1) change may be made effective during
any Purchase Period. A participant may increase or decrease the rate of payroll
deductions for any subsequent Offering Period by filing with the Treasury
Department a new authorization for payroll deductions not later than fifteen
(15) days before the beginning of such Offering Period.
(c) A participant may reduce his or her payroll deduction percentage to
zero during an Offering Period by filing with the Treasury Department a request
for cessation of payroll deductions. Such reduction shall be effective
beginning with the next payroll period commencing more than fifteen (15) days
after the Treasury Department's receipt of the request and no further payroll
deductions will be made for the duration of the Offering Period. Payroll
deductions credited to the participant's account prior to the effective date of
the request shall be used to purchase shares of Common Stock of the Company in
accordance with Section (e) below. A participant may not resume making payroll
deductions during the Offering Period in which he or she reduced his or her
payroll deductions to zero.
- 3 -
<PAGE>
(d) All payroll deductions made for a participant are credited to his or
her account under this Plan and are deposited with the general funds of the
Company. No interest accrues on the payroll deductions. All payroll deductions
received or held by the Company may be used by the Company for any corporate
purpose, and the Company shall not be obligated to segregate such payroll
deductions.
(e) On each Purchase Date, so long as this Plan remains in effect and
provided that the participant has not submitted a signed and completed
withdrawal form before that date which notifies the Company that the participant
wishes to withdraw from that Offering Period under this Plan and have all
payroll deductions accumulated in the account maintained on behalf of the
participant as of that date returned to the participant, the Company shall apply
the funds then in the participant's account to the purchase of whole shares of
Common Stock reserved under the option granted to such participant with respect
to the Offering Period to the extent that such option is exercisable on the
Purchase Date. The purchase price per share shall be as specified in Section 8
of this Plan. Any cash remaining in a participant's account after such purchase
of shares shall be refunded to such participant in cash, without interest;
provided, however that any amount remaining in such participant's account on a
Purchase Date which is less than the amount necessary to purchase a full share
of Common Stock of the Company shall be carried forward, without interest, into
the next Purchase Period or Offering Period, as the case may be. In the event
that this Plan has been oversubscribed, all funds not used to purchase shares on
the Purchase Date shall be returned to the participant, without interest. No
Common Stock shall be purchased on a Purchase Date on behalf of any employee
whose participation in this Plan has terminated prior to such Purchase Date.
(f) As promptly as practicable after the Purchase Date, the Company shall
issue shares for the participant's benefit representing the shares purchased
upon exercise of his or her option.
(g) During a participant's lifetime, his or her option to purchase shares
hereunder is exercisable only by him or her. The participant will have no
interest or voting right in shares covered by his or her option until such
option has been exercised.
10. LIMITATIONS ON SHARES TO BE PURCHASED.
(a) No participant shall be entitled to purchase stock under this Plan at
a rate which, when aggregated with his or her rights to purchase stock under all
other employee stock purchase plans of the Company or any Subsidiary, exceeds
$25,000 in fair market value, determined as of the Offering Date (or such other
limit as may be imposed by the Code) for each calendar year in which the
employee participates in this Plan. The Company shall automatically suspend the
payroll deductions of any participant as necessary to enforce such limit
provided that when the Company automatically resumes such payroll deductions,
the Company must apply the rate in effect immediately prior to such suspension.
(b) No more than two hundred percent (200%) of the number of shares
determined by using eighty-five percent (85%) of the fair market value of a
share of the Company's Common Stock on the Offering Date as the denominator may
be purchased by a participant on any single Purchase Date.
(c) No participant shall be entitled to purchase more than the Maximum
Share Amount (as defined below) on any single Purchase Date. Not less than
thirty (30) days prior to the commencement of any Offering Period, the Committee
may, in its sole discretion, set a maximum number of shares which may be
purchased by any employee at any single Purchase Date (hereinafter the "MAXIMUM
SHARE AMOUNT"). Until otherwise determined by the Committee, there shall be no
Maximum Share Amount. In no event shall the Maximum Share Amount exceed the
amounts permitted under Section 10(b) above. If a new Maximum Share Amount is
set, then all participants must be notified of such Maximum Share Amount prior
to the commencement of the next Offering Period. The Maximum Share Amount shall
continue to apply with respect to all succeeding Purchase Dates and Offering
Periods unless revised by the Committee as set forth above.
(d) If the number of shares to be purchased on a Purchase Date by all
employees participating in this Plan exceeds the number of shares then available
for issuance under this Plan, then the Company will make a pro rata allocation
of the remaining shares in as uniform a manner as shall be reasonably
practicable and as the Com-
- 4 -
<PAGE>
mittee shall determine to be equitable. In such event, the Company shall give
written notice of such reduction of the number of shares to be purchased under a
participant's option to each participant affected.
(e) Any payroll deductions accumulated in a participant's account which
are not used to purchase stock due to the limitations in this Section 10 shall
be returned to the participant as soon as practicable after the end of the
applicable Purchase Period, without interest.
11. WITHDRAWAL.
(a) Each participant may withdraw from an Offering Period under this Plan
by signing and delivering to the Treasury Department a written notice to that
effect on a form provided for such purpose. Such withdrawal may be elected at
any time at least fifteen (15) days prior to the end of an Offering Period.
(b) Upon withdrawal from this Plan, the accumulated payroll deductions
shall be returned to the withdrawn participant, without interest, and his or her
interest in this Plan shall terminate. In the event a participant voluntarily
elects to withdraw from this Plan, he or she may not resume his or her
participation in this Plan during the same Offering Period, but he or she may
participate in any Offering Period under this Plan which commences on a date
subsequent to such withdrawal by filing a new authorization for payroll
deductions in the same manner as set forth in Section 6 above for initial
participation in this Plan.
(c) If the Fair Market Value on the first day of the current Offering
Period in which a participant is enrolled is higher than the Fair Market Value
on the first day of any subsequent Offering Period, the Company will
automatically enroll such participant in the subsequent Offering Period. Any
funds accumulated in a participant's account prior to the first day of such
subsequent Offering Period will be applied to the purchase of shares on the
Purchase Date immediately prior to the first day of such subsequent Offering
Period, if any.
12. TERMINATION OF EMPLOYMENT. Termination of a participant's employment
for any reason, including retirement, death or the failure of a participant to
remain an eligible employee of the Company or of a Participating Subsidiary,
immediately terminates his or her participation in this Plan. In such event,
the payroll deductions credited to the participant's account will be returned to
him or her or, in the case of his or her death, to his or her legal
representative, without interest. For purposes of this Section 12, an employee
will not be deemed to have terminated employment or failed to remain in the
continuous employ of the Company or of a Participating Subsidiary in the case of
sick leave, military leave, or any other leave of absence approved by the Board;
PROVIDED that such leave is for a period of not more than ninety (90) days or
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
13. RETURN OF PAYROLL DEDUCTIONS. In the event a participant's interest
in this Plan is terminated by withdrawal, termination of employment or
otherwise, or in the event this Plan is terminated by the Board, the Company
shall deliver to the participant all payroll deductions credited to such
participant's account. No interest shall accrue on the payroll deductions of a
participant in this Plan.
14. CAPITAL CHANGES. Subject to any required action by the stockholders
of the Company, the number of shares of Common Stock covered by each option
under this Plan which has not yet been exercised and the number of shares of
Common Stock which have been authorized for issuance under this Plan but have
not yet been placed under option (collectively, the "RESERVES"), as well as the
price per share of Common Stock covered by each option under this Plan which has
not yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued and outstanding shares of Common Stock of the
Company resulting from a stock split or the payment of a stock dividend (but
only on the Common Stock) or any other increase or decrease in the number of
issued and outstanding shares of Common Stock effected without receipt of any
consideration by the Company; PROVIDED, HOWEVER, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the
Committee, whose determination shall be final, binding and conclusive. Except
as expressly provided herein, no issue 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.
- 5 -
<PAGE>
In the event of the proposed dissolution or liquidation of the Company, the
Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Committee. The Committee may,
in the exercise of its sole discretion in such instances, declare that this Plan
shall terminate as of a date fixed by the Committee and give each participant
the right to purchase shares under this Plan prior to such termination. In the
event of (i) a merger or consolidation in which the Company is not the surviving
corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the stockholders of
the Company or their relative stock holdings and the options under this Plan are
assumed, converted or replaced by the successor corporation, which assumption
will be binding on all participants), (ii) a merger in which the Company is the
surviving corporation but after which the stockholders of the Company
immediately prior to such merger (other than any stockholder that merges, or
which owns or controls another corporation that merges, with the Company in such
merger) cease to own their shares or other equity interest in the Company,
(iii) the sale of all or substantially all of the assets of the Company or (iv)
the acquisition, sale, or transfer of more than 50% of the outstanding shares of
the Company by tender offer or similar transaction, the Plan will continue with
regard to Offering Periods that commenced prior to the closing of the proposed
transaction and shares will be purchased based on the Fair Market Value of the
surviving corporation's stock on each Purchase Date, unless otherwise provided
by the Committee consistent with pooling of interests accounting treatment.
The Committee may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, or in the event of the Company being consolidated with or merged into any
other corporation.
15. NONASSIGNABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under this Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 22 below) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be void and
without effect.
16. REPORTS. Individual accounts will be maintained for each participant
in this Plan. Each participant shall receive promptly after the end of each
Purchase Period a report of his or her account setting forth the total payroll
deductions accumulated, the number of shares purchased, the per share price
thereof and the remaining cash balance, if any, carried forward to the next
Purchase Period or Offering Period, as the case may be.
17. NOTICE OF DISPOSITION. Each participant shall notify the Company in
writing if the participant disposes of any of the shares purchased in any
Offering Period pursuant to this Plan if such disposition occurs within two (2)
years from the Offering Date or within one (1) year from the Purchase Date on
which such shares were purchased (the "NOTICE PERIOD"). The Company may, at any
time during the Notice Period, place a legend or legends on any certificate
representing shares acquired pursuant to this Plan requesting the Company's
transfer agent to notify the Company of any transfer of the shares. The
obligation of the participant to provide such notice shall continue
notwithstanding the placement of any such legend on the certificates.
18. NO RIGHTS TO CONTINUED EMPLOYMENT. Neither this Plan nor the grant of
any option hereunder shall confer any right on any employee to remain in the
employ of the Company or any Participating Subsidiary, or restrict the right of
the Company or any Participating Subsidiary to terminate such employee's
employment.
19. EQUAL RIGHTS AND PRIVILEGES. All eligible employees shall have equal
rights and privileges with respect to this Plan so that this Plan qualifies as
an "employee stock purchase plan" within the meaning of Section 423 or any
successor provision of the Code and the related regulations. Any provision of
this Plan which is inconsistent with Section 423 or any successor provision of
the Code shall, without further act or amendment by the Company, the Committee
or the Board, be reformed to comply with the requirements of Section 423. This
Section 19 shall take precedence over all other provisions in this Plan.
- 6 -
<PAGE>
20. NOTICES. All notices or other communications by a participant to the
Company under or in connection with this Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. TERM; STOCKHOLDER APPROVAL. After this Plan is adopted by the Board,
this Plan will become effective on the First Offering Date (as defined above).
This Plan shall be approved by the stockholders of the Company, in any manner
permitted by applicable corporate law, within twelve (12) months before or after
the date this Plan is adopted by the Board. No purchase of shares pursuant to
this Plan shall occur prior to such stockholder approval. This Plan shall
continue until the earlier to occur of (a) termination of this Plan by the Board
(which termination may be effected by the Board at any time), (b) issuance of
all of the shares of Common Stock reserved for issuance under this Plan, or (c)
ten (10) years from the adoption of this Plan by the Board.
22. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who is
to receive any shares and cash, if any, from the participant's account under
this Plan in the event of such participant's death subsequent to the end of an
Purchase Period but prior to delivery to him of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under this Plan in the event
of such participant's death prior to a Purchase Date.
(b) Such designation of beneficiary may be changed by the participant at
any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under this Plan who is living at
the time of such participant's death, the Company shall deliver such shares or
cash to the executor or administrator of the estate of the participant, or if no
such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such shares or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
23. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES.
Shares shall not be issued with respect to an option unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange or automated quotation system upon which the shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
24. APPLICABLE LAW. The Plan shall be governed by the substantive laws
(excluding the conflict of laws rules) of the State of California.
25. AMENDMENT OR TERMINATION OF THIS PLAN. The Board may at any time
amend, terminate or extend the term of this Plan, except that any such
termination cannot affect options previously granted under this Plan, nor may
any amendment make any change in an option previously granted which would
adversely affect the right of any participant, nor may any amendment be made
without approval of the stockholders of the Company obtained in accordance with
Section 21 above within twelve (12) months of the adoption of such amendment (or
earlier if required by Section 21) if such amendment would:
(a) increase the number of shares that may be issued under this Plan; or
(b) change the designation of the employees (or class of employees)
eligible for participation in this Plan.
Notwithstanding the foregoing, the Board may make such amendments to the
Plan as the Board determines to be advisable, if the continuation of the Plan or
any Offering Period would result in financial accounting treatment for the Plan
that is different from the financial accounting treatment in effect on the date
this Plan is adopted by the Board.
- 7 -
<PAGE>
ADFORCE, INC. 1999 EMPLOYEE STOCK PURCHASE PLAN
ENROLLMENT FORM
<TABLE>
<CAPTION>
<S><C>
Check One: Complete:
[ ] New Enrollment or Re-enrollment Social Security No.
------------
[ ] Change Employee No.
-------------------
[ ] Change in How Shares Are to Be Held in Account
[ ] Increase in Payroll Deduction Level [ ] this Purchase Period [ ] next Offering Period
[ ] Decrease in Payroll Deduction Level [ ] this Purchase Period [ ] next Offering Period
[ ] Suspension of Payroll Deductions for Open Offering Period (Attach Completed Suspension Form)
[ ] Withdrawal (Attach Completed Withdrawal Form)
[ ] Beneficiary Change
</TABLE>
1. Name of Participant
-------------------------------------------------------
2. Shares purchased under the Plan should be held in account with the Plan
Broker in my name or in my name together with the name(s) indicated below:
Name Social Security No.
------------------------ ------------------------
Name Social Security No.
------------------------ ------------------------
There may be tax consequences for naming individuals other than your spouse
on the account in which Shares purchased under the Plan are held. If
spouse (circle one): Joint Tenants/Community Property.
PLEASE NOTIFY THE PLAN BROKER DIRECTLY TO TRANSFER OR SELL YOUR STOCK.
3. Payroll Deduction Level (from 2% to 10% in whole percentages):____________
(the percentage deduction will be made from your base salary, commissions,
overtime, shift premiums, bonuses and draws against commissions)
4. I confirm my spouse's interest (if married) in the community property
herein, and I hereby designate the following person(s) as my
beneficiary(ies) to receive all payments and/or stock attributable to my
interest under the Plan:
<TABLE>
<CAPTION>
<S><C>
NAME *To be divided ADDRESS
as follows:
----------------------------------- ----------- ----------------------------
Last First M.I. Number Street
----------------------------------- ----------------------------
Social Security No. Relationship City State Zip
----------------------------------- ----------- ----------------------------
Last First M.I. Number Street
----------------------------------- ----------------------------
Social Security No. Relationship City State Zip
</TABLE>
* If more than one beneficiary: (1) insert "in equal shares", or
(2) insert percentage to be paid to each beneficiary.
5. The information provided on this Enrollment Form will remain in effect
unless and until I complete and submit to the [________________________] a
new enrollment form.
ADFORCE, INC. OFFICE USE:
Signature: Date received by the [ ].:
------------ -------------- --------
Name: Date entered into system:
----------------- ----------------------
Date: PLEASE RETURN THIS COMPLETED FORM TO THE
----------------- HUMAN RESOURCE DEPARTMENT
<PAGE>
ADFORCE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
1. I elect to participate in the Adforce, Inc. (the "COMPANY") 1999 Employee
Stock Purchase Plan (the "PLAN") and to subscribe to purchase shares of the
Company's Common Stock (the "SHARES") in accordance with this Subscription
Agreement and the Plan.
2. I authorize payroll deductions from each of my paychecks in that percentage
of my base salary, commissions, overtime, shift premiums, bonuses and draws
against commissions as shown on my Enrollment Form, in accordance with the
Plan.
3. I understand that such payroll deductions shall be accumulated for the
purchase of Shares under the Plan at the applicable purchase price
determined in accordance with the Plan. I further understand that except
as otherwise set forth in the Plan, Shares will be purchased for me
automatically at the end of each Purchase Period unless I withdraw from the
Plan or otherwise become ineligible to participate in the Plan.
4. I understand that this Subscription Agreement will automatically re-enroll
me in all subsequent Offering Periods unless I withdraw from the Plan or I
become ineligible to participate in the Plan.
5. I acknowledge that I have a copy of and am familiar with the Company's most
recent Prospectus which describes the Plan. A copy of the complete Plan
and the Prospectus is on file with the Company. (In the case of the
initial Plan Purchase Period, the Prospectus will be on file on the first
day of the Offering Period.)
6. I understand that Shares purchased for me under the Plan will be held in a
personal account with the Plan Broker unless I request otherwise.
7. I hereby agree to be bound by the terms of the Plan. The effectiveness of
this Subscription Agreement is dependent upon my eligibility to participate
in the Plan.
8. I have read and understood this Subscription Agreement.
Signature:
------------------
Name:
-----------------------
Date:
-----------------------
PLEASE RETURN THIS COMPLETED FORM TO THE HUMAN RESOURCE DEPARTMENT.
<PAGE>
ADFORCE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF SUSPENSION
I, _________________________, the undersigned participant in the Offering
Period of the Adforce, Inc. 1999 Employee Stock Purchase Plan (the "PLAN") which
began on _______________, hereby notify Adforce, Inc. (the "COMPANY") that I
wish to suspend my payroll deductions to the Plan for the remainder of the
Offering Period. I understand and agree that my request will be effective
beginning with the next payroll period commencing more than 15 days after
____________________ receives this Notice of Suspension. I understand and agree
that payroll deductions credited to my account prior to the date this Notice of
Suspension is effective will be used to purchase shares on the next Purchase
Date. I further understand that no additional payroll deductions will be made
for the purchase of shares in the current Offering Period, and I will be
eligible to participate in succeeding Offering Periods only by timely delivering
to the Company a new Subscription Agreement and Enrollment Form.
Name and address of Participant (please print):
Name:
----------------------------------------------------------------------
Street Address or P.O. Box:
------------------------------------------------
City, State ZIP:
-----------------------------------------------------------
- -------------------------------------- ------------------------------
Signature Date
PLEASE RETURN THIS FORM TO THE HUMAN RESOURCE DEPARTMENT.
<PAGE>
ADFORCE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
I, _________________________, the undersigned participant in the Offering
Period of the Adforce, Inc. 1999 Employee Stock Purchase Plan (the "PLAN") which
began on _______________, hereby notify Adforce, Inc. (the "COMPANY") that I
wish to withdraw from the Offering Period. I direct the Company to pay to me as
promptly as practicable all payroll deductions credited to my account with
respect to such Offering Period. I understand and agree that my participation
in the Plan will terminate and no shares will be purchased for me at the end of
the Purchase Period so long as I submit this Notice of Withdrawal to the Company
at least 15 days prior to the end of the Purchase Period. I understand and
agree that if I submit this Notice of Withdrawal to the Company LESS than 15
days prior to the end of the Purchase Period, shares will be purchased for me at
the end of the Purchase Period, and my participation in the Plan will end at the
beginning of the next Purchase Period or Offering Period, as the case may be. I
further understand that no additional payroll deductions will be made for the
purchase of shares in the current Offering Period, and I shall be eligible to
participate in succeeding Offering Periods only by timely delivering to the
Company a new Subscription Agreement and Enrollment Form.
Name and address of Participant (please print):
Name:
--------------------------------------------------------------------------
Street Address or P.O. Box:
----------------------------------------------------
City, State ZIP:
---------------------------------------------------------------
- ------------------------------------- ------------------------------
Signature Date
PLEASE RETURN THIS FORM TO THE HUMAN RESOURCE DEPARTMENT.
<PAGE>
TWO TOWN CENTER
LEASE
between
TWO TOWN CENTER ASSOCIATES,
A Joint Venture
and
IMGIS CORPORATION,
A California corporation
<PAGE>
LEASE
THIS LEASE (the "Lease") is made this 20th day of December, 1996,
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, (hereinafter called "Landlord"), and IMGIS
CORPORATION, a California corporation (hereinafter called "Tenant").
LEASE OF PREMISES
Landlord hereby ]eases to Tenant and Tenant hereby hires from Landlord,
subject to all of the terms and conditions hereinafter set forth, those
certain premises (hereinafter called the "Premises") shown in the floor
plan(s) attached hereto as Exhibit "A-1" and located or to be located on the
floor(s) and in the suite(s) of that certain office building (the "Building")
shown on Exhibit "A-2," all as constructed on certain land of approximately
14.5 acres situated in the City of Costa Mesa, County of Orange, State of
California, and as more particularly identified in Item 1 of the Basic Lease
Provisions. Such land is improved as an office and commercial project
including certain "common facilities" described in Paragraph 32 all known as
Two Town Center. Two Town Center is referred to herein as "the Project" and
is depicted on Exhibit "A-3." The following Basic Lease provisions are an
integral part of this Lease. In the event of any conflict between any Basic
Lease Provision and any provision of this Lease, the Lease provision shall
control.
BASIC LEASE PROVISIONS
1. Building Name: Comerica Bank Tower Floor: 4th
Address: 611 Anton Boulevard Suite: 400
Costa Mesa, CA 92626
2. Rentable Area: 10,219 square feet (See Exhibit "A-4")
3. A. Building Expense Percentage: 3.7949%
B. Project Expense Percentage: 1.5658%
4. Initial Basic Annual Rent: $132,847.00 ($13.00 per square foot)
5. Initial Monthly Basic Rent Installments: $11,070.58 (approximately $1.08
per square foot)
6. Basic Annual Rent Increase: None.
7. Term: 2 years and -0- months.
8. Commencement Date: March 1, 1997
9. Security Deposit: None
10. Broker(s): U.S. Net Commercial Real Estate Services, Inc.
11. Permitted Use: Operation, installation, maintenance, repair and replacement
of equipment and general office use, all related to an Internet business.
12. Basic Annual Rent Paid Upon Execution: $100,000.00, as Basic Annual
Rent for the first nine (9) months of the term of the Lease plus a portion
of the tenth (10th) month of the term. The foregoing amount shall be paid
in two (2) installments with the first installment of $66,000.00 to be
paid concurrent with Tenant's execution and delivery of this Lease and the
balance of $34,000.00, to be paid in full not later than January 20, 1997.
13. Addresses for Notices:
If to Landlord:
TWO TOWN CENTER ASSOCIATES
3315 Fairview Road
Costa Mesa, California 92626
Attn: Managing Partner
and
(i)
LANDLORD'S TENANT'S
INITIALS INITIALS
---------- --------
J.E.S. CS
H.T.S.
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
One Ravina Drive
Suite 1400
Atlanta, Georgia 30346
Attn: Regional Counsel
If to Tenant:
IMGIS CORPORATION
611 Anton Boulevard, Suite 400
Costa Mesa, CA 92626
Attn: /s/ Wendy Sander
--------------------
14. All payments payable under this Lease shall be sent to Landlord at the
first address specified in Item 13 above or such other address as Landlord
may designate.
IN WITNESS WHEREOF, the parties hereto have executed this Lease,
consisting of the foregoing provisions and Paragraphs 1 through 48 which
follow, together with Exhibits "A-1" through "A-4" and "B" through "E"
incorporated herein by this reference, as of the date firs above written.
TWO TOWN CENTER ASSOCIATES, IMGIS CORPORATION,
a joint venture a California corporation
By: ANTON STREET ASSOCIATES
By: /s/ Illegible
---------------------------
By: South Coast Plaza
Title: President
------------------------
By: /s/ Jeanette E. Segerstrom
--------------------------------
Title: Managing Partner
----------------------------- By: /s/ Illegible
---------------------------
Title: Secretary
------------------------
By: /s/ Illegible
-----------------------------
Title: Managing Partner
--------------------------
By: THE PRUDENTIAL INSURANCE "TENNANT"
COMPANY OF AMERICA
By: /s/ Marcia A. Diaz
-----------------------------
Title: Vice President
--------------------------
"LANDLORD"
Approved as to Form
Pillsbury Madison & Sutro LLP
By: /s/ Illegible
-----------------------------
(ii)
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<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PARAGRAPH PAGE
<S> <C>
1 TERM ............................................................ 1
2. BASIC ANNUAL RENT................................................ 1
3. ADDITIONAL RENT ................................................. 1
4. SECURITY DEPOSIT ................................................ 2
5. REPAIRS ......................................................... 3
6. IMPROVEMENTS AND ALTERATIONS .................................... 3
7. LIENS ........................................................... 5
8. USE OF PREMISES ................................................. 5
9. HAZARDOUS MATERIALS ............................................. 6
10. UTILITIES AND SERVICES .......................................... 8
11. RULES AND REGULATIONS............................................ 10
12. TAXES ON TENANT'S PROPERTY...................................... 10
13. INTENTIONALLY OMITTED........................................... 10
14. FIRE OR CASUALTY................................................ 10
15. EMINENT DOMAIN.................................................. 11
16. ASSIGNMENT AND SUBLETTING....................................... 11
17. ACCESS.......................................................... 14
18. SUBORDINATION; ATTORNMENT; ESTOPPEL CERTIFICATES; FINANCIAL
STATEMENTS...................................................... 14
19. SALE BY LANDLORD................................................ 15
20. NONLIABILITY AND INDEMNIFICATION OF LANDLORD; INSURANCE......... 15
21. WAIVER OF SUBROGATION........................................... 18
22. ATTORNEYS' FEES................................................. 18
23. WAIVER.......................................................... 19
24. NOTICES......................................................... 19
25. INSOLVENCY OR BANKRUPTCY ....................................... 19
26. DEFAULTS AND REMEDIES........................................... 19
27. HOLDOVER........................................................ 22
28. CONDITION OF PREMISES........................................... 22
29. QUIET POSSESSION................................................ 22
30. TENANT'S SIGNS.................................................. 22
31. CONFLICT OF LAWS ............................................... 23
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
32. COMMON FACILITIES; PARKING...................................... 23
33. SUCCESSORS AND ASSIGNS.......................................... 23
34. BROKERS......................................................... 23
35. NAME............................................................ 24
36. EXAMINATION OF LEASE ........................................... 24
37. INTEREST ON TENANT'S OBLIGATIONS; LATE CHARGE................... 24
38. TIME............................................................ 24
39. DEFINED TERMS AND MARGINAL HEADINGS............................. 24
40. PRIOR AGREEMENTS; SEPARABILITY.................................. 25
41. TRAFFIC AND ENERGY MANAGEMENT................................... 25
42. CORPORATE/PARTNERSHIP/TRUST AUTHORITY........................... 25
43. NO LIGHT, AIR OR VIEW EASEMENT.................................. 25
44. NON-DISCLOSURE OF LEASE TERMS................................... 25
45. FORCE MAJEURE................................................... 26
46. MISCELLANEOUS................................................... 26
47. INTENTIONALLY OMITTED........................................... 27
48. ADDENDA......................................................... 27
Exhibit "A-1" Floor Plan(s) of Premises
Exhibit "A-2" Plot Plan of Building
Exhibit "A-3" Plot Plan of Project
Exhibit "A-4" Rentable Area
Exhibit "B" Work Letter
Exhibit "C" Rules and Regulations
Exhibit "D" Tenant's Certificate
Exhibit "E" Parking Agreement
</TABLE>
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<PAGE>
1. TERM
The term of this Lease shall be as shown in Item 7 of the Basic Lease
Provisions and shall commence on the Commencement Date set forth in Item 8
of the Basic Lease Provisions. Landlord shall deliver possession of the
Premises to Tenant upon execution of this Lease and Landlord's receipt of
Basic Annual Rental Upon Execution (set forth in Item 12 of the Basic Lease
Provisions), after which Tenant shall promptly commence and complete
Tenant's Work as provided in tile Work Letter attached as Exhibit "B" (the
"Possession Date"). From and after the Possession Date, Tenant shall
observe all obligations of the tenant pursuant to this Lease, except those
requiring the payment of Basic Annual Rent and Additional Rent. From and
after the Commencement Date, all provisions of the Lease shall be observed,
including those requiring the payment of Basic Annual Rent and Additional
Rent.
2. BASIC ANNUAL RENT
Tenant shall pay as Basic Annual Rent for the Premises the initial sum
shown in Item 4 of the Basic Lease Provisions, subject to adjustment as set
forth in Item 6 of the Basic Lease Provisions. The Basic Annual Rent shall
be payable in advance in equal monthly installments as shown in Item 5 of
the Basic Lease Provisions without deduction or offset, commencing on the
Commencement Date and continuing on the first day of each calendar month
thereafter. In the event the term of this Lease commences or ends on a day
other than the First or last day of a calendar month, or in the event
Basic Annual Rent Upon Execution covers only a portion of such Basic Annual
Rent for a calendar month, then the Basic Annual Rent for such partial
month shall be prorated in the proportion that the number of days this
Lease is in effect during such partial month bears to the number of days in
that calendar month, and such Basic Annual Rent shall be paid at tile
commencement or such partial month. The Basic Annual Rent Upon Execution
(set forth in Item 12 of the Basic Lease Provisions) shall be paid to
Landlord as provided in the Basic Lease Provisions.
3. ADDITIONAL RENT
(a) Tenant agrees to pay as Additional Rent for the Premises Tenant's
proportionate share of all "Building Operating Expenses" (as hereinafter
defined) and "Project Operating Expenses" (as hereinafter defined) incurred
by Landlord in the operation of the Building and the Project. Tenant's
proportionate share thereof (hereinafter, respectively, "Building Expense
Percentage" and "Project Expense Percentage") shall be the percentage
obtained by dividing the average Rentable Area of the Premises for such
year or portion thereof by ninety-five percent (95%) of the total Rentable
Area of the Building or the Project, as the case may be, for the same
period, and, subject to Exhibit "A-4," shall initially be as set forth in
Items 3.A. and 3.B. of the Basic Lease Provisions.
(b) Prior to commencement of the Lease term and of each calendar year
thereafter, Landlord shall give Tenant a written estimate of Building
Operating Expenses and Project Operating Expenses and Tenant's proportionate
shares thereof for the ensuing year or portion thereof. Tenant shall pay such
estimated amount to Landlord in equal monthly installments, in advance.
Within ninety (90) days after the end of each calendar year, Landlord shall
furnish to Tenant a statement showing in reasonable detail the actual
Building and Project Operating Expenses for such period in accordance with
subparagraph (d) below, and the parties shall make any payment or allowance
necessary to adjust Tenant's estimated payment to Tenant's proportionate
share as shown by such annual statement. Any amount due from Tenant shall be
paid within ten (10) days after receipt of such statement. Any amount due to
Tenant shall be credited against installments of Additional Rent next comning
due under this Paragraph 3 or if the Lease has terminated, such amount shall
be paid by Landlord to Tenant within thirty (30) days of Tenant's receipt of
the statement.
(c) If at any time during any calendar year of the Lease term the
amount(s) and/or the rates for any item(s) of Operating Expenses for the
Building or the Project are increased to a rate(s) or amount(s) in excess
of the rate(s) or amount(s) used in calculating the estimated Building or
Project Operating Expenses for such calendar year, Tenant's estimated share
of such Building or Project Operating Expenses shall be increased for the
month in which such increase becomes effective and for succeeding months
by Tenant's Building Expense Percentage or Project Expense Percentage of
such increase, as applicable. In the event of such an increase in rate or
amount, Landlord shall give Tenant written notice (the "Adjustment
Notice") of the amount or estimated amount of increase, the month in
which effective, and Tenant's monthly share thereof. Commencing with
the first monthly payment of estimated Building Operating Expenses or
Project Operating Expenses, as applicable, required to be made by Tenant
after receipt of the Adjustment Notice (the "First Adjustment Payment"),
Tenant shall pay such increase to Landlord as part of Tenant's monthly
payments of estimated Building Operating Expenses or Project Operating
Expenses, as applicable, as provided in subparagraph (b) above. If the
effective date of the increase is prior in time to the date of the
Adjustment Notice, the First Adjustment Payment shall be increased to
include the amount of the monthly payments, if any, which would have been
made had the Adjustment Notice been received prior to the effective date of
the increase.
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(d) The term "Operating Expenses" as used herein shall include all costs
of operation and maintenance of the Building and the Project, as determined
by generally accepted accounting practices consistently applied and
determined as if the Building were ninety five percent (95%) occupied for an
entire calendar year, and shall include the following costs by way of
illustration but not limitation: real and personal property taxes and vehicle
taxes and fees; general and special assessments; costs and expenses incurred
in contesting the amount of validity of any property tax by appropriate
proceedings; water and sewer charges; insurance premiums, including the cost
of rental insurance; the amount of any deductible payable by Landlord as set
forth in the policy with respect to damage or destruction to all or any
portion of the Project; license, permit and inspection fees; heat; light;
power; intrabuilding network cable including service contract fees;
janitorial and courtesy officer services (if any); fire protection; labor;
salaries; air conditioning; gardening and landscaping; maintenance and repair
(including repairs pursuant to Paragraph 5); painting; trash removal;
depreciation of operational equipment for the Project; supplies; materials;
equipment; tools; property management costs and fees; all fees, assessments
and other amounts paid by Landlord of the type described in Paragraph 41; the
cost of any capital improvements made to the Project by Landlord which are
reasonably calculated to reduce Operating Expenses and/or are required under
any governmental law or regulation not applicable to the Project or not in
effect at the time it was constructed, such cost to be amortized over such
reasonable period as Landlord shall determine and to include a return on
capital at the rate of ten percent (10%) per annum on the unamortized balance
or at such higher rate as may have been paid by Landlord on funds borrowed
for the purpose of constructing such capital improvements; the cost of
providing a management office at the Project; the cost of providing a manager
and support staff to operate such office and the Project. The term "property
taxes" as used herein shall include (i) all real estate taxes and personal
property taxes and other taxes, charges and assessments, unforeseen as well
as foreseen, which are levied with respect to the Project, and any
improvements, fixtures and equipment and other property of Landlord, real or
personal, located in the Project and used in connection with the operation of
the Project and the land upon which situated, (ii) any tax, surcharge or
assessment which shall be levied in addition to or in lieu of real estate or
personal property taxes, other than taxes covered by Paragraph 12, and (iii)
any service or other fees collected by governmental agencies in addition to
or in lieu of property taxes for services provided by such agencies. The term
"property taxes" as used herein shall also include any rental, excise, sales,
transaction privilege, or other tax or levy, however denominated, imposed
upon or measured by the rental reserved hereunder or on Landlord's business
of leasing the Premises, excepting only net income taxes.
"Building Operating Expenses" shall include all Operating Expenses
directly and separately identifiable to the operation and maintenance of the
Building. "Project Operating Expenses" shall include all Operating Expenses
incurred in the operation and maintenance of the Project which are not (A)
Building Operating Expenses or (B) Operating Expenses directly and separately
identifiable to the operation and maintenance of other buildings in the
Project.
(e) Notwithstanding anything to the contrary contained in subparagraph (d)
immediately above, as to each specific category of expense which one or
more tenants of the Building or the Project either pays directly to third
parties or actually reimburses to Landlord (for example, separately metered
utilities, property taxes directly reimbursed to Landlord, etc.) then each
such expense which is actually paid or reimbursed shall not be included in
"Operating Expenses" for purposes of this Paragraph 3. Tenant's Building
and Project Operating Expense Percentages, as appropriate, for each such
category of expense shall be adjusted by excluding from the denominator
thereof the Rentable Area of all such tenants paying such category of
expense directly to third parties or actually reimbursing same directly to
Landlord. Moreover, if Tenant directly pays a third party or actually
reimburses Landlord for any such category of expense, each such category of
expenses which is paid or actually reimbursed by Tenant shall be excluded
from the determination of "Building Operating Expenses" or "Project
Operating Expenses," as applicable, for Tenant to the extent such expense
(after deduction of that portion paid or directly reimbursed by Tenant) was
incurred with respect to space in the Building or Project, respectively,
actually leased to other tenants.
(f) The annual determination of Building Operating Expenses and Project
Operating Expenses shall be made by Landlord and the fact that such Operating
Expenses have in fact been incurred by Landlord shall be certified by a
nationally recognized firm of certified public accountants designated by
Landlord. A copy of Landlord's determination and such certification shall be
made available to Tenant upon request. Landlord's determination and such
certification shall be final and binding upon Landlord and Tenant.
(g) The Basic Annual Rent, as adjusted pursuant to Paragraph 2, the
Additional Rent and all other amounts required to be paid by Tenant
hereunder, are sometimes herein collectively referred to as, and shall
constitute, "rent" within the meaning of California Civil Code Section
1951(a).
4. SECURITY DEPOSIT
Tenant has paid or will pay Landlord such sum(s) at such time(s) as are set
forth in Item 9 of the Basic Lease Provisions as security for the full and
faithful performance of the terms hereof by Tenant. Landlord shall not be
required to keep this security deposit separate from its general funds and
Tenant shall not be entitled to interest thereon. Each time, if any, Basic
Annual Rent increases pursuant to the provisions of
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<PAGE>
this Lease, within five (5) business days thereafter, Tenant shall pay to
Landlord as an additional security deposit an amount equal to one twelfth
(1/12) of the difference between the new Basic Annual Rent and the Basic
Annual Rent in effect immediately prior to such increase. If Tenant defaults
with respect to any provision of this Lease, including but not limited to the
provisions relating to the payment of rent, Landlord may, but shall not be
required to, use, apply or retain all or any part of this security deposit
for the payment of any rent of any other sum in default, or for the payment
of any other amount which Landlord may spend or become obligated to spend by
reason of Tenant's default or to compensate Landlord for any other loss or
damage which Landlord may suffer by reason of Tenant's default, including
without limitation, costs and attorneys' fees incurred by Landlord to recover
possession of the Premises upon a default by Tenant hereunder. If any portion
of said deposit is so used or applied, Tenant shall, within five (5) days
after receipt of written demand therefor, deposit cash with Landlord in an
amount sufficient to restore the security deposit to its original amount and
Tenant's failure to do so shall constitute a default hereunder by Tenant. If
Tenant shall fully and faithfully perform every provision of this Lease to be
performed by it, the security deposit shall be applied against any amounts
owed by Tenant to Landlord at the expiration or termination of this Lease and
any balance thereof shall be returned to Tenant (or, at Landlord's option, to
the last assignee of Tenant's interest hereunder) within the time specified
in Civil Code Section 1950.7.
5. REPAIRS
(a) Subject to Paragraph 5(b), Landlord shall make all necessary repairs
to the exterior walls, exterior doors, windows, corridors and other common
areas of the Building and the Project and Landlord shall keep the Building
and the Project in a safe, clean and neat condition, and use reasonable
efforts to keep all equipment used in common with other tenants, such as
elevators, plumbing, heating, air conditioning, intrabuilding network cabling
and similar equipment, in good condition and repair. Except as provided in
Paragraphs 14 and 15 hereof, there shall be no abatement of rent and no
liability of Landlord by reason of any injury to or interference with or
interruption of Tenant's business arising from the failure of any such
equipment, the making of any repairs, alterations or improvements in or to
any portion of the Building or Project or in or to fixtures, appurtenances
and equipment therein. Tenant waives the right to make repairs at Landlord's
expense under Section 1942 of the California Civil Code, or under any law,
statute or ordinance now or hereafter in effect. Landlord shall have no
obligation to repair until a reasonable time after receipt of notice or
knowledge of the need for repair. The cost of all such work by Landlord shall
be included in Operating Expenses pursuant to Paragraph 3.
(b) Tenant agrees that it will make all repairs to the Premises and
fixtures therein not required above to be made by Landlord and shall do all
decorating, remodeling, alteration and painting required by Tenant during the
term of this Lease. Tenant will pay for any repairs to the Premises, the
Building or the Project made necessary by any negligence or carelessness of
Tenant or its assignees, subtenants, employees of their respective agents or
other persons permitted in the Building or on the Project by Tenant, or any
of them, and will maintain the Premises, and will leave the Premises upon
termination of this Lease in a safe, clean, neat and sanitary condition.
(c) Tenant's repair and maintenance obligations pursuant to Paragraph
5(b) shall extend to any non-Building standard equipment which is either (a)
in place in or to serve solely the Premises upon execution of this Lease or
(b) is installed by or for Tenant (whether by Landlord or Tenant) to serve
solely the Premises. Such non-standard equipment includes, but is not limited
to, any supplemental heating, ventilating and air conditioning equipment
(whether or not located in the Premises), water heaters, dish washers and
refrigerators. Moreover, Tenant's insurance and indemnification obligations
pursuant to Paragraph 20 shall extend to all such non-standard equipment and
to the use and malfunctioning of such equipment. If Landlord undertakes any
repair or maintenance obligation of Tenant pursuant to Paragraph 5(b) (such
as equipment located outside of but serving only the Premises), the cost of
such repair or maintenance shall be reimbursed by Tenant to Landlord, as
Additional Rent, within ten (10) days after Tenant's receipt of Landlord's
invoice therefor.
6. IMPROVEMENTS AND ALTERATIONS
(a) Landlord shall have no construction obligation pursuant to this Lease
and Tenant shall take the Premises in its current "as-is" condition
without warranty or representation.
(b) Landlord shall have the right, at any time, and without any liability
to Tenant, to change the arrangement and/or location of entrances or
passageways, doors and doorways, and corridors, elevators, stairs, toilets,
and other public parts of the Building or the Project and upon giving
Tenant reasonable notice thereof, to change the name, number or
designation by which the Building or the Project is commonly known.
(c) After the initial tenant improvements have been completed, Tenant
shall not make any alterations, additions or improvements without the prior
written consent of Landlord. All such alterations, additions and improvements
shall be made in conformity with plans therefor approved by Landlord in
writing prior to the commencement of such work and shall be performed by a
tenant improvements contractor designated by
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Landlord. All such alterations, additions and improvements (except movable
furniture, furnishings and trade fixtures) shall become the property of
Landlord and shall be surrendered with the Premises, as a part thereof, at
the expiration or earlier termination of the term hereof. All such
alterations, additions or improvements shall, however, be made by Tenant at
Tenant's sole expense. Upon termination of the Lease, or, at Landlord's
option, within thirty (30) days prior to the expiration of the Lease term,
Tenant shall, upon demand by Landlord, at Tenant's sole cost and expense,
forthwith remove any alterations, additions or improvements (except those
made initially at the commencement of Tenant's possession of the Premises)
made by Tenant and designated by Landlord to be removed, and repair and
restore the Premises to their original condition, reasonable wear and tear
excepted. If, at the termination of this Lease, Landlord is unable to
reasonably provide the amount of space required for Tenant's ongoing
operation, then Tenant may remove from the Premises the Liebert UPS System
and the Airflow air conditioning unit which are currently located in the
Premises for Tenant's use at its new location. Any personal property left on
or in the Premises at the expiration or earlier termination of this Lease
shall be disposed of by Landlord in the manner provided by law, including,
without limitation, California Civil Code Section 1980 ET SEQ. Tenant
releases Landlord of and from any and all claims and liability for damage to
or destruction or loss of property left by Tenant upon the Premises at the
expiration or other termination of this Lease and Tenant hereby indemnifies
Landlord against any and all claims and liability with respect thereto. Tenant
further waives all claims to all property (and the proceeds thereof)
abandoned by Tenant and retained or disposed of by Landlord.
(d) Tenant shall not commence work on any alteration, addition or
improvement until and unless Landlord has received at least ten (10) days
notice that such work is to commence. Tenant shall immediately reimburse
Landlord for any expense incurred by Landlord in reviewing and approving the
plans and specifications for such work or by reason of any faulty work done
by Tenant or Tenant's contractors, or by reason of delays caused by such
work, or by reason of inadequate cleanup, or which is otherwise incurred by
Landlord to review the plans and specifications, and monitor and inspect the
progress of such work. Tenant or its contractors will in no event be allowed
to make any improvements to the Premises which could possibly affect any of
the Building systems or to make any structural modification to the Building
without first obtaining Landlord's consent, which Landlord can withhold in
its sole and absolute discretion. All work by Tenant shall be scheduled
through Landlord and shall be diligently and continuously pursued from the
date of its commencement through its completion. In addition to the
foregoing, and at Landlord's option, Tenant shall obtain a completion and/or
performance bond in a form and by a surety acceptable to Landlord and in an
amount not less than one and one-half (1 1/2) times the estimated cost of
such alterations, additions or improvements.
(e) All alterations, additions and improvements to the Premises made by
Tenant shall comply with the plans therefor approved in advance by Landlord;
provided, however, Landlord's approval or consent to any such work shall not
impose any liability upon Landlord nor shall such approval infer that
Landlord has expressed any opinion or made any warranty regarding the
adequacy, sufficiency or legality of any such improvements. Such plans and
any specifications associated therewith shall be prepared by an architect or
interior designer approved in advance by Landlord. No such work shall proceed
without Landlord's prior approval of (i) Tenant's contractor(s); (ii)
certificates of insurance from a company or companies approved by Landlord,
furnished to Landlord by Tenant's contractor, for combined single limit
bodily injury and property damage insurance covering comprehensive general
liability and automobile liability, in an amount not less than One Million
Dollars ($1,000,000) per occurrence and endorsed to show Landlord as an
additional named insured, and for workers' compensation as required by law
(provided, however, nothing in this subparagraph shall release Tenant of its
other insurance obligations hereunder); and (iii) detailed plans and
specifications for such work. All such work by Tenant shall be done in a
first-class workmanlike manner and in conformity with all applicable
governmental requirements, with valid building permit(s) and/or all other
permits or licenses when and where required, copies of which shall be
furnished to Landlord before the work is commenced, and any work not
acceptable to any governmental authority or agency having or exercising
jurisdiction over such work, or not reasonably satisfactory to Landlord,
shall be promptly replaced and corrected at Tenant's expense. All such work
shall comply with all rules and regulations established by Landlord to ensure
the safety, cleanliness and good order of the Building and the Project and
its occupants, including but not limited to those relating to usage of
elevators and loading docks, establishment of off-Premises staging areas,
disposal of refuse and the hours of performing operations which result in the
creation of noise, dust and odors. No such alterations, additions or
improvements by Tenant shall incorporate therein any hazardous materials, as
defined in Paragraph 9.
(f) No antenna, satellite dish, microwave receiver or other receiving or
transmission equipment shall be installed by Tenant in or on the roof of
the Building or elsewhere in the Project except with the prior written
consent of Landlord which consent may be given or withheld by Landlord in
its sole and absolute discretion. Any such installation which may be
approved, shall be subject to such terms and conditions as are provided by
Landlord to Tenant at the time Landlord approves such installation.
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7. LIENS
Tenant shall keep the Premises and the Building and Project free from
any liens arising out of any work performed, materials furnished, or
obligations incurred by or for Tenant. In the event that Tenant shall not,
within thirty (30) days following the imposition of any such lien, cause the
same to be released of record by payment or posting of a proper lien release
bond, Landlord shall have, in addition to all other remedies provided herein
and by law, the right, but not the obligation, to cause the same to be
released by such means as it shall deem proper, including payment of or
defense against the claim giving rise to such lien. All sums paid by Landlord
and all expenses incurred by it in connection therewith shall create
automatically an obligation of Tenant to pay an equivalent amount as
additional rent, which additional rent shall be payable by Tenant within five
(5) days after Tenant's receipt of Landlord's demand therefor with interest
at the rate per annum determined pursuant to Paragraph 37 from date of
payment by Landlord until paid by Tenant. Tenant agrees to indemnify and hold
Landlord harmless from and against any and all claims for mechanics',
materialmen's or other liens in connection with any alterations, repairs or
any work performed, materials furnished or obligations incurred by or for
Tenant. Nothing herein shall imply any consent by Landlord to subject
Landlord's estate to liability under any mechanics' or other lien law. Tenant
shall give Landlord adequate opportunity and Landlord shall have the right to
post in or on the Premises such notices of nonresponsibility as are provided
for in the mechanics lien laws of the state of California.
8. USE OF PREMISES
Tenant and any of its permitted assignees, sublessees or other occupants
(collectively "Tenant Parties") shall use the Premises only for the
purpose(s) set forth in Item 11 of the Basic Lease Provisions and shall not
use or permit the Premises to be used for any other purpose without the prior
written consent of Landlord. Without limiting the foregoing, Tenant and the
Tenant Parties shall not use the Premises, nor permit the Premises to be
used, for retail purposes nor shall Tenant or the Tenant Parties permit the
Premises to be used by a governmental or quasi-governmental entity or
agency (it being understood, however, that Landlord may lease to such an
entity or agency if Landlord recaptures all or any portion of the Premises
pursuant to Paragraph 16 below). Tenant shall not use or occupy the Premises
in violation of law or of the certificate of occupancy issued for the
Building, and shall, upon five (5) days' written notice from Landlord,
discontinue any use of the Premises which is declared by any governmental
authority having jurisdiction to be a violation of law or of such certificate
of occupancy. Tenant shall comply promptly with any direction of any
governmental authority having jurisdiction which shall, by reason of the
nature of Tenant's use or occupancy of the Premises, impose any duty upon
Tenant or Landlord with respect to the Premises or with respect to the use or
occupancy thereof. Tenant shall not do or permit to be done anything which
will invalidate or increase the cost of any fire, extended coverage or any
other insurance policy covering the Building, the Project and/or property
located therein and shall comply with all rules, orders, regulations and
requirements of the Pacific Fire Rating Bureau or any other organization
performing a similar function. Notwithstanding Paragraph 3, Tenant shall
promptly upon demand reimburse Landlord, as additional rent, for the full
amount of any additional premium charged for such policy by reason of
Tenant's failure to comply with the provisions of this Paragraph, together
with interest thereon from date of payment by Landlord to date of
reimbursement by Tenant at the rate per annum determined pursuant to
Paragraph 37. Such demand for reimbursement shall not be Landlord's exclusive
remedy. Tenant shall not do or permit anything to be done in or about the
Premises which will in any way obstruct or interfere with the rights of other
tenants or occupants of the Building or the Project, or injure or annoy them,
or use or allow the Premises to be used for any improper, immoral, unlawful
or objectionable purpose, nor shall Tenant cause, maintain or permit any
nuisance in, or about the Premises. Tenant shall not commit or suffer to be
committed any waste in or upon the Premises. Landlord shall not be liable to
Tenant for any other occupant's or tenant's failure to conduct itself in
accordance with the provisions of this Paragraph 8, and Tenant shall not be
released or excused from the performance of any of its obligations under the
Lease in the event of any such failure.
Without limiting any of its other obligations pursuant to this Paragraph
8 or Paragraph 9, Tenant covenants and agrees to comply with all laws, rules,
regulations and guidelines now or hereafter applicable to the Premises with
respect to the disposal of water, trash, garbage and other matter (liquid or
solid) generated by Tenant, the disposal of which is not otherwise the
express obligation of Landlord under this Lease, including, but not limited
to, laws, rules, regulations and guidelines with respect to recycling and
other forms of reclamation (all of which are herein collectively referred to
as "Waste Management Requirements"). Tenant shall comply with all rules and
regulations established by Landlord from time to time to comply with Waste
Management Requirements applicable to Landlord (i) as owner of the Premises
and (ii) in performing Landlord's obligations under this Lease, if any.
Tenant's obligations under this Paragraph 8 shall survive the expiration or
termination of this Lease.
Tenant shall indemnify, defend, protect and hold Landlord harmless from
and against all liability (including costs, expenses and attorneys' fees)
that Landlord may sustain by reason of Tenant's breach of its obligations
under this Paragraph 8.
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9. HAZARDOUS MATERIALS
(a) As used in this Lease, the following words or phrases shall have the
following meanings:
(i) "AGENTS" means Tenant's partners, officers, directors,
shareholders, employees, agents, contractors and any other third parties
entering upon the Project at the request or invitation of Tenant.
(ii) "CLAIMS" means claims, liabilities, losses, actions,
environmental suits, causes of action, legal or administrative proceedings,
damages, fines, penalties, loss of rents, liens, judgments, costs and
expenses (including, without limitation, attorneys' fees and costs of
defense, and consultants', engineers' and other professionals' fees and
costs).
(iii) "HAZARDOUS" means: (A) hazardous; (B) toxic; (C) reactive;
(D) corrosive; (E) ignitible; (F) carcinogenic; (G) reproductive toxic; (H)
any other attribute of a Substance now or in the future referred to in, or
regulated by, any Hazardous Materials Laws; and (I) potentially injurious to
health, safety or welfare, the environment, the Premises, the Building or the
Project.
(iv) "HAZARDOUS MATERIALS" means any: (A) Substance which is
Hazardous, regardless of whether that Substance is Hazardous by itself or in
combination with any other Substance; (B) Substance which is regulated by any
Hazardous Materials Laws; (C) asbestos and asbestos-containing materials; (D)
urea formaldehyde; (E) radioactive substance; (F) flammable explosives; (G)
petroleum, including crude oil or any fraction thereof; (H) polychlorinated
biphenyls; and (I) "hazardous substances," "hazardous materials" or
"hazardous wastes" under any Hazardous Materials Laws.
(v) "HAZARDOUS MATERIALS LAWS" means: (A) any existing or future
federal, state or local law, ordinance, regulation or code which protects
health, safety or welfare, or the environment; (B) any existing or future
administrative or legal decision interpreting any such law, ordinance,
regulation or code; and (C) any common law theory which may result in Claims
against Landlord, the Premises, the Building or the Project.
(vi) "PERMITS" means any permit, authorization, license or approval
required by any applicable governmental agency.
(vii) "PROJECT" for purposes of this Paragraph 9 only, shall mean
the Project, the air about the Project and the soil, surface water and ground
water under the surface of the Project.
(viii) "SUBSTANCE" means any substance, material, product,
chemical, waste, contaminant or pollutant.
(ix) "USE" means use, generate, manufacture, produce, store,
release and discharge.
(b) (i) Without limiting the generality of Paragraph 8 of this Lease,
and except as provided in Paragraphs 9(b)(ii) and 9(b)(iii), Tenant covenants
and agrees that Tenant and its Agents shall not bring into, maintain upon,
engage in any activity involving the Use of, or Use in or about the Project,
or transport to or from the Project, any Hazardous Materials. Notwithstanding
the provisions of Paragraphs 9(b)(ii) or 9(b)(iii), in no event shall Tenant
or its Agents release of dispose or any Hazardous Materials in, on, under or
about the Project.
(ii) Notwithstanding the provisions of Paragraph 9(b)(i), if Tenant
or its Agents proposes to Use any Hazardous Materials, or to install or
operate any equipment which will or may Use Hazardous Materials
("Equipment"), then Tenant shall first obtain Landlord's prior written
consent, which consent may be given or withheld by Landlord in its
subjective, good faith judgment, within thirty (30) days of Landlord's
receipt of the last of documents or information requested by Landlord as set
forth in this Paragraph. Tenant's failure to receive Landlord's consent
within such thirty (30) day period shall be conclusively deemed Landlord's
withholding of consent. Tenant's request for Landlord's consent shall include
the following documents or information: (A) a Hazardous Materials list
pursuant to Paragraph 9(c) regarding the Hazardous Materials Tenant proposes
to Use and/or Equipment Tenant proposes to install and operate; (B)
reasonably satisfactory evidence that Tenant has obtained all necessary
Permits to Use those Hazardous Materials and/or to install and operate the
proposed Equipment; (C) reasonably satisfactory evidence that Tenant's Use of
the Hazardous Materials and/or installation and operation of the Equipment
shall comply with all applicable Hazardous Materials Laws, Tenant's permitted
use under this Lease and all restrictive covenants encumbering the Project;
(D) reasonably satisfactory evidence of Tenant's financial capability and
responsibility for potential Claims associated with the Use of the Hazardous
Materials and/or installation and operation of the Equipment; and (E) such
other documents or information as Landlord may reasonably request. Landlord
may, at its option, condition its consent upon any terms that Landlord, in
its subjective, good faith judgment, deems necessary to protect itself, the
public and the Project against potential problems, Claims arising out of
Tenant's Use of Hazardous Materials and/or installation and operation of
Equipment including, without limitation, (i) changes in the insurance
provisions of the Lease, (ii) installation of equipment, fixtures and/or
personal property and/or
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alteration of the Premises (all at Tenant's sole cost) to minimize the
likelihood of a violation of Hazardous Materials Laws as a result of Tenant's
Use of the Hazardous Materials and/or installation and operation of
Equipment, and/or (iii) increasing the amount of the security deposit.
Neither Landlord's consent nor Tenant's obtaining any Permits shall relieve
Tenant of any of its obligations pursuant to this Paragraph 9. Landlord's
granting of consent to one request to Use Hazardous Materials and/or install
and operate Equipment shall not be deemed Landlord's consent to any other
such request. If Landlord grants its consent to Tenant's request, no
subtenant, assignee or successor of Tenant shall have the right to Use those
Hazardous Materials or install or operate that Equipment without again
complying with the provisions of this Paragraph 9(b)(ii).
(iii) Notwithstanding the provisions of Paragraphs 9(b)(i) and
9(b)(ii), Tenant may Use any Substance typically found or used in
applications of the type permitted by this Lease so long as: (A) any such
Substance is typically found only in such quantity as is reasonably necessary
for Tenant's permitted use under Paragraph 8 of this Lease; (B) any such
Substance and all equipment necessary in connection with the Substance are
Used strictly in accordance with the manufacturers' instructions therefor;
(C) no such Substance is released or disposed of in or about the Project; (D)
any such Substance and all equipment necessary in connection with the
Substance are removed from the Project and transported for Use or disposal by
Tenant in compliance with any applicable Hazardous Materials Laws upon the
expiration or earlier termination of this Lease; and (E) Tenant and its
Agents comply with all applicable Hazardous Materials Laws.
(iv) Tenant shall not use or install in or about the Premises any
asbestos or asbestos-containing materials.
(c) Tenant shall deliver to Landlord, within thirty (30) days after
Tenant's receipt of Landlord's written request, a written list identifying
any Hazardous Materials that Tenant or its Agents then Uses or has Used
within the last twelve (12) month period in the Project. Each such list shall
state: (i) the use or purpose of each such Hazardous Material; (ii) the
approximate quantity of each such Hazardous Material Used by Tenant; (iii)
such other information as Landlord may reasonably require; and (iv) Tenant's
written certification that neither Tenant nor its Agents have released,
discharged or disposed of any Hazardous Materials in or about the Project, or
transported any Hazardous Materials to or from the Project, in violation of
any applicable Hazardous Materials Laws. Landlord shall not request Tenant to
deliver a Hazardous Materials list more often than once during each twelve
(12) month period, unless Landlord reasonably believes that Tenant or its
Agents have violated the provisions of this Paragraph 9 (in which case (A)
Landlord may request such lists as often as Landlord determines is necessary
until such violation is cured, and (B) Tenant shall provide such lists within
ten (10) days of each of Landlord's requests, or if an emergency exists, such
lists shall be immediately provided).
(d) Tenant shall furnish to Landlord copies of all notices, claims,
reports, complaints, warnings, asserted violations, documents or other
communications received or delivered by Tenant, as soon as possible and in
any event within five (5) days of such receipt or delivery, with respect to
any actual or alleged Use, disposal or transportation of Hazardous Materials
in or about the Premises, the Building or the Project. Whether or not Tenant
receives any such notice, claim, report, complaint, warning, asserted
violation, document or communication, Tenant shall immediately notify
Landlord, orally and in writing, if Tenant or any of its Agents knows or has
reasonable cause to believe that any Hazardous Materials, or a condition
involving or resulting from the same, is present, in Use, has been disposed
of, or transported to or from the Premises, the Building or the Project other
than is previously consented to by Landlord in strict accordance with
Paragraph 9(b).
(e) Tenant acknowledges that it, and not Landlord, is in possession and
control of the Premises for purposes of all reporting requirements under any
Hazardous Materials Laws. If Tenant or its Agents violate any provision of
this Paragraph 9, then Tenant shall immediately notify Landlord in writing
and shall be obligated, at Tenant's sole cost, to abate, remediate, clean-up
and/or remove from the Project, and dispose of, all in compliance with all
applicable Hazardous Materials Laws, all Hazardous Materials Used by Tenant
or its Agents. Such work shall include, but not be limited to, all testing
and investigation required by Landlord, Landlord's lender and/or ground
lessor, if any, and any governmental authorities having jurisdiction, and
preparation and implementation of any remedial action plan required by any
governmental authorities having jurisdiction. All such work shall, in each
instance, be conducted to the satisfaction of Landlord and all governmental
authorities having jurisdiction. If at any time Landlord determines that
Tenant is not complying with the provisions of this Paragraph 9(e), then
Landlord may, without prejudicing, limiting, releasing or waiving Landlord's
rights under this Paragraph 9, separately undertake such work, and Tenant
shall reimburse all costs incurred by Landlord upon demand.
(f) Landlord's right of entry pursuant to Paragraph 17 shall include the
right to enter and inspect the Premises, and the right to inspect Tenant's
books and records, to verify Tenant's compliance with, or violations of, the
provisions of this Paragraph 9. Furthermore, Landlord may conduct such
investigations and tests as Landlord or Landlord's lender or ground lessor
may require. If Landlord determines that Tenant has violated the provisions
of this Paragraph 9, or if any applicable governmental agency requires any
such inspection, investigation or testing, then Tenant, in addition to its
other obligations set forth in this Paragraph 9, shall immediately reimburse
Landlord for all costs incurred therewith.
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(g) (i) Tenant shall indemnify, protect, defend (with legal counsel
acceptable to Landlord in its subjective, good faith judgment) and hold
harmless Landlord, its partners and its and their respective successors,
assigns, partners, directors, officers, shareholders, employees, agents,
lenders, ground lessors and attorneys, and the Project, from and against any
and all Claims incurred by such indemnified persons, or any of them, in
connection with, or as the result of: (A) the presence, Use or disposal of
any Hazardous Materials into or about the Project, or the transportation of
any Hazardous Materials to or from the Project, by Tenant or its Agents; (B)
any injury to or death of persons or damage to or destruction of property
resulting from the presence, Use or disposal of any Hazardous Materials into
or about the Project, or the transportation of any Hazardous Materials to or
from the Project, by Tenant or its Agents; (C) any violation of any Hazardous
Materials Laws; and (D) any failure of Tenant or its Agents to observe the
provisions of this Paragraph 9. Payment shall not be a condition precedent to
enforcement of the foregoing indemnification provision. Tenant's obligations
hereunder shall include, without limitation, and whether foreseeable or
unforeseeable, all costs of any required or necessary testing, investigation,
studies, reports, repair, clean-up, detoxification or decontamination of the
Project, and the preparation and implementation of any closure, removal,
remedial action or other required plans in connection therewith, and shall
survive the expiration or earlier termination of the term of this Lease. For
purposes of these indemnity provisions, any acts or omissions of Tenant, its
assignees, sublessees, Agents or others acting for or on behalf of Tenant
(regardless of whether they are negligent, intentional, willful, or unlawful)
shall be strictly attributable to Tenant.
(ii) If at any time after the initiation of any suit, action,
investigation or other proceeding which could create a right of
indemnification under Paragraph 9(g)(i) Landlord determines that Tenant is
not complying with the provisions of Paragraph 9(g)(i), then Landlord may,
without prejudicing, limiting, releasing or waiving the right of
indemnification provided herein, separately defend or retain separate counsel
to represent and control the defense as to Landlord's interest in such suit,
action, investigation or other proceeding. Tenant shall pay all costs of
Landlord's separate defense or counsel upon demand.
(h) Upon any violation of the provisions of this Paragraph 9, Landlord
shall be entitled to exercise any or all remedies available to a landlord
against a defaulting tenant including, but not limited to, those set forth in
Paragraph 26.
(i) By its signature to this Lease, Tenant confirms that: (i) Landlord
has not made any representation or warranty regarding the environmental
condition of the Premises, the Building or the Project; and (ii) Tenant has
conducted its own examination of the Premises, the Building and the Project
with respect to Hazardous Materials and accepts the same "AS IS" and with no
Hazardous Materials present thereon.
(j) No termination, cancellation or release agreement entered into by
Landlord and Tenant shall release Tenant from its obligations under this
Paragraph 9 unless specifically agreed to by Landlord in writing at the time
of such agreement.
(k) Tenant's covenants and obligations under this Paragraph 9 shall also
apply to any assignee or sublessee of Tenant, and to any such assignee's or
sublessee's partners, officers, directors, shareholders, employees, agents,
contractors and any other third parties entering upon the Project at the
request or invitation of such assignee or sublessee.
10. UTILITIES AND SERVICES
(a) Provided that Tenant is not in default hereunder, Landlord agrees to
furnish or cause to be furnished to the Premises, the utilities and services
described, subject to the conditions and in accordance with the standards set
forth below:
(i) Landlord shall provide automatic elevator facilities to the
Building Monday through Friday, excepting therefrom all holidays
recognized by Landlord, hereinafter collectively referred to as
"generally accepted business days," from 8:00 a.m. to 6:00 p.m.,
and on Saturdays from 8:00 a.m. to 12:00 noon, and have at least
one elevator available for use at all other times.
(ii) On generally accepted business days from 8:00 a.m.
to 6:00 p.m. and on Saturdays from 8:00 a.m. to 12:00 noon (and at
other times for a reasonable additional charge to be fixed by
Landlord), Landlord shall ventilate the Premises and furnish air
conditioning when in the judgment of Landlord it is required for
the comfortable occupancy of the Premises during such days and
hours, subject to any requirements or standards relating to, among
other things, energy conservation, imposed or established by
governmental agencies or cooperative organizations. Landlord shall
make available at Tenant's expense after-hours power, including
light, and air conditioning to each floor of the Building which
shall be controlled by a digital control or other central control
system selected by Landlord. Minimum use of after-hours power and
air conditioning, the costs thereof and the prior notice required
for such services shall be determined from time to time by Landlord
and confirmed in writing to Tenant, as the same may change from
time to time.
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(iii) Landlord shall furnish to the Premises at all times,
subject to interruptions beyond Landlord's control, electric
current as required by the building standard office lighting
(approximately two (2) watts per square foot at 277 volts) and
receptacles (approximately one (1) watt per square foot at 110
volts). At all times Tenant's use of electric current shall never
exceed the capacity of the feeders to the Building or the risers or
wiring installation.
(iv) Landlord shall furnish water for drinking, cleaning and
lavatory purposes only.
(v) Landlord shall provide janitorial services to the Premises
comparable to those provided in other first-class office buildings
in the vicinity of the Building, provided the same are used
exclusively as offices and are kept reasonably in order by Tenant.
Landlord shall not be responsible or liable for any act or omission
or commission on the part of the persons employed to perform said
janitorial services, which shall be performed at Landlord's
direction without interference by Tenant or Tenant's employees,
agents, contractors, licensees, directors, officers, partners,
trustees, visitors or invitees (collectively, "Tenant Parties"). If
the Premises are not used exclusively as offices, Tenant or persons
approved by Landlord shall keep the Premises clean and in order to
the satisfaction of Landlord, but at Tenant's sole expense. No
persons other than Tenant and those persons approved by Landlord
shall be permitted to enter the Building for the purpose of keeping
the Premises clean and in order. Tenant shall pay to Landlord the
cost of removal of any of Tenant's refuse and rubbish, to the
extent that the same exceeds the refuse and rubbish usually
attendant upon the use of the Premises as offices.
(vi) Landlord shall replace, as necessary, the fluorescent
tubes in the building standard lighting fixtures installed by
Landlord. Tenant shall replace, as necessary, all bulbs and
fluorescent tubes in non building standard lighting fixtures, if
any, installed in the Premises. If Tenant shall fail to make any
such replacement within five (5) days after written notice from
Landlord, Landlord may make such replacement and charge the cost of
labor and materials involved therein to Tenant, as additional rent.
(vii) Landlord shall provide at all times, subject to
interruption due to equipment failures, maintenance and/or repairs,
intrabuilding network cabling to permit connection of telephone
services from the Minimum Point of Entry as designated by Pacific
Bell to the telephone closet located on the floor of the Building
on which the Premises is located.
(b) Landlord may impose a reasonable charge for any utilities and
services, including without limitation, air conditioning, electric
current and water, required to be provided by Landlord by reason of any
use of the Premises at any time other than the hours from 8:00 a.m. to
6:00 p.m. on generally accepted business days or the hours from 8:00
a.m. to 12:00 noon on Saturdays or any use beyond what Landlord agrees
to furnish as described above, or special electrical, cooling and
ventilating needs created in certain areas by hybrid telephone
equipment, computers and other similar equipment or uses. At Landlord's
option, separate meters for such utilities and services may be installed
for the Premises and Tenant, upon demand therefor, shall immediately pay
Landlord for the installation, maintenance and repair of such meters.
(c) Tenant agrees to cooperate fully at all times with Landlord and
to abide by all regulations and requirements which Landlord may
prescribe for the use of the above utilities and services. Any failure
to pay any excess costs as described above shall constitute a breach of
the obligation to pay rent under this Lease and shall entitle Landlord
to the rights herein granted for such breach.
(d) Landlord reserves the right in its sole and absolute discretion
to reduce, interrupt or cease service of the heating, air conditioning,
ventilation, elevator, plumbing, electrical systems, telephone systems
(to the extent provided by Landlord) and/or utilities services of the
Premises, the Building or the Project, for (i) the making of any
repairs, additions, alterations or improvements to the Premises,
Building or Project until said repairs, additions, alterations or
improvements shall have been completed or (ii) any accident, breakage,
strikes, lockouts or other labor disturbance or labor dispute of any
character, governmental regulation, moratorium or other governmental
action, inability by exercise of reasonable diligence to obtain
electricity, water or fuel, or by any other cause beyond Landlord's
reasonable control. In such event, 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. Landlord
shall not be in breach of this Lease and shall not be liable in damages
(including but not limited to any damages, compensation or claims
arising from any interruption or cessation of Tenant's business) or
otherwise for failure, stoppage or interruption of any such service, nor
shall the same be construed either as an eviction of Tenant, or work an
abatement of rent, or relieve Tenant from the operation of any covenant
or agreement. In the event of any failure, stoppage or interruption
thereof, however, Landlord shall use reasonable diligence to resume
service promptly where it is within Landlord's reasonable control to do
so.
(e) Landlord, in its sole and absolute discretion, may elect to
contract for the services of individuals that will monitor the systems
and operations of the Building and Project. In this connection, Landlord
may also elect to station some of these individuals in the lobby of the
Building. Such individuals are not security personnel and will not
provide protective services to any of the tenants of the Building,
including Tenant.
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(f) Notwithstanding anything hereinabove to the contrary, Landlord
reserves the right from time to time to make reasonable and nondiscriminatory
modifications to the above standards for utilities and services.
(g) Tenant shall pay for all telephone service to the Premises and shall
contract directly with the providing company for such service, and Landlord
shall have no responsibilities thereto.
11. RULES AND REGULATIONS
Tenant agrees to abide by all rules and regulations of the Building and
the Project imposed by Landlord as set forth in Exhibit "C" attached hereto,
as the same may be changed from time to time upon reasonable notice to
Tenant. Any such change shall be effective upon delivery of a copy thereof to
Tenant. These rules and regulations are imposed for the cleanliness, good
appearance, proper maintenance, good order and reasonable use of the
Premises, the Building and the Project, and as may be necessary for the
enjoyment of the Building and the Project by all tenants and their clients,
customers and employees. A breach of the rules and regulations shall not be
grounds for termination of this Lease unless Tenant continues to breach the
same after ten (10) days' written notice by Landlord; provided, however, that
any such notice shall be in lieu of, and not in addition to, any notice
required under Paragraph 26, below, or Section 1161, ET SEQ., of the
California Code of Civil Procedure, as amended. Landlord shall not be liable
to Tenant for the failure of any other tenant, its agents or employees, to
conform to the rules and regulations.
12. TAXES ON TENANT'S PROPERTY
(a) Tenant shall be liable for and pay ten (10) days before delinquency,
all taxes, levies and assessments levied against any personal property or
trade fixtures placed by Tenant in or about the Premises, and, when possible,
Tenant shall cause such personal property and trade fixtures to be assessed
and billed separately from the Building and the Premises. If any such taxes,
levies and assessments on Tenant's personal property or trade fixtures are
levied against Landlord or Landlord's property or if the assessed value of
the Building or the Project is increased by the inclusion therein of a value
placed upon such personal property or trade fixtures of Tenant and if
Landlord pays the taxes, levies and assessments based upon such increased
assessment, which Landlord shall have the right to do regardless of the
validity thereof, but only under proper protest if requested by Tenant,
Tenant shall upon demand repay to Landlord, as additional rent, the taxes,
levies and assessments so levied against Landlord, or the proportion of such
taxes, levies and assessments resulting from such increase in the assessment,
together with interest thereon from the date of payment by Landlord to the
date of reimbursement by Tenant at the rate determined pursuant to Paragraph
37. It is provided, however, that in any such event Tenant shall have the
right, in the name of Landlord and with Landlord's full cooperation but
without any cost to Landlord, to bring suit in any court of competent
jurisdiction to recover the amount of any such taxes, levies and assessments
so paid under protest, any amount so recovered to belong to Tenant.
(b) If the tenant improvements in the Premises, whether installed and/or
paid for by Landlord or Tenant and whether or not affixed to the real
property so as to become a part thereof, are assessed for real property tax
purposes at a valuation higher than the valuation at which tenant
improvements conforming to Landlord's "building standard" in other space in
the Building are assessed, then the real property taxes and assessments
levied against Landlord or the Building or the Project by reason of such
excess assessed valuation shall be deemed to be taxes levied against personal
property of Tenant and shall be governed by the provisions of subparagraph
(a) above. If the records of the County Assessor are available and
sufficiently detailed to serve as a basis for determining whether said tenant
improvements are assessed at a higher valuation than Landlord's "building
standard," such records shall be binding on both Landlord and Tenant;
otherwise the actual cost of construction shall be the basis for such
determination.
13. INTENTIONALLY OMITTED
14. FIRE OR CASUALTY
(a) In the event the Premises, or access to them, are wholly or
partially destroyed by fire or other casualty covered by the form of fire and
extended coverage insurance maintained by Landlord, Landlord shall rebuild,
repair or restore the Premises and access thereto to substantially the same
condition as when the same were furnished to Tenant, excluding any
improvements installed by Tenant and any of Tenant's personal property, and
this Lease shall continue in full force and effect. In the event, however,
that the Building is so damaged or destroyed to the extent of more than
one-third (1/3) of its replacement cost, or to any substantial extent by a
casualty not so covered, Landlord may elect by written notice to Tenant given
within twenty (20) days after the occurrence of the casualty to terminate
this Lease in lieu of so restoring the Premises, in which event this Lease
shall terminate as of the date of the occurrence of the casualty. Landlord
shall in no event be obligated to make any repairs or replacement of any
items other than those items installed by or at the
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expense of Landlord. If the Premises are rendered totally or partially
untenantable, rent shall abate during the period of reconstruction in the
same proportion to the total rent as the portion of the Premises rendered
untenantable bears to the entire Premises. Any such rental abatement shall
not defeat or diminish Landlord's rights to recover upon any rental
interruption insurance maintained by Landlord pursuant to Paragraph 20. In no
event shall Tenant be entitled to any compensation or damages for loss of use
of the whole or any part of the Premises or for any inconvenience occasioned
by any such destruction, rebuilding or restoration of the Premises, the
Building or access thereto. Tenant waives the provisions of California Civil
Code Sections 1932(2) and 1933(4) and any present and future laws and case
decisions to the same effect.
(b) Notwithstanding anything to the contrary contained in Paragraph
14(a) above, if the Premises or the Building or the Project is wholly or
partially damaged or destroyed within the final twelve (12) months of the
Term of this Lease, Landlord may, at its option, by giving Tenant notice
within sixty (60) days after notice to Landlord of the occurrence of such
damage or destruction, elect to terminate the Lease. Furthermore, upon
termination of this Lease pursuant to this Paragraph 14(b), Tenant and
Landlord hereby agree (except as expressly provided for otherwise in this
Lease) to release each other from any and all obligations and liabilities
with respect to the Lease except such obligations and liabilities which arise
or accrue prior to such termination.
15. EMINENT DOMAIN
(a) In case the whole of the Premises, or such part thereof as shall
substantially interfere with Tenant's use and occupancy thereof, shall be
taken by any lawful power or authority by exercise of the right of eminent
domain, or sold to prevent such taking or threat of such taking, either
Tenant or Landlord may terminate this Lease effective as of the date
possession is required to be surrendered to said authority. Except as
provided herein, Tenant shall not because of such taking assert any claim
against Landlord or the taking authority for any compensation because of such
taking, and Landlord shall be entitled to receive the entire amount of any
award without deduction for any estate or interest of Tenant. In the event
the amount of property or the type of estate taken shall not substantially
interfere with Tenant's use of the Premises, Landlord shall be entitled to
the entire amount of the award without deduction for any estate or interest
of Tenant. In such event, Landlord shall promptly proceed to restore the
Premises to substantially their condition prior to such partial taking, and a
proportionate allowance shall be made to Tenant for the rent corresponding to
the time during which, and to the part of the Premises of which, Tenant shall
be so deprived on account of such taking and restoration. Any such rental
abatement shall not defeat or diminish Landlord's rights to recover upon any
rental interruption insurance maintained by Landlord pursuant to Paragraph
20. Nothing contained in this Paragraph 15(a) shall be deemed to give
Landlord any interest in, or prevent Tenant from seeking any award against
the taking authority for, the taking of personal property and fixtures
belonging to Tenant or for relocation or business interruption expenses
recoverable from the taking authority. Landlord may, without any obligation
to Tenant, agree to sell and/or convey to any taking authority the Premises,
the Building, the Project or any portion thereof sought by such taking
authority, free from this Lease and the rights of Tenant hereunder, without
first requiring that any action or proceeding be instituted or pursued to
judgment.
(b) In the event of a temporary taking of the Premises or any part of
the Premises and/or of Tenant's rights to the Premises or under this Lease,
this Lease shall not terminate, nor shall Tenant have the right to any
abatement of rent or of any other payments owed to Landlord pursuant to this
Lease. Any award made to Tenant by reason of such temporary taking shall
belong entirely to Tenant.
(c) This Paragraph 15 shall be Tenant's sole and exclusive remedy in the
event of a taking or condemnation. Tenant hereby waives the benefit of
California Code of Civil Procedure Section 1265.130. Upon termination of the
Lease pursuant to this Paragraph 15, Tenant and Landlord hereby agree (except
as expressly provided for otherwise in this Lease) to release each other from
any and all obligations and liabilities with respect to the Lease except such
obligations and liabilities which arise or accrue prior to such termination.
16. ASSIGNMENT AND SUBLETTING
(a) Tenant shall not, either voluntarily or involuntarily or by
operation of law, assign, sublet, mortgage or otherwise encumber all or any
portion of its interest in this Lease or in the Premises or permit the
Premises to be occupied by anyone other than Tenant or Tenant's employees
without obtaining the prior written consent of Landlord, which consent shall
be subject to the provisions of subsections (b) through (j) below. Any such
attempted assignment, subletting, mortgage or other encumbrance without such
consent shall be null and void and of no effect.
(b) No assignment, subletting, mortgage or other encumbrance of Tenant's
interest in this Lease shall relieve Tenant of its obligation to pay the rent
and to perform all of the other obligations to be performed by Tenant
hereunder. In this connection, any such assignment, sublease or encumbrance
shall expressly provide that it is subject to the terms and provisions of
this Lease. Moreover, any subletting by Tenant of any portion of the Premises
shall be at a market rental rate and upon market terms and, if Landlord so
requests, shall require that the assignee or sublessee remit directly to
Landlord, on a monthly basis, all rent due to Tenant by
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said assignee or sublessee. For this purpose, "market" shall mean a rental
rate and terms comparable to the rental rate and terms then being offered by
other landlords leasing comparable space in comparable commercial high-rise
office buildings that are located within a one (1) mile radius of the
Building. The acceptance of rent by Landlord from any other person shall not
be deemed to be a waiver by Landlord of any provision of this Lease or to be
a consent to any subletting, assignment, mortgage or other encumbrance.
Consent to one sublease, assignment, mortgage or other encumbrance shall not
be deemed to constitute consent to any subsequent attempted subletting,
assignment, mortgage or other encumbrance.
(c) If Tenant desires at any time to assign this Lease or to sublet the
Premises or any portion thereof, it shall first notify Landlord of its desire
to do so and shall submit in writing to Landlord (i) the name of the proposed
subtenant or assignee; (ii) the nature of the proposed subtenant's or
assignee's business to be carried on in the Premises, (iii) the terms and
provisions of the proposed sublease or assignment and the proposed effective
date thereof; and (iv) such financial information as Landlord may reasonably
request concerning the proposed subtenant or assignee. The submission
pursuant to clause (iii) shall include a copy of any agreement, escrow
instructions or other document which contains or memorializes the terms and
provisions of the transaction for which Landlord's consent is required.
Similarly, if Tenant desires to mortgage or encumber its interest in this
Lease, Tenant shall first supply to Landlord in writing such information as
to such transaction as may be reasonably requested by Landlord.
(d) As a condition to Landlord's consent to such assignment or
subletting, Landlord shall be entitled to receive, in the case of a
subletting, all rent (however denominated and paid) payable by the subtenant
to Tenant in excess of that payable by Tenant to Landlord pursuant to the
other provisions of this Lease and, in the case of an assignment, all
consideration given, directly or indirectly, by the assignee to Tenant in
connection with such assignment, less normal and usual costs incurred by
Tenant in connection with such subletting or assignment amortized over the
length of the term of such assignment or sublease. For the purposes of this
subparagraph, the term "rent" shall mean all consideration paid or given,
directly or indirectly, for the use of the Premises or any portion thereof.
The term "consideration" shall mean and include money, services, property or
any other thing of value such as payment of costs, cancellation of
indebtedness, discounts, rebates and the like. "Normal and usual costs" shall
only mean the following: broker's commission paid by Tenant to a broker
independent of Tenant in connection with such assignment or subletting; legal
fees incurred by Tenant in processing such assignment or subletting;
out-of-pocket costs incurred by Tenant in advertising for an assignee or
subtenant; and out-of-pocket costs incurred by Tenant to remodel or renovate
the area subject to such subletting or assignment (which costs shall not
exceed the cost of providing "Building Standard Improvements" in the
quantities specified in Exhibit "B" for such assignee or subtenant). "Sublet"
and "sublease" shall include a sublease as to which Tenant is sublessor and
any sub-sublease or other sub-subtenancy, irrespective of the number of
tenancies and tenancy levels between the ultimate occupant and Landlord, as
to which Tenant receives any consideration, as defined in this subparagraph,
and Tenant shall require on any sublease which it executes that Tenant
receive the profit from all sub-subtenancies, irrespective of the number of
levels thereof. Any rent or other consideration which is to be passed through
to Landlord by Tenant pursuant to this subparagraph shall be paid to Landlord
promptly upon receipt by Tenant and shall be paid in cash, irrespective of
the form in which received by Tenant from any subtenant or assignee. In the
event that any rent or other consideration received by Tenant from a
subtenant or assignee is in a form other than cash, Tenant shall pay to
Landlord in cash the fair value of such consideration.
(e) At any time within thirty (30) days after Landlord's receipt of the
last of the information specified in subparagraph (c) above, Landlord may by
written notice to Tenant elect (i) to disapprove of such assignment or
sublease, (ii) to sublease the Premises or the portion thereof so proposed to
be subleased by Tenant, or to take an assignment of Tenant's leasehold
estate hereunder, or such part thereof as shall be specified in said notice,
on the same terms as those stated in this Lease and in turn sublease or
assign to the proposed subtenant or assignee on the same terms as those
offered by Tenant to the proposed subtenant or assignee, as the case may be;
or (iii) to terminate this Lease as to the portion (including all) of the
Premises so proposed to be subleased or assigned, with a proportionate
abatement in the rent payable hereunder. It is provided, however, that if the
proposed sublease will cover less than one half (1/2) of the area of the
Premises covered by this Lease and will have a term (including all options to
renew or extend the same) of less than two (2) years and will terminate more
than two (2) years prior to the expiration date of this Lease, Landlord shall
not be entitled to exercise option (ii) above, but may exercise option (i).
Tenant shall, at Tenant's own cost and expense, discharge in full any
commissions which may be due and owing as the result of any proposed
assignment or subletting, whether or not the Premises are recaptured pursuant
hereto and rented by Landlord to the proposed subtenant or assignee or any
other tenant. If Landlord does not disapprove the proposed subletting or
assignment in writing and does not exercise any option set forth in this
subparagraph (e) within said thirty (30) day period, Tenant may within ninety
(90) days after the expiration of said thirty (30) day period enter into a
valid assignment or sublease of the Premises or portion thereof, upon the
terms and conditions set forth in the information furnished by Tenant to
Landlord pursuant to subparagraph (c) above. It is provided, however, that
any material change in such terms shall be subject to Landlord's consent and
rights of
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termination and recapture as provided in this Paragraph and, provided
further, that any amount to be paid by Tenant in connection with such
subletting or assignment pursuant to subparagraph (d) above shall be paid to
Landlord upon consummation of such transaction.
(f) Landlord shall have the right to approve or disapprove any proposed
assignee or subtenant. In exercising such right of approval or disapproval,
Landlord shall be entitled to take into account any fact or factor which
Landlord reasonably deems relevant to such decision, including but not
necessarily limited to the following, all of which are agreed to be
reasonable factors for Landlord's consideration:
(i) The financial strength of the proposed assignee or
subtenant, including the adequacy of its working capital to pay all
expenses anticipated in connection with any proposed remodeling of
the Premises.
(ii) The proposed use of the Premises by such proposed
assignee or subtenant and the compatibility of such proposed use
within the quality and nature of the other uses in the Building.
(iii) Any violation which the proposed use by such proposed
assignee or subtenant would cause of any other rights granted by
Landlord to other tenants of the Building or the Project.
(iv) Any adverse impact of the proposed use of the Premises by
such proposed assignee or subtenant upon the parking or other
services provided for Building or Project tenants generally.
(v) Whether there then exists any default by Tenant pursuant to
this Lease or any non-payment or non-performance by Tenant under
this Lease which, with the passage of time and/or the giving of
notice, would constitute a default under this Lease.
(vi) The business reputation, character, history and nature of
the business of the proposed assignee or subtenant.
(vii) Whether the proposed assignee or subtenant is a person
with whom Landlord has negotiated for space in the Project during
the twelve (12) month period ending with the date Landlord receives
notice of such proposed assignment or subletting.
(viii) Whether the proposed assignee or subtenant is a
governmental entity or agency.
Moreover, Landlord shall be entitled to be reasonably satisfied that each and
every covenant, condition or obligation imposed upon Tenant by this Lease and
each and every right, remedy or benefit afforded Landlord by this Lease is
not impaired or diminished by such assignment or subletting. Landlord and
Tenant acknowledge that the express standards and provisions set forth in
this Lease dealing with assignment and subletting, including those set forth
in this subparagraph (f) have been freely negotiated and are reasonable at
the date hereof taking into account Tenant's proposed use of the Premises and
the nature and quality of the Building and Project. No withholding of consent
by Landlord for any reason deemed sufficient by Landlord shall give rise to
any claim by Tenant or any proposed assignee or subtenant or entitle Tenant
to terminate this Lease, to recover contract damages or to any abatement of
rent. In this connection, Tenant hereby expressly waives its rights under
California Civil Code Section 1995.310. Moreover, approval of any assignment
of Tenant's interest shall, whether or not expressly so stated, be
conditioned upon such assignee assuming in writing all obligations of Tenant
hereunder.
(g) All options to extend, renew or expand, all exterior sign rights and
all reserved, reduced cost or free parking rights, in each case if any,
contained in this Lease are personal to Tenant. Consent by Landlord to any
assignment or subletting shall not include consent to the assignment or
transfer of any such rights or options with respect to the Premises or any
other special privileges or extra services granted to Tenant by this Lease,
any addendum or amendment hereto or any letter agreement. All such options,
rights, privileges and extra services shall terminate upon such subletting or
assignment unless Landlord specifically grants the same in writing to such
assignee or subtenant.
(h) The voluntary or other surrender of this Lease by Tenant or a mutual
cancellation hereof shall not work a merger, and shall, at the option of
Landlord, terminate all or any existing subleases or subtenancies or shall
operate as an assignment to Landlord of such subleases or subtenancies.
Tenant agrees to reimburse Landlord for Landlord's reasonable costs and
attorneys' fees incurred in connection with the processing and documentation
of any such requested assignment, subletting, transfer, change of ownership
or hypothecation of this Lease or Tenant's interest in and to the Premises.
(i) Landlord shall be permitted to hire outside contractors to review
all assignment and subletting documents and information and Tenant shall
reimburse Landlord for the cost thereof, including reasonable attorneys'
fees, on demand.
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(j) The foregoing notwithstanding, Tenant may assign this Lease at any
time, or sublease all or part of the Premises, without receipt of Landlord's
consent, to any entity which acquires all or part of Tenant, or which is
acquired in whole or in part by Tenant, or which is controlled by Tenant, or
which entity controls, Tenant (any such party hereinafter referred to as an
"affiliate") so long as such transaction was not entered into as a subterfuge
to avoid the obligations and restrictions of this Lease. In connection with
any transaction of the type described in this subparagraph (j):
(A) Any sublease shall be subject to all of the terms and
provisions of this Lease and shall be terminable by Landlord upon the
expiration or any earlier termination of this Lease, including a termination
by mutual agreement of Landlord and Tenant.
(B) In connection with any assignment, the assignee shall, within
ten (10) days after receipt of written request from Landlord, execute and
deliver to Landlord a written assumption of the obligations of Tenant
pursuant to this Lease accruing from and after the effective date of the
assignment and in form and substance reasonably satisfactory to Landlord.
(C) No such assignment or subletting shall release Tenant from any
of the obligations of Tenant hereunder, whether accruing prior to or
subsequent to the effective date of such transaction.
(D) No such transaction shall be accompanied by a change in use
from that permitted pursuant to Paragraph 11 of the Basic Lease Provisions.
(E) Within ten (10) days after the effective date of such
transaction, Tenant shall notify Landlord in writing of such occurrence, the
effective date thereof, the name of the assignee or subtenant, any change in
the addresses for notice pursuant to this Lease and the facts which bring
such transaction within the scope of this subparagraph (j).
17. ACCESS
Landlord reserves and shall at any time and all times have the right to
enter the Premises to inspect the same, to supply janitorial service and any
other service to be provided by Landlord to Tenant hereunder, to submit said
Premises to prospective purchasers, tenants or actual or prospective lenders,
to post notices of non-responsibility, to use and maintain pipes and conduits
in and through the Premises, and to alter, improve or repair the Premises or
any other portion of the Building, all without being deemed guilty of an
eviction of Tenant and without abatement of rent, and may for that purpose
erect scaffolding and other necessary structures where reasonably required by
the character of the work to be performed, provided that the business of
Tenant shall be interfered with as little as is reasonably practicable.
Landlord may enter by means of a master key without liability to Tenant for
any damage caused by Landlord entering the Premises, except for damage to
Tenant's personal property caused by any failure of Landlord to exercise due
care. Tenant shall not disturb any notices or other items placed by Landlord
in the Premises. Tenant hereby waives any claim for damages for any injury or
inconvenience to or interference with Tenant's business, any loss of
occupancy or quiet enjoyment of the Premises, and any other loss occasioned
thereby. For each of the aforesaid purposes, Landlord shall at all times have
and retain a key with which to unlock all of the doors in, upon and about the
Premises, excluding Tenant's vaults and safes, and Landlord shall have the
right to use any and all means which Landlord may deem proper to open said
doors in an emergency in order to obtain entry to the Premises. Any lock
installed by Tenant shall be of a type and style designated by Landlord
concurrently with such installation. Any entry to the Premises obtained by
Landlord by any of said means shall not under any circumstances be construed
or deemed to be a forcible or unlawful entry into, or a detainer of, the
Premises, or any eviction of Tenant from the Premises or any portion thereof.
No provision of this Lease shall be construed as obligating Landlord to
perform any repairs, alterations or decorations except as otherwise expressly
agreed to be performed by Landlord.
18. SUBORDINATION; ATTORNMENT; ESTOPPEL CERTIFICATES; FINANCIAL STATEMENTS
(a) This Lease and the rights of Tenant hereunder, at Landlord's
election, shall be junior, subject, and subordinate to the lien of any ground
or underlying lease, mortgage, deed of trust, and other security instrument
of any kind now or hereafter covering the Premises, the Building or the
Project, or any portion of any thereof, and to any and all advances made
thereunder, interest thereon or costs incurred pursuant thereto (with respect
to mortgages or deeds of trust) and any amendments, modifications, renewals,
supplements, consolidations, replacements or extensions thereto. Such
priority shall be established without the necessity of the execution and
delivery of any further instruments on the part of Tenant to effect such
subordination. Landlord or any ground lessor, mortgagee or beneficiary under
a deed of trust may at any time cause such subordination by giving notice
thereof to Tenant at least sixty (60) days before the subordination is to
become effective. Notwithstanding the foregoing, Tenant covenants and agrees
to (a) execute and deliver upon demand such further instruments evidencing
such subordination of this Lease or subordination of such mortgage, deed of
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trust or ground lease as may be requested by Landlord and (b) supply such
financial information concerning Tenant as may be requested by any ground
lessor or lender, prospective purchaser or Landlord, in connection with such
subordination, within ten (10) business days after demand. If Tenant fails to
execute such further instruments within ten (10) business days after demand,
Landlord may execute such documents on behalf of Tenant as Tenant's
attorney-in-fact. Tenant does hereby make, constitute and irrevocably appoint
Landlord as Tenant's attorney-in-fact and in Tenant's name, place and stead,
to execute such instruments in accordance with this subparagraph. In
addition, Tenant's failure to execute such further instruments within ten
(10) business days after demand shall constitute a material breach of this
Lease. Notwithstanding subordination by Tenant to any existing or future
lienholder, Tenant's right to quiet possession of the Premises shall not be
disturbed so long as Tenant shall pay the rent and observe and perform all of
the provisions of this Lease to be observed and performed by Tenant, unless
this Lease is terminated pursuant to specific provisions relating thereto
contained herein. In the event of the foreclosure of any such lien or
encumbrance, Tenant shall attorn to the then owner who owns or acquires title
to the Building or Project and will recognize such owner a Landlord under
this Lease. Tenant hereby waives any right to terminate this Lease because of
any such foreclosure.
(b) Notwithstanding the foregoing, and without the consent of Tenant,
the holder of any mortgage or deed of trust or the beneficiary thereunder
shall have the right to elect to be subject and subordinate to this Lease,
with such subordination to be effective upon such terms and conditions as
such holder or beneficiary may direct and which are not inconsistent with the
provisions of this Paragraph 18.
(c) Tenant shall at any time and from time to time upon not less than
twenty (20) days prior notice by Landlord, execute, acknowledge and deliver
to Landlord a statement in writing (i) certifying that this Lease is
unmodified and in full force and effect (or if there have been modifications,
that the same is in full force and effect as modified and stating the
modifications), and the dates to which the Basic Annual Rent, Additional Rent
and other charges have been paid in advance, if any, (ii) stating whether or
not to the best knowledge of Tenant, Landlord is in default in the
performance of any covenant, agreement or condition contained in this Lease
and, if so, specifying each such default of which Tenant may have knowledge
and (iii) acknowledging (if true) the accuracy of such other facts as are
included in such statement by Landlord. Any such statement delivered pursuant
to this subparagraph may be relied upon by any prospective purchaser of the
fee of the Building or the Project or any mortgagee, ground lessor or other
like encumbrancer thereof or any assignee of any such encumbrancer upon the
Building or the Project. If Tenant fails to deliver such statement within
such time, such failure shall, at Landlord's option, be deemed to be Tenant's
irrevocable appointment of Landlord as Tenant's special attorney-in-fact in
connection with the preparation and execution of any such statement and such
execution by Landlord as Tenant's attorney-in-fact shall be conclusive upon
Tenant that (A) this Lease is in full force and effect, without modification
except as may be represented by Landlord, (B) that there are no uncured
defaults in Landlord's performance, (C) that with the exception of the amount
indicated in Item 12 of the Basic Lease Provisions, not more than one month's
Basic Annual Rent has been paid in advance and (D) that any other statements
of fact included by Landlord in the statement are correct. Tenant shall be
liable for all loss, cost or expense resulting from the failure of any ground
lease, sale or funding of any loan caused by any material misstatement
contained in any estoppel certificate supplied by Tenant or resulting from
failure of Tenant to deliver any such statement.
(d) In addition, and not in lieu of the foregoing, within ten (10) days
after the Commencement Date, Tenant shall execute and deliver to Landlord a
certificate substantially in the form of Exhibit "D" attached hereto,
indicating thereon any exceptions thereto which Tenant claims to exist at
that time. Failure of Tenant to execute and deliver such certificate within
such time period shall constitute an acceptance of the Premises and the
acknowledgment and agreement by Tenant that the statements included in
Exhibit "D" are true and correct without exception.
19. SALE BY LANDLORD
In the event of a sale, transfer or conveyance by Landlord of the
Building, the same shall operate to release Landlord from any and all
liability under this Lease. Tenant's right to quiet possession of the
Premises shall not be disturbed so long as Tenant shall pay the rent and
observe and perform all of the provisions of this Lease to be observed and
performed by Tenant, unless this Lease is terminated pursuant to specific
provisions relating thereto contained herein. If any security deposit has
been made by Tenant, Landlord may transfer the balance of such security
deposit (after lawful deductions and in accordance with California Civil Code
Section 1950.7), after notice to Tenant, to the purchaser, and thereupon
Landlord shall be discharged from any further liability with respect thereto.
20. NONLIABILITY AND INDEMNIFICATION OF LANDLORD; INSURANCE
(a) LANDLORD'S NONLIABILITY. Subject to Paragraphs 20('s) and 21 below,
Landlord and its partners, and their respective partners, officers, agents
and employees shall not be liable for Tenant's loss of income or extra
expense or for any damage to Tenant's property, nor for loss of damage to
property by theft or otherwise, nor
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for any injury or damage which may be sustained by the person, goods, wares,
merchandise or property of Tenant, its employees, invitees or customers or
any other person in or about the Premises caused by or resulting from any
peril which may affect the Premises, including without limitation fire,
explosion, falling plaster, steam, electricity, gas, water or rain, which may
leak or flow from or into any part of the Premises, or from the breakage,
leakage, obstruction or other defects of the pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures of the same,
whether such damage or injury results from conditions arising upon the
Premises or upon other portions of the Building, or from other sources.
Landlord shall not be liable for any damages arising from any act or neglect
of any other tenant or occupant of the Project or any of their officers,
employees, agents, representatives, customers and invitees and Tenant hereby
waives any such right it may have against Landlord. Tenant shall give prompt
notice to Landlord in case of fire or accidents in the Premises or of defects
therein or in the fixtures or equipment. Any claim, defense, or other right
of Tenant arising in connection with this Lease or with negotiations before
this Lease was signed shall be barred unless Tenant files an action or
interposes a defense based thereon within one hundred eighty (180) days after
the date of the alleged event on which Tenant is basing its claim, defense or
right.
(b) INDEMNIFICATION. Subject to Paragraphs 20('s) and 21 below, and to
the fullest extent permitted by law, Tenant shall indemnify, hold Landlord
harmless from and defend Landlord, its agents and employees against any and
all claims, losses, costs, damages, expenses or liabilities, including
without limitation reasonable attorney's fees and costs of defense, for death
of or any injury or damage to any person or property whatsoever, when such
death, injury or damage has been caused in part or in whole by the act,
neglect, fault, or omission of Tenant, its assignees, sublessees, agents,
servants, employees or invitees or which arises from Tenant's use of the
Premises or the conduct of Tenant's business. Tenant shall further indemnify,
hold Landlord harmless from and defend Landlord, it's agents and employees
against and from any and all claims arising from any breach or default in the
performance of any obligation on Tenant's part to be performed under the
terms of this Lease. This indemnification provision shall not require payment
as a condition precedent to recovery, and Tenant's defense obligation
hereunder shall include the obligation, upon demand, to defend Landlord
against any claim or action of the type herein specified by counsel
reasonably satisfactory to Landlord. In addition, if any person not a party
to this Lease shall institute any other type of action against Tenant in
which Landlord, involuntarily and without cause, shall be made a party
defendant and which is related to this Lease, Tenant shall indemnify, hold
Landlord harmless from and defend Landlord from all liabilities by reason
thereof.
(c) TENANT'S INSURANCE. Tenant hereby agrees to maintain in full force
and effect at all times during the term of this Lease, at its own expense,
for the protection of Tenant and Landlord, as their interests may appear,
policies of insurance which afford the following coverages:
(i) Workers' Compensation coverage as required by law, including
United States Longshoremen and Harborworkers Act (if applicable),
together with Employer's Liability coverage with a limit of not less
than $1,000,000 per occurrence.
(ii) Comprehensive General Liability or Commercial General
Liability Insurance with respect to the Premises and the operations on
or on behalf of Tenant in, on or about the Premises, including but not
limited to Blanket Contractual Liability, Owners Protective, Broad Form
Property Damage Liability Coverage, Personal Injury, Completed
Operations, Products Liability (if applicable), Fire Legal Liability,
Host Liquor Liability (or Liquor Liability, if applicable), protection
and indemnity (if applicable) and Owned and Non-Owned Automobile
Coverage in an amount not less than $1,000,000 per occurrence. The
policy for such insurance shall contain the following provisions: (A)
severability of interest; (B) cross liability; (C) an endorsement naming
Landlord and any other parties in interest designated by Landlord as an
additional insured; (D) an endorsement stating, in substance, "such
insurance as is afforded by this policy for the benefit of the Landlord
and any other additional insured shall be primary as respects to any
liability or claims arising out of the occupancy of the Premises by the
Tenant, or Tenant's operations and any insurance carried by Landlord, or
any other additional insured shall be non-contributory;" (E) with
respect to improvements or alterations permitted under this Lease,
contingent liability and builder's risk insurance; (F) an endorsement
allocating to the Premises the full amount of liability limits required
by this Lease; (G) coverage must be on an "occurrence basis;" "Claims
Made" forms are not acceptable; and (H) an aggregate limit of no less
than $3,000,000 per annum available for occurrences at the Premises, if
such policy has an aggregate limit.
(iii) Insurance providing protection against "All Risks" of
physical loss, including without limitation insurance against fire,
theft, burglary, structural collapse, sprinkler leakage, earthquake and
flood (if required by a lender holding a security interest in the
Project), vandalism and malicious mischief, in all amount sufficient to
cover the full cost of replacement (with no deductible for depreciation
and with the understanding that such amount shall be adjusted not more
frequently than on an annual basis) of all improvements and betterments
to the Premises, all of Tenant's fixtures, furnishings, equipment,
furniture, trade fixtures and other personal property located or used in
the Premises and loss of income or extra expense including losses
resulting from an interruption in or a failure of the Intrabuilding
Network Cabling. All policies of such insurance shall contain no
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coinsurance or contribution provisions and shall name Landlord and
the lending institution(s), if any, as additional insured's and/or loss
payable in accordance with such lender's or lenders' requirements. For
the purposes of this subparagraph (iii), the Premises shall consist of
the Rentable Area shown in the floor plan attached hereto as Exhibit
"A-1," and consist of the cubic space spanning from the floor slab to
the bottom surface of the floor slab of the floor immediately above the
Premises (the "upper slab"), without any offsets or deductions for
columns and other structural portions of the Building or vertical
penetrations that are included for the special use of Tenant. Such cubic
space shall include the plenum space which is bounded by the lower
surface of the upper slab and the suspended ceiling of the Premises. The
proceeds of such insurance, so long as this Lease remains in effect,
shall be used to repair or replace the improvements, trade fixtures and
personal property in the Premises so insured. Upon any termination of
this Lease pursuant to Paragraph 14(a) above, the proceeds of such
insurance relating to improvements to the Premises shall be the property
of Landlord.
(iv) Loss of income or business interruption insurance providing
protection against any peril included within the classification "All
Risk," including but not limited to insurance against sprinkler leakage.
The minimum limit of the coverage provided in division (ii) above shall
be adjusted upward only at the expiration of each third (3rd) full calendar
year as follows: Not less than sixty (60) days prior to the relevant
adjustment date, Landlord shall request such insurance brokerage firm as is
then placing insurance for Landlord (the "Reviewing Broker") to review
Tenant's then existing liability insurance coverage, to review the then use
of the Premises and the claims history with respect thereto and to recommend,
in writing, the amount of coverage to be carried by Tenant pursuant to
division (ii). Such recommendation shall be based upon the then use of the
Premises and the liability claims history with respect to the Premises and
shall be certified by the Reviewing Broker to be consistent with amounts of
coverage generally recommended by such Reviewing Broker for similar types of
tenants or users of property with uses similar to that of the Premises in the
geographical area which includes the Premises. If the Reviewing Broker shall
recommend an increase(s) in the amount of coverage then provided by Tenant
under division (ii), Tenant shall promptly increase its coverage to the
recommended amount(s). In no event shall there by any reduction in the amount
of coverage provided by Tenant under division (ii) below the initial amounts
set forth herein, notwithstanding any recommendation by the Reviewing Broker.
The failure of the Reviewing Broker to require any additional insurance
coverage shall not be deemed to relieve Tenant from any obligations under
this Lease.
(d) DEDUCTIBLES. Tenant may, with the written consent of Landlord, elect
to have reasonable deductibles in connection with the policies of insurance
required to be maintained by Tenant under subparagraph (c)(iii).
(e) CERTIFICATES OF INSURANCE. Tenant shall deliver to Landlord at least
thirty (30) days prior to the time such insurance is first required to be
carried by Tenant, and thereafter at least thirty (30) days prior to the
renewal date or expiration of each such policy, Certificates of Insurance
evidencing the above coverage with limits not less than those specified
above. Such Certificates, with the exception of Workers' Compensation, shall
add Landlord and each of its partners, and its and their subsidiaries,
affiliates, partners, officers, directors, agents, employees, lenders and
other persons or entities designated by Landlord and having an insurable
interest in the Premises as additional insured and shall expressly provide
that the interest or same therein shall not be affected by any breach by
Tenant of any policy provision for which such Certificates evidence coverage.
Neither Landlord nor any other person or entity named as an additional
insured pursuant to this subparagraph shall have any obligation under such
policies, such as payment of premiums, giving of notices and the like.
Further, all Certificates shall expressly provide that not less than thirty
(30) days prior unqualified written notice shall be given to Landlord or
Landlord's lender in the event of material alteration to, non-renewal of, or
cancellation of the coverages evidenced by such Certificates. Notwithstanding
the foregoing, Landlord may, at any time, from time to time, inspect and/or
copy and approve any and all insurance policies required hereunder.
(f) LANDLORD'S INSURANCE. Landlord shall at all times during the term of
this Lease maintain in effect a policy or policies of (i) "All Risk"
insurance, together with sprinkler leakage and vandalism and malicious
mischief coverage, covering the Building and the Project, including
Landlord's interest in all tenant improvements in the Premises, and (ii)
Lessor's "Risk Only" Liability Insurance. Landlord may also, but shall not be
required to, maintain flood and earthquake insurance with respect to the
Project, rental interruption insurance assuring that the rent under this
Lease will be paid to Landlord for a period of not less than twelve (12)
months if the Premises are destroyed or rendered inaccessible by a risk
insured against under the foregoing coverage, and any other types of
insurance that Landlord, in its business judgment, may determine is necessary
or desirable to obtain. The cost of all such insurance shall be included in
the Operating Expenses to be reimbursed by Tenant to Landlord pursuant to
Paragraph 3.
(g) INCREASE IN COVERAGE. Upon demand, Tenant shall provide Landlord, at
Tenant's expense, with such increased amount of existing insurance, and such
other insurance in such limits, as Landlord may require and such other hazard
insurance as the nature and condition of the Premises may require in the sole
judgment of Landlord to afford Landlord adequate protection for risks of
Tenant to be insured hereunder.
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(h) NO CO-INSURANCE. If on account of the failure of Tenant to comply
with the provisions of this Paragraph, Landlord or any additional insured is
adjudged a coinsurer by its insurance carrier, then any loss or damage
Landlord or such additional insured shall sustain by reason thereof shall be
borne by Tenant and shall be immediately paid by Tenant upon receipt of a
bill therefor and evidence of such loss.
(i) INSURANCE LIMITS. Landlord makes no representation that the limits
of liability specified to be carried by Tenant under the terms of this Lease
are adequate to protect Tenant against Tenant's undertakings under this
Lease. In the event Tenant believes that any such insurance coverage called
for under this Lease is insufficient, Tenant shall provide, at its own
expense, such additional insurance as Tenant deems adequate. In no event
shall the limits of any coverage maintained by Tenant pursuant to this
Paragraph 20 be considered as limiting Tenant's liability under this Lease.
(j) LANDLORD'S NEGLIGENCE. Nothing contained herein shall operate to
relieve Landlord from any loss, damage, injury, liability, claim, cost or
expense which it is determined by a court of competent jurisdiction was
proximately caused by its willful misconduct or its own sole negligence or
the sole negligence of its agents or employees.
(k) GENERAL REQUIREMENTS. All insurance required to be carried by Tenant
hereunder shall be with companies rated A:X, or better, in the then most
recent edition of Best's Insurance Guide and licensed to provide the relevant
insurance in the State of California. Such insurance shall be primary
insurance (and not "excess over") as respects Landlord and any other
additional insured(s) designated by Landlord and not contributory with any
other available insurance. All policies or such insurance shall each contain
an unqualified provision that the insurer will not cancel, deny renewal or
materially amend the coverage provided by such policy without first giving
Landlord and any additional insured(s) thirty (30) days' prior written
notice. All policies and certificates delivered by Tenant pursuant to this
Paragraph shall contain liability limits not less than those set forth
herein, shall list the additional insured(s) and shall specify all
endorsements and special coverages required by this Paragraph. Any insurance
required to be maintained by Tenant may be maintained by Tenant pursuant to
so-called "blanket" policies of insurance so long as (i) the Premises is
specifically identified therein (by rider, endorsement or otherwise) as
included in the coverage provided, (ii) the limits of the policy arc
applicable on a "per location" basis to the Premises and (iii) such policies
otherwise comply with the provision of this Lease. The term "term of this
Lease" shall mean, for the purposes of this Paragraph, the period commencing
on the date Tenant is given access to the Premises for any purpose through
the later of the expiration or termination of the Lease term or the date
Tenant surrenders physical possession of the Premises to Landlord. With
respect to the Comprehensive General Liability insurance required to be
obtained by Tenant under this Lease, the foregoing general requirements are
Subject to the specific requirements set forth in subparagraph (c)(ii),
above.
(l) In the event that Tenant fails to procure, maintain and/or pay for
at the times and for the durations specified in this Lease, any insurance
required by this Paragraph, or fails to carry insurance required by any
governmental requirement, Landlord may (but without obligation to do so) at
any time or from time to time, and without notice, procure such insurance and
Tenant agrees to pay the sums so paid by Landlord together with interest
thereon at the interest rate set forth in Paragraph 37(a) below, and any
costs or expenses incurred by Landlord in connection therewith, within ten
(10) days following Landlord's written demand to Tenant for such payment.
21. WAIVER OF SUBROGATION
Landlord and Tenant each hereby waives any and all rights of recovery
against the other, and against any other tenant or occupant of the Building
and the Project and against the officers, employees, agents,
representatives, customers and invitees of such other party and of such other
tenant or occupant of the Building and the Project for loss of or damage to
such waiving party or its property or the property of others under its
control, to the extent that such loss or damage is insured against under any
policy of insurance required to be carried by such waiving party pursuant to
(the provisions of this Lease (or any other policy of insurance carried by
such waiving party in lieu thereof) at the time of such loss or damage. The
foregoing waiver shall be effective whether or not a waiving party shall
actually obtain and maintain the insurance which such waiving party is
required to obtain and maintain pursuant to this Lease (or any substitute
therefor). The policies of insurance which Landlord and Tenant are required
to maintain under this Lease shall provide that the insurance company shall
waive all right of recovery by way of subrogation against either Landlord or
Tenant in connection with any damage covered by the subject policy.
22. ATTORNEYS' FEES
In the event of any legal action or proceeding brought by either party
against the other arising out of this Lease or in which this Lease is
asserted as a defense, the prevailing party shall be entitled to recover
from the other party reasonable attorneys' fees incurred in such action in an
amount determined by the court, in addition to its costs incurred in such
action, and such amounts shall be included in any judgment rendered in
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such action or proceeding. For purposes of this provision, in any unlawful
detainer or other action or proceeding instituted by Landlord based upon any
default or alleged default of Tenant hereunder, Landlord shall be deemed the
prevailing party if (a) judgment is entered in favor of Landlord or (b) prior
to trial or judgment Tenant shall pay all or any portion of the rent claimed
by Landlord, eliminate the condition(s), cease the act(s) or otherwise cure
the omission(s) claimed by Landlord to constitute a default by Tenant
hereunder. If Landlord becomes involved in any litigation or dispute,
threatened or actual, by or against anyone not a party to the Lease, but
arising by reason of or related to any act of omission of Tenant or any of
the Tenant Parties, Tenant agrees to pay Landlord's reasonable attorneys'
fees and other costs incurred in connection with the litigation or dispute
regardless of whether a lawsuit is actually filed.
23. WAIVER
No waiver by Landlord of any provision of this Lease or of any breach by
Tenant hereunder shall be deemed to be a waiver of any other provision
hereof, or of any subsequent breach by Tenant of the same or any other
provision. Landlord's consent to or approval of any act by Tenant requiring
Landlord's consent or approval shall not be deemed to render unnecessary the
obtaining of Landlord's consent to or approval of any subsequent act of
Tenant. Furthermore, any custom or practice which may develop between the
parties in the administration of this Lease shall not be construed to waive
or lessen the right of Landlord to insist upon the performance by Tenant in
strict accordance with all of the terms, covenants, agreements, conditions,
and provisions of this Lease. No act or thing done by Landlord or Landlord's
agents during the term of this Lease shall be deemed an acceptance of a
surrender of the Premises, unless done in a writing signed by Landlord.
Tenant's delivery of keys to any employee or agent of Landlord shall not
operate as a termination of this Lease or a surrender of the Premises unless
done pursuant to a written agreement to such effect executed by Landlord. The
acceptance of any rent by Landlord following a breach of this Lease by Tenant
shall not constitute a waiver by Landlord of such breach (other than the
failure to pay the particular rent so accepted) or any other breach unless
such waiver is expressly stated in a writing signed by Landlord. The
acceptance of any payment from a debtor in possession, a trustee, a receiver
or any other person acting on behalf of Tenant or Tenant's estate shall
not waive or cure a default under Paragraph 26(A)(vi) or waive the
provisions of Paragraphs 16 or 25.
24. NOTICES
All notices, requests, payments, consents or approvals ("notices") which
Landlord or Tenant may be required, or may desire, to serve on the other
shall be in writing and may be served, by personal service or as an
alternative to personal service, by mailing the same by registered or
certified mail, postage prepaid and return receipt requested, addressed as
set forth in Item 13 of the Basic Lease Provisions, or addressed to such
other address or addresses as either Landlord or Tenant may from time to time
designate to the other in the manner provided for herein. All notices shall
be deemed effective upon receipt. If personally delivered, notices shall be
deemed received at the time of delivery. If any notice is sent by mail, the
same shall be deemed delivered and received on the date of receipt or refusal
indicated on the return receipt. Any notice provided for herein may also be
sent by facsimile transmission or by any reputable overnight courier so long
as written confirmation of delivery of such notice is obtained by the
sender. In either of these cases, a confirmation copy of such notice shall be
sent by registered or certified mail, return receipt requested, and such
notice shall be deemed to be received one day after it is sent.
25. INSOLVENCY OR BANKRUPTCY
In no event shall this Lease be assigned or assignable by operation of
law and in no event shall this Lease be an asset or Tenant in any
receivership, bankruptcy, insolvency, or reorganization proceeding.
26. DEFAULTS AND REMEDIES
(a) The occurrence of any of the following shall constitute a material
default and breach of this Lease by Tenant:
(i) Any failure by Tenant to pay the rent or to make any other
payment required to be made by Tenant hereunder at the time specified for
payment. Landlord shall give Tenant three (3) days' written notice of any
such default, which notice 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, as amended;
(ii) The abandonment of the Premises by Tenant. Abandonment is
herein defined to include, but is not limited to, any absence by Tenant
from the Premises for five (5) days or longer, without notice from
Landlord being required and regardless of whether Tenant is otherwise
in default under this Lease;
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(iii) Any failure by Tenant to observe and perform any other
provision of this Lease to be observed or performed by Tenant, where such
failure continues for ten (10) days (except where a different period of
time is specified in this Lease) after written notice by Landlord to
Tenant; provided, however, that any such notice 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, as amended. If the nature of such
default is such that the same cannot reasonably be cured within such ten
(10) day period, Tenant shall not be deemed to be in default if Tenant
shall within such period commence such cure and thereafter diligently
prosecute the same to completion;
(iv) Tenant makes or has made or furnishes or has furnished any
warranty, representation or statement to Landlord in connection with this
Lease, or any other agreement to which Tenant and Landlord are parties,
which is or was false or misleading in any material respect when made or
furnished;
(v) Subject to the provisions of Paragraph 16(h) above, any
substantial portion of the assets of Tenant is transferred, or any
material obligation is incurred by Tenant, unless such transfer or
obligation is incurred in the ordinary course of Tenant's business,
or in good faith for fair equivalent consideration, or with Landlord's
consent; and/or
(vi) The making by Tenant of any general assignment for the benefit
of creditors; the filing by or against Tenant of a petition to have
Tenant adjudged a bankrupt or of a petition for reorganization or
arrangement under any law relating to bankruptcy (unless, in the case
of a petition filed against Tenant, the same is dismissed within sixty
(60) days); the appointment of a trustee or receiver to take possession
of substantially all of Tenant's assets located at the Premises or of
Tenant's interest in this Lease, where possession is not restored to
Tenant within sixty (60) days; the attachment, execution or other
judicial seizure of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease, where such seizure is not
discharged within sixty (60) days; or Tenant's convening of a meeting of
its creditors or any class thereof for the purpose of effecting a
moratorium upon or composition of its debts.
(b) In the event of any such default by Tenant, then in addition to any
other remedies available to Landlord at law or in equity, Landlord shall have
the immediate option to terminate this Lease and all rights of Tenant
hereunder by giving written notice of such intention to terminate. In the
event that Landlord shall elect to so terminate this Lease then Landlord may
recover from Tenant:
(i) the worth at the time of award of any unpaid rent which had
been earned at the time of such termination; plus
(ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss which Tenant
proves reasonably could have been avoided; plus
(iii) the worth at the time of award of the amount by which the
unpaid rent for the balance of the term of this Lease after the time of
award exceeds the amount of such rental loss that Tenant proves
reasonably could have been avoided; plus
(iv) any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course of things would be likely
to result therefrom including any amount expended by Landlord to mitigate
damages; plus
(v) the unamortized value of the Building Standard Work (as
described in Exhibit "B") made to the Premises, calculated by reference
to the length of the term of the Lease that would have remained had the
Lease not been terminated; plus
(vi) the amount of rent, if any, that is postponed or abated, as
well as the amount of any other rent or operating concession, any lease
take over obligation assumed by Landlord, any lease subsidy paid by
Landlord or any other bonus, lease cancellation payment, inducement or
concession for Tenant's entering into this Lease; and
(vii) at Landlord's election, such other amounts in addition to or
in lieu of the foregoing as may be permitted from time to time by
applicable California law.
(c) As used in subparagraphs (b)(i) and (b)(ii) above, the "worth at the
time of award" is computed by allowing interest at the rate determined
pursuant to Paragraph 37 below. As used in subparagraph (b)(iii) above, the
"worth at the time of award" is computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of
award plus one percent (1%).
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(d) In the event of any default by Tenant, Landlord shall also have the
right, with or without terminating this Lease, to re-enter the Premises and
remove all persons and property from the Premises. Such property may be
removed and stored in a public warehouse or elsewhere at the cost of and for
the account of Tenant, all in accordance with applicable California law.
(e) In the event of the abandonment of the Premises by Tenant or in the
event that Landlord shall elect to re-enter as provided above or shall take
possession of the Premises pursuant to legal proceedings or pursuant to any
notice provided by law, then if Landlord does not elect to terminate this
Lease as provided in this Paragraph 26, Landlord may from time to time,
without terminating this Lease, either recover all rental as it becomes due
or relet the Premises or any part thereof for such term or terms and at such
rental or rentals and upon such other terms and conditions as Landlord in its
sole discretion may deem advisable, with the right to make alterations and
repairs to the Premises. Election by Landlord to proceed pursuant to this
subparagraph shall be made upon written notice to Tenant and shall be deemed
an election of the remedy described in California Civil Code Section
1951.4 and, unless Landlord relets the Premises, Tenant shall have the right
to sublet or assign subject to the prior written consent of Landlord. Such
consent shall not be unreasonably withheld and shall be subject to all of
the terms and provisions of Paragraph 16.
(f) In the event that Landlord shall elect to so relet, then rentals
received by Landlord from such reletting shall be applied: first, to the
payment of any indebtedness other than rent due hereunder from Tenant to
Landlord; second, to the payment of any cost of such reletting; third, to the
payment of the cost of any alterations and repairs to the Premises; fourth,
to the payment of rent due and unpaid hereunder; and the residue, if any,
shall be held by Landlord and applied in payment of future amounts as the
same may become due and payable hereunder. Should the rent for such
reletting, during any month for which the payment of rent is required
hereunder, be less than the rent payable during that month by Tenant
hereunder, then Tenant shall pay such deficiency to Landlord immediately upon
demand therefor by Landlord. Such deficiency shall be calculated and paid
monthly. Tenant shall also pay to Landlord, as soon as ascertained, any costs
and expenses incurred by Landlord in such reletting or in making such
alterations and repairs not covered by the rentals received from such
reletting.
(g) No re-entry, removal of property or taking possession of the
Premises by Landlord pursuant to this Paragraph 26 shall be construed as an
election to terminate this Lease unless a written notice of such intention be
given to Tenant or unless the termination thereof be decreed by a court of
competent jurisdiction. Furthermore, neither Landlord's acts of maintenance
or preservation NOR its efforts to relet NOR the appointment of a receiver to
collect rents shall constitute a termination of Tenant's right to possession
unless a written notice of such intention is provided by Landlord to Tenant.
Notwithstanding any reletting without termination by Landlord because of any
default by Tenant, Landlord may at any time after such reletting elect to
terminate this Lease for any such default.
(h) In any action for unlawful detainer commenced by Landlord against
Tenant by reason of any default hereunder, the reasonable rental value of the
Premises for the period of the unlawful detainer shall be the amount of rent
reserved in this Lease for such period, unless Landlord or Tenant shall prove
to the contrary by competent evidence. The rights and remedies reserved to
Landlord herein, including those not specifically described, shall be
cumulative and, except as otherwise provided by California statutory law in
effect at the time, Landlord may pursue any or all of such rights and
remedies, or any other right available at law or equity, at the same time or
otherwise. Without limitation, Tenant acknowledges that Tenant's failure to
timely comply with the requirements of Paragraph 18(a) may result in a
lender refusing to loan Landlord funds or a buyer refusing to purchase the
Building or Project on favorable terms (or at all), causing Landlord
substantial monetary damages.
(i) All covenants and agreements to be performed by Tenant under this
Lease shall be performed by Tenant at Tenant's sole cost and expense and
without any abatement of rent. If Tenant fails to pay any sum of money, other
than rent, required to be paid by it or fails to perform any other act on its
part to be performed, and such failure continues beyond any applicable grace
period set forth in the Paragraph providing for such obligation (or if no
grace period is set forth in such Paragraph, then the applicable grace
period pursuant to this Paragraph 26), then in addition to any other remedies
provided herein Landlord may but shall not be obligated so to do, without
curing such default or waiving or releasing Tenant from any of its
obligations, make any such payment or perform any such other act on Tenant's
part, including the removal of any offending signs. Landlord's election to
make any such payment or perform any such act on Tenant's part shall not give
rise to any responsibility of Landlord to continue making the same or similar
payments or performing the same or similar acts. Tenant shall, within ten
(10) days after written demand therefor by Landlord, reimburse Landlord for
all sums so paid by Landlord and all necessary incidental costs, together
with interest thereon at the rate determined under Paragraph 37, accruing
from the date of such payment by Landlord; and Landlord shall have the same
rights and remedies in the event of failure by Tenant to pay such amounts as
Landlord would have in the event of a default by Tenant in payment of rent.
(j) Tenant hereby waives, for itself and all persons claiming by and
under Tenant, all rights and privileges which it might have had under any
present or future law, to redeem the Premises or to continue the Lease after
being dispossessed or ejected from the Premises.
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27. HOLDOVER
Tenant shall surrender possession of the Premises immediately after
the expiration of the Lease term or termination of the Lease. If Tenant or
anyone claiming under Tenant holds over after the expiration or earlier
termination of the term hereof without the express written consent of
Landlord, Tenant shall (a) become a tenant at sufferance only at the greater
of (i) two hundred percent (200%) of the Basic Annual Rent then in effect, or
(ii) two hundred percent (200%) of the then prevailing market rent then in
effect upon the date of such expiration or earlier termination (subject to
adjustment as is provided in Paragraphs 2 and 3 hereof and prorated on a
daily basis), and otherwise upon the terms, covenants and conditions herein
specified, (including, without limitation, the payment of Additional Rent) so
fir as applicable, (b) pay all damages sustained by Landlord by reason of
such holding over and (c) indemnify, defend and hold Landlord harmless from and
against any loss or liability resulting from such holding over, including,
but not limited to, any amounts required to be paid to any tenant or
prospective tenant who was to have occupied the Premises after said
termination or expiration and any related attorneys' fees and brokerage
commissions. Acceptance by Landlord of rent after such expiration or earlier
termination shall not constitute a consent to a holdover hereunder, but shall
create only a month-to-month tenancy terminable at the end of any calendar
month by not less than ten (10) days written notice given by either party to
the other party. Further, no payment of money by Tenant to Landlord after the
etrmination of this Lease by Landlord, or after the giving of any notice of
termination to Tenant by Landlord which Landlord is entitled to give Tenant
under this Lease, shall reinstate, continue or extend the term of this Lease
or shall affect any such notice given to Tenant prior to the payment of such
money, it being agreed that after the service of such notice or the
commencement of any suit by Landlord to obtain possession of the Premises,
Landlord may receive and collect when due any and all payments owed by Tenant
under the Lease, and otherwise exercise its rights and remedies. The making
of any such payments by Tenant shall not waive such notice, or in any manner
affect any pending suit or judgment obtained. The foregoing provisions of
this Paragraph are in addition to and do not affect Landlord's right of
re-entry or any other rights of Landlord hereunder or as otherwise provided
by law.
28. CONDITION OF PREMISES
Tenant acknowledges that neither Landlord nor any agent of Landlord has
made any representation or warranty with respect to the Premises, the
Building or the Project or with respect to the suitability of any part of the
Project for the conduct of Tenant's business. The taking of possession of the
Premises by Tenant shall conclusively establish that the Premises and the
Building were at such time in good and sanitary order, condition and repair.
Landlord and its agents shall not be liable for any latent defect in the
Premises or in the Building. Tenant shall give prompt notice to Landlord in
case of fire or accidents in the Premises or in the Building, or of defects
therein or in the fixtures and equipment.
29. QUIET POSSESSION
Upon Tenant's paying the rent hereunder and observing and performing all
of the covenants, conditions and provisions on Tenant's part to be observed
and performed hereunder, Tenant shall have quiet possession of the Premises
for the entire term hereof, subject to all the provisions of this Lease.
30. TENANT'S SIGNS
(a) Tenant may, at its sole cost and expense, place its signs displaying
its logo and graphics on the entrance doors to the Premises and in hallways
or elevator lobbies on floors wholly leased by Tenant. On partial floors
leased by Tenant, Tenant, at its sole cost and expense, may place its signs
on entrance doors to the Premises provided the number, size, color, style,
material and location of such signs conform to Landlord's graphics program
for the Building and Landlord shall place directional signs to the Premises,
at Tenant's expense, at a location determined by Landlord.
(b) Landlord at its own cost and expense shall place a directory board
in the Building lobby. Landlord shall cause Tenant's name to be affixed
thereto, at Tenant's cost.
(c) Unless specifically set forth to the contrary in an addendum to
this Lease, Tenant shall not place any sign on the exterior of the Building,
or within the Building if such sign may be seen from outside of (he Building
or on any Building sign monument or other device constructed for the
placement of tenant signs.
(d) All Tenant signs installed by Landlord or Tenant shall comply with
all applicable requirements of all governmental authorities having
jurisdiction and shall be installed in a good and workmanlike manner. Such
signs shall be maintained and kept in good repair at Tenant's sole cost and
expense.
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31. CONFLICT OF LAWS
This Lease shall be governed by and construed pursuant to the laws of
the State of California, and the venue of any action or proceeding under
this Lease shall be Orange County, California.
32. COMMON FACILITIES; PARKING
Tenant shall have the non-exclusive right, in common with Landlord and
other tenants and occupants of the Project and their employees, agents and
business visitors, to the use of all common facilities which constitute a
part of the Project, subject to such reasonable rules and regulations
relating to such use as Landlord may from time to time establish. Common
facilities located within the Building include any building lobby, elevators,
rest rooms, stairways and stairwells, elevator lobbies and all common
entrances, corridors, passageways and serviceways which are not located
within the Premises of Tenant or the premises of another tenant of the
Building. Common facilities located outside of the Building include
landscaping, hardscaping, a parking structure (the "Project Parking
Structure"), all sidewalks, driveways, vehicle and pedestrian entrances and
accessways, loading docks, truck tunnels, truck parking and truck turn-around
areas, vehicle and pedestrian ramps serving the Project, and any pedestrian
walkway connecting the Building and the Project Parking Structure. The common
facilities located outside of the Building but included within the
definition of the Project are those areas which are depicted on Exhibit
"A-3" attached hereto. Landlord may make changes at any time and from time to
time to the common facilities, without any liability to Tenant, and no such
change shall entitle Tenant to any abatement of rent. Landlord shall at all
times have the sole and exclusive control of the common facilities.
Tenant shall keep all common facilities free and clear of any
obstructions created or permitted by Tenant or resulting from Tenant's
operations and shall not conduct an assembly on the common facilities without
Landlord's prior consent. Nothing herein shall affect the right of Landlord
at any time to remove any persons not authorized to use the common facilities
or to prevent the use of such facilities by unauthorized persons. Landlord
reserves the right, from time to time, to (A) make alterations in or
additions to file common facilities, including without limitation,
constructing new structures or changing the location, size, shape and/or
number of the driveways, entrances, parking spaces, parking areas, loading
and unloading areas, landscape areas and walkways, (B) close temporarily any
of the common facilities of the Project for maintenance purposes as long as
reasonable access to the Premises remains available, (C) designate property
to be included in or eliminate property from the common facilities of the
Project, and (D) use the common facilities of the Project while engaged in
making alterations in or additions or repairs to the Project.
Tenant shall have such parking rights in and to parking contracts for
spaces located in the Project Parking Structure as are set forth in the
Parking Agreement attached hereto as Exhibit "E." All agreements by Tenant
and Tenant's employees for monthly usage of spaces shall be made directly
with the operator of the Project Parking Structure.
33. SUCCESSORS AND ASSIGNS
Except as otherwise provided in this Lease, all of the covenants,
conditions and provisions of this Lease shall be binding upon and shall inure
to the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns.
34. BROKERS
Tenant warrants that it has had no dealings with any real estate broker
or agent in connection with the negotiation of this Lease, excepting only
the broker named in Item 10 of the Basic Lease Provisions ("Broker"), and
that it knows of no other real estate broker or agent who is or might be
entitled to a commission in connection with this Lease. Landlord covenants
and agrees to pay all real estate commissions due in connection with this
Lease to Broker as follows: (i) Landlord shall pay to Broker an amount equal
to four percent (4%) of Basic Annual Rent and Additional Rent for the first
twelve (12) months of the term of this Lease within ten (10) days of full
execution and delivery or this Lease, and (ii) provided Tenant has not been
in default of the Lease, Landlord shall pay to Broker an amount equal to
four percent (4%) of Basic Annual Rent and Additional Rent for the second
twelve (12) months of the term of this Lease within ten (10) days of the
end of the seventeenth (17th) month of the term. Tenant agrees to pay and
hold Landlord harmless from and defend Landlord against any cost, expense or
liability for any compensation claimed by any broker, finder or agent other
than Broker employed or claiming to have been employed by Tenant in
connection with this Lease or with the negotiation of this Lease. Landlord
and Tenant acknowledge that payment shall not be a condition precedent to
recovery upon the foregoing indemnification provision.
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35. NAME
Tenant shall not, without the written consent of Landlord, use the
name, insignia or logotype of the Building or the Project for any purpose
other than as the address of the business to be conducted by Tenant in the
Premises, and in no event shall Tenant acquire any rights in or to such name,
insignia and/or logotype. Furthermore, Tenant shall not use any picture of
the Building or Project in its advertising, stationery or in any other
manner. Tenant shall, when referring to the Building, refer to the Building
by the name or address assigned thereto, from time to time, by Landlord and
shall refer to its location as the "the Offices at South Coast Plaza."
References to the Building and its location shall not be made by Tenant in
any other manner. Landlord expressly reserves the right, in its sole and
absolute discretion, at any time to change the name, insignia, logotype or
street address of the Building or the Project without in any manner being
liable to Tenant.
36. EXAMINATION OF LEASE
Submission of this instrument for examination, negotiation or signature
by Tenant does not constitute an offer to lease or a reservation of the
Premises for Tenant or an option for Tenant to lease the Premises, and it is
not effective as a Lease or otherwise until at least one counterpart, duly
executed by authorized persons of Landlord and Tenant, has been delivered to
each party thereto. Without limiting the generality of the foregoing, Tenant
acknowledges that this Lease and any material amendments hereto are subject
to the approval of Landlord's lender with respect to the Project. Promptly
upon execution of this Lease by Tenant, Landlord shall submit the same to its
lender for approval. Delivery by Landlord to Tenant of a copy of this Lease
or of any amendment hereto fully executed by Landlord and Tenant shall
constitute notice to Tenant that Landlord has obtained the approval of its
lender with respect to this Lease or such amendment.
37. INTEREST ON TENANT'S OBLIGATIONS; LATE CHARGE
(a) Any amount due from Tenant to Landlord which is not paid when due
shall bear interest at the maximum rate per annum which Landlord is permitted
by law to charge, from the date such payment is due until paid, but the
payment of such interest shall not excuse or cure any default by Tenant under
this Lease. Such rate shall remain in effect after the occurrence of any
breach or default hereunder by Tenant to and until payment of the entire
amount due.
(b) In the event Tenant is more than ten (10) days late in paying any
installment of rent due under this Lease, Tenant shall pay Landlord a late
charge equal to five percent (5%) of the delinquent installment of rent,
provided that in no event shall the amount of such late charge be less than
One Hundred Dollars ($100.00). The parties agree that it would be impractical
or extremely difficult to fix Landlord's actual damages due to a late payment
by Tenant and that the amount of such late charge represents a reasonable
estimate of the cost and expense that would be incurred by Landlord in
processing each delinquent payment of rent by Tenant and that such late
charge shall be paid to Landlord as liquidated damages for each delinquent
payment pursuant to California Civil Code Section 1671. The parties further
agree that the payment of late charges and the payment of interest provided
for in subparagraph (a) above are distinct and separate from one another in
that the payment of interest is to compensate Landlord for the use of
Landlord's money by Tenant, while the payment of a late charge is to
compensate Landlord for the additional administrative expense incurred by
Landlord in handling and processing delinquent payments. It is understood
that the payment of any late charge by Tenant and the acceptance thereof by
Landlord shall not be deemed a waiver by Landlord of its rights regarding any
default by Tenant under this Lease.
38. TIME
Time is of the essence of this Lease with respect to the performance of
every provision of this Lease in which time of performance is a factor.
39. DEFINED TERMS AND MARGINAL HEADINGS
The words "Landlord" and "Tenant" as used herein shall each include the
plural as well as the singular and, when applicable, shall refer to actions
taken by their respective representatives. If more than one person is named
as Tenant the obligations of such persons are joint and several. The headings
to the Paragraphs of this Lease are not a part of this Lease and shall have
no effect upon the construction or interpretations of any part hereof.
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40. PRIOR AGREEMENTS; SEPARABILITY
This Lease and the exhibits and any addenda hereto contain all of the
agreements of the parties hereto with respect to any matter covered or
mentioned in this Lease, and no prior agreement, understanding or
representation pertaining to any such matter shall be effective for any
purpose. No provision of this Lease may be amended or added to except by an
agreement in writing signed by the parties hereto or their respective
successors in interest. No verbal agreement or implied covenant shall be held
to vary the terms hereof, any statute, law or custom to the contrary
notwithstanding. No employee or agent of Landlord shall have authority, by
letter, memorandum or other written communication, to amend, vary or delete
any provision of this Lease or any exhibit hereto, unless such written
instrument bears the signature of Landlord. If any term or provision of this
Lease the deletion of which would not adversely affect the receipt of any
material benefit by either party hereunder shall be held invalid, illegal or
unenforceable to any extent, the remainder of this Lease shall not be
affected thereby and each term and provision of this Lease shall be valid and
enforceable to the fullest extent permitted by law.
41. TRAFFIC AND ENERGY MANAGEMENT
(a) Tenant and its employees shall comply with South Coast Air Quality
Management District Regulation 15 and any other environmental regulation
and/or program now or hereafter applicable to the Project. Landlord and
Tenant agree to cooperate and use their best efforts to participate in
governmentally mandated and voluntary traffic management programs generally
applicable to businesses located in Costa Mesa, California or to the Project
and, initially, shall encourage and support van and car pooling by office
workers and service employees and shall encourage and support staggered and
flexible working hours for employees to the fullest extent permitted by the
requirements of Tenant's business. Neither this Paragraph nor any other
provision in this Lease, however, is intended to or shall create any rights
or benefits in any other person, firm, company, governmental entity or the
public.
(b) Landlord and Tenant agree to cooperate and use their best efforts to
comply with any and all guidelines or controls imposed upon either Landlord
or Tenant by federal or state governmental organizations or by any energy
conservation association to which Landlord is a party concerning energy
management.
(c) All costs, fees and assessments and other charges paid by Landlord
to any governmental authority or voluntary association in connection with any
program of the types described in this Paragraph, and all costs and fees paid
by Landlord to any governmental authority, voluntary association or third
party pursuant to or to implement any such program, shall be included in
Operating Expenses for the purpose of Paragraph 3, whether or not
specifically listed in such Paragraph. Any breach by Tenant of any of its
covenants in this Paragraph 41 may result in penalties or fees being assessed
against Landlord or the Project. These penalties or fees shall not be part of
Building Operating Expenses or Project Operating Expenses but instead shall
be payable by Tenant on demand of Landlord.
42. CORPORATE/PARTNERSHIP/TRUST AUTHORITY
Each individual executing this Lease on behalf of Landlord and Tenant
represents and warrants that the execution and delivery of this Lease on
behalf of the party for whom such person is executing is duly authorized,
that the or she is authorized to execute and deliver this Lease and that this
Lease is binding upon such party in accordance with its terms. If Tenant is a
corporation, Tenant shall, within ten (10) days after execution of this
Lease, deliver to Landlord a certified copy of a resolution of the Board of
Directors of Tenant or any executive committee thereof authorizing or
ratifying the execution of this Lease. Failure of Tenant to provide such
resolution shall not, however, relieve Tenant of its obligations pursuant to
this Lease. If Tenant is a partnership or trust, Tenant shall deliver those
certificates or written assurances from the partnership or trust as Landlord
may reasonably request.
43. NO LIGHT, AIR OR VIEW EASEMENT
Any diminution or shutting off of light, air or view by any structure
which may be erected on lands adjacent to the Project shall in no way affect
this Lease, abate any payment owed by Tenant under the Lease, or otherwise
impose any liability on Landlord.
44. NON-DISCLOSURE OF LEASE TERMS
Landlord and Tenant agree that the terms of this Lease 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 such party, and
its respective partners, officers, directors, employees, agents, real estate
brokers and sales persons and attorneys, shall not disclose any
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<PAGE>
of the material terms and conditions of this Lease 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 Project or any portion thereof, and
either party may disclose the terms hereof to its respective independent
accountants who review its respective financial statements or prepare its
respective tax returns, to any prospective transferee of all or any portions
of their respective interests hereunder (including a prospective sublessee or
assignee of Tenant), to any lender or prospective lender to such party, to
any governmental entity, agency or person to whom disclosure is required by
applicable law, regulation or duty of diligent inquiry and in connection with
any action brought to enforce the terms of this Lease, on account of the
breach or alleged breach hereof or to seek a judicial determination of the
rights or obligations of the parties hereunder.
45. FORCE MAJEURE
Any covenants, conditions, provisions or agreements on the part of
Landlord to perform any act or thing for the benefit of Tenant shall not be
deemed breached if Landlord is unable to furnish or perform the same by
virtue of a strike, lockout, laws, rules, orders, ordinances, directions,
regulations or requirements of any federal, state, county or municipal
authority, labor trouble or any other cause whatsoever beyond Landlord's
control, nor shall Tenant's rent be abated by reason of such inability on the
part of Landlord. Whenever under the provisions of this Lease, Landlord is
required or agrees to take certain actions, Landlord's obligation shall be
deemed fulfilled if Landlord causes such action to be taken by any other
person.
46. MISCELLANEOUS
(a) At the expiration or earlier termination of this Lease, Tenant shall
execute, acknowledge and deliver to Landlord, within five (5) days after
written demand from Landlord to Tenant, any quitclaim deed or other document
which may be reasonably requested by any reputable title insurance company to
remove this Lease as a matter affecting title to the Premises on a
preliminary title report or title policy issued with respect to the Project.
(b) Tenant acknowledges that the exterior demising walls of the Premises
and the area between the finished ceiling of the Premises and the slab of
the Building floor thereabove have not been leased to Tenant and the use
thereof together with the right to install, maintain, use, repair and replace
pipes, ducts, conduits and wires leading through, under or above the Premises
in locations which will not materially interfere with Tenant's use of the
Premises are hereby reserved by Landlord.
(c) All amounts payable hereunder shall be paid in lawful money of the
United States which shall be legal tender at the time of payment. When no
other time is stated herein for payment, payment of any amount due from
Tenant to Landlord hereunder shall be made within ten (10) days after
Tenant's receipt of Landlord's invoice or statement therefor.
(d) Tenant shall, upon written request by Landlord, amend this Lease in
any manner reasonably requested by any actual or prospective ground lessor of
or lender to Landlord, provided that any such amendment shall not materially
impair any rights or remedies of Tenant hereunder.
(e) LANDLORD AND TENANT EACH ACKNOWLEDGES THAT IT HAS HAD THE ADVICE OF
COUNSEL OF ITS CHOICE WITH RESPECT TO ITS RIGHTS TO TRIAL BY JURY UNDER THE
CONSTITUTIONS OF THE UNITED STATES AND THE STATE OF CALIFORNIA. EACH PARTY
EXPRESSLY AND KNOWINGLY WAIVES AND RELEASES ALL SUCH RIGHTS TO TRIAL BY JURY
IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY AGAINST THE
OTHER ON ANY MATTERS ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE,
TENANT'S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM FOR INJURY OR
DAMAGE.
M.D. H.T.S. J.E.S CS
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Landlord's INITIALS Tenant's INITIALS
(f) This Lease may be executed in several counterparts, each of which
shall be deemed an original, but all of which shall constitute one and the
same instrument.
(g) This Lease shall be strictly construed neither against Landlord nor
Tenant.
(h) Neither this Lease nor any memorandum hereof shall be recorded by
either Landlord or Tenant.
(i) The obligations of the indemnifying party under each and every
indemnification and hold harmless provision in this Lease shall survive the
expiration or earlier termination of this Lease to and until the last to
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occur of (i) the last date permitted by law for the bringing of any claim or
action with respect to which indemnification may be claimed by the
indemnified party against the indemnifying party under such provisions or
(ii) the date on which any claim or action for which indemnification may be
claimed under such provision is fully and finally resolved and, if
applicable, any compromise thereof or judgment or award thereon is paid in
full by the indemnifying party and the indemnified party is reimbursed by
the indemnifying party for any amounts paid by the indemnified party in
compromise thereof or upon a judgment or award thereon and in defense of such
action or claim, including reasonable attorneys' fees incurred.
(j) In no event shall the review, approval, inspection or examination by
Landlord of any item to be reviewed, approved, inspected or examined by
Landlord under the terms of this Lease be deemed to be an approval of, or
representation or warranty as to, the adequacy, accuracy, sufficiency or
soundness of any such item or the quality or suitability of such item for
its intended use. Any such review, approval, inspection or examination by
Landlord shall be for the sole purpose of protecting Landlord's interests in
the Building and the Project under this Lease, and no third parties shall
have any rights pursuant thereto.
(k) The obligations of Landlord herein are intended to be binding only
on the property of the entity acting as Landlord and shall not be personally
binding, nor shall any resort be had to the private properties of the general
partners thereof or any employee or agent of Landlord. Subject to the
provisions of Paragraph 18 to the contrary, any lien obtained to enforce any
judgment obtained by Tenant against Landlord and any levy of execution
thereon shall be subject and subordinate to any lien, mortgage or deed of
trust to which Paragraph 18 applies or may apply.
47. INTENTIONALLY OMITTED
48. ADDENDA
The provisions in this Paragraph 48 shall supersede and override any
other provision in this Lease to the extent the same are inconsistent.
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EXHIBIT "A-1"
FLOOR PLAN(S) OF PREMISES
[FLOOR PLAN GRAPHIC]
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EXHIBIT "A-2"
PLOT PLAN OF BUILDING
[PLOT PLAN GRAPHIC]
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EXHIBIT "A-3"
PLOT PLAN OF PROJECT
[PLOT PLAN GRAPHIC]
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EXHIBIT "A-4"
RENTABLE AREA
The term "Rentable Area" as used in the lease to which this exhibit is
attached the "Lease") shall mean:
(a) As to each floor of the Building on which the entire space
rentable to tenants is or will be leased to one tenant (hereinafter referred
to as a "Single Tenant Floor"), Rentable Area attributable to such lease
shall be determined by the Standard Method for Measuring Floor Area in
Office Buildings ANSI Z65.1-1980 ("BOMA") provided that the Rentable Area or
the Building shall include all of (and the Rentable Area of the Premises
therefore shall include a portion of) (i) the Building lobby and (ii) any
covered or enclosed common facilities which constitute a part of the
Building and which are maintained by Landlord for the common benefit of all
tenants of the Building and the area occupied by any mechanical, heating,
ventilating and air conditioning equipment which serves the Building but
Which is located outside thereof.
(b) As to each floor of the Building on which space is or will be
leased to more than one tenant, Rentable Area attributable to each such lease
shall be determined by BOMA provided that the Rentable Area of the Premises
shall be measured from the exterior of all walls separating such premises
from any public corridors or other public areas on such floor, and the
centerline of all walls separating such premises from other areas leased or
to be leased to other tenants on such floor, and provided further that the
Rentable Area of the Building shall include all of (and the Rentable Area of
the Premises therefore shall include a portion of) (i) the area covered by
the elevator lobbies, corridors, rest rooms, mechanical rooms, electrical
rooms and telephone closets situated on the floor on which the Premises is
located; (ii) the Building lobby, and (iii) that portion of the covered or
enclosed common facilities which constitute a part of the Building and which
are maintained by Landlord for the common benefit of all tenants of the
Building and the area occupied by any mechanical, heating, ventilating and
air conditioning equipment which serves the Building but which is located
outside thereof.
(c) The Rentable Area of the Building and the Project shall be deemed
to be 283,453 square feet and 686,979 square feet, respectively, for purposes
of the Lease. The Rentable Area contained within the Premises let pursuant
to the Lease initially shall be the number of square feet set forth in Item
2 of the Basic Lease Provisions.
(d) Prior to the Commencement Date, and from time to time thereafter at
Landlord's option, Landlord shall determine the actual Rentable Area of the
Premises, the Building and the Project, respectively, which such
determinations shall be conclusive, and thereon Tenant's Building Expense
Percentage, Tenant's Project Expense Percentage and Basic Annual Rent under
the Lease shall be adjusted accordingly.
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EXHIBIT "B"
WORK LETTER AGREEMENT
[TENANT CONSTRUCTS]
In connection with the lease to which this Work Letter is attached (the
"Lease"), Landlord and Tenant hereby agree to the terms and conditions set
forth in this Work Letter relating to the construction of the tenant
improvements in the Premises ("Tenant's Work"). This Work Letter is
essentially organized chronologically and addresses the issues of the
construction of the Premises, in sequence, as such issues will arise during
the actual construction of the Premises. All capitalized terms used but not
defined herein shall have the meanings given such terms in the Lease.
1. GENERAL.
(a) The purpose of this Agreement is to set forth how Tenant's Work
(as defined in Paragraph 5 below) in the Premises is to be constructed, who
will undertake the construction of Tenant's Work, who will pay for the
construction of Tenant's Work, and the time schedule for completion of the
construction of Tenant's Work.
(b) Except as defined in this Agreement to the contrary, all terms
utilized in this Agreement shall have the same meanings ascribed to them in
the Lease. When services, consents or approvals are to be provided by or on
behalf of Landlord, the term "Landlord" shall include Landlord's agents,
contractors, employees and affiliates.
(c) The provisions of the Lease, except where clearly inconsistent or
inapplicable to this Agreement, are incorporated into this Agreement.
(d) Tenant's Work shall be constructed pursuant to this Agreement by
Tenant and at Tenant's sole expense.
2. COMMENCEMENT DATE. The "Commencement Date" of the Lease shall be as
determined pursuant to Item 8 of the Basic Lease Provisions of the Lease
and this Paragraph 2. That date has been determined based upon the
following:
(a) DESIGN PERIOD. As provided in Paragraph 3(b) below, Landlord
shall provide to Tenant (i) the Base Building Plans (as defined in Paragraph
3.B. below) for the Building and the Premises sufficient to allow Tenant to
prepare the Working Drawings (as defined in Paragraph 3(d) below) and (ii)
all rules, regulations, instructions and procedures promulgated by Landlord
with respect to tenant design and/or construction in the Building (the
"Building Requirements"). Tenant shall submit for Landlord's approval the
Space Plan for Tenant's Work in accordance with Paragraph 3(c) below.
Subsequent to approval of the Space Plan for Tenant's Work and pursuant to
the terms of Paragraph 3 below, Tenant shall prepare and submit for
Landlord's approval the Working Drawings, the Engineering Drawings (as
defined in Paragraph 3(e) below), and the Final Plans (as defined in
Paragraph 3(f) below), and shall also prepare and submit for Landlord's
approval a schedule of special finishes required by Tenant. Tenant shall
thereafter obtain all governmental approvals and permits required for Tenant
to commence Tenant's Work.
(b) CONSTRUCTION AND MOVE-IN PERIOD. Landlord shall deliver to
Tenant and its Contractor (as defined below) access to the Premises (and any
other required portions of the Building and the Project) commencing as set
forth in Paragraph 1 of the Lease Tenant shall complete all Tenant's Work in
Compliance with all applicable laws, statutes, codes, rules and regulations
(collectively, "Laws"). Tenant shall also obtain the appropriate permits
necessary to allow Tenant to commence to construct Tenant's Work continuously
and without interruption. Such period includes the time for Tenant, as a part
of Tenant's Work, to install in the Premises Tenant's freestanding work
stations, fixtures, furniture, equipment and telecommunication and computer
cabling systems, and also includes the time for Tenant to move into the
Premises.
(c) DELAY OF COMMENCEMENT DATE. Notwithstanding anything to the
contrary contained in the Lease or this Agreement, the date stated in Item 8
of the Basic Lease Provisions for commencement of the Lease term (i.e., March 1,
1997) shall be deferred (i.e., pushed later in time) by a number of days
equal to the number of days of delay in Substantial Completion (as defined
below) of Tenant's Work that is caused by any Landlord Delay, as defined
below.
(d) CERTAIN DEFINITIONS. The following terms shall have the following
meanings:
(i) The term "Landlord Delay" as used in the Lease or this
Agreement shall mean any delay in the completion of Tenant's Work which is
due to any act or omission of Landlord (wrongful, negligent or otherwise),
its agents or contractors (including acts or omissions while acting as agent
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or contractor for Tenant). The term Landlord Delay shall include, but shall
not be limited to any delay in the giving of authorizations or approvals by
Landlord beyond the time periods therefor set forth herein.
(ii) The term "Substantial Completion" shall mean: (A) Tenant
has sufficiently completed all the work required to be performed by Tenant in
accordance with this Agreement (except for minor punch list items which
Tenant shall thereafter promptly complete), and (B) Tenant has obtained a
certificate of, occupancy for the premises OR has obtained a temporary
certificate of occupancy for the Premises and has made an affirmative
covenant to Landlord that it will satisfy the conditions of such temporary
certificate of occupancy with due diligence.
(iii) The term "Lease" shall mean the entire lease document
referred to in the first paragraph of this Agreement, including the printed
lease form, the typed addenda paragraphs thereto and all exhibits thereto.
If Tenant believes that any act or omission by Landlord or any
employee or agent of Landlord is or will constitute a Landlord Delay
resulting in a delay in completion of Tenant's Work, Tenant shall
hand-deliver to Landlord a notice so stating and identifying in reasonable
detail the act or omission alleged to constitute a Landlord Delay. If
Landlord eliminates such alleged problem within forty-eight (48) hours after
receipt of such notice, then such act or omission shall not be deemed to
constitute a Landlord Delay. Nothing contained in clause (i) above shall be
deemed or construed to constitute any permitted and timely disapproval by
Landlord pursuant to this Agreement as a Landlord Delay or be deemed to
interfere with or limit Landlord's rights to schedule construction activities
at the Project for other tenants.
3. DESIGN OF TENANT'S WORK. Tenant shall arrange for design of
Tenant's Work in accordance with the following:
(a) SELECTION OF DESIGNER AND ENGINEER. In connection with the design
of Tenant's Work, Tenant shall select an architect or designer ("Designer")
and shall use an engineer designated by Landlord ("Engineer") who will
perform the work required of it hereunder at competitive rates. The Designer
and the Engineer shall each be familiar with all applicable Laws and Building
Requirements to the extent such Building Requirements are provided to Tenant
within the time specified in Paragraph 3(b) below. The Designer shall be
selected by Tenant subject to Landlord's consent, which consent shall not be
unreasonably withheld so long as each person or firm has all required state
and local licenses and reasonable experience with projects of the size and
scope of Tenant's Work. Such required approval shall be deemed given unless
Landlord shall disapprove such person or firm by written notice to Tenant
given within five (5) business days after Landlord's receipt of written
notice from Tenant to Landlord identifying such person of firm and
accompanied by a written statement as to the experience or such person or
firm. This procedure shall be repeated until the Designer is finally
approved, or deemed approved by Landlord.
(b) BASE BUILDING PLANS. Landlord shall deliver to Tenant (i)
instructions and Building plans and specifications (the "Base Building
Plans") covering the Premises and such other portions of the Building as
necessary for Tenant to design and construct Tenant's Work pursuant to this
Agreement and (ii) the Building Requirements.
(c) PREPARATION AND APPROVAL OF SPACE PLAN. Tenant shall submit to the
Designer all additional information including occupancy requirements for
the Premises ("Information") necessary to enable the Designer to prepare a
space plan showing all demising walls, corridors, entrances, exits, doors,
interior partitions, and the locations of all offices, conference rooms,
computer rooms, the reception area, file room and other support areas (the
"Space Plan") and the Working Drawings. The Designer shall incorporate
into the Working Drawings those items described in Exhibit "B" to the
Lease which Tenant is required to utilize in the construction of Tenant's
Work.
Tenant shall cause the Designer to submit to Landlord the Space
Plan for Landlord's review and approval. Landlord's approval of such
Space Plan shall not be unreasonably withheld or delayed by Landlord, and
shall be deemed given unless Landlord shall disapprove the same by written
notice to Tenant within five (5) business days after Landlord's receipt of
the same. Landlord's disapproval shall be based only upon reasonable and
material reasons (which are defined to be (i) adverse effect on the
structural integrity of the Building; (ii) possible damage to the Building
Systems; (iii) non-compliance with applicable codes and other Laws; (iv)
adverse effect on the exterior appearance of the Building; or (v)
incompatibility with the Project including its design standards and standard
materials (each, a "Design Problem")) and upon disapproval Landlord shall
return the revised Space Plan to Tenant. In such event, Landlord shall
require, and Tenant shall make, the changes necessary in order to correct the
Design Problems and shall return the revised Space Plan to Landlord, which
Landlord shall approve or disapprove within five (5) business days after
Landlord receives the revised Space Plan. This procedure shall be repeated
until the Space Plan is finally approved by Landlord and written approval has
been delivered to and received by Tenant. The Space Plan as finally approved
pursuant to this Paragraph 3(c) is herein referred to as the "Approved Space
Plan."
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(d) PREPARATION AND APPROVAL OF WORKING DRAWINGS. Promptly after
the Space Plan is finally approved by Landlord, Tenant shall submit to
Landlord drawings prepared by the Designer ("Working Drawings") which shall
be consistent with the Approved Space Plan, shall be compatible with the
design, construction and equipment of the Building, shall comply with all
Laws, shall be capable of logical measurement and construction, shall contain
all such information as may be required for the construction of Tenant's
Work, and the preparation of the Engineering Drawings, and shall contain all
partition locations, plumbing locations, air conditioning system and duct
work, special air conditioning requirements, reflected ceiling plans, office
equipment locations, and special security systems. Subject to Paragraph 14
below, such Working Drawings must incorporate the items required by Landlord
for use in the Building, as set forth in Exhibit "B" attached to the Lease.
The Working Drawings may be submitted in one or more stages and at one or
more times.
Landlord's approval of such Working Drawings shall not be
unreasonably withheld or delayed by Landlord so long as the same are
consistent with the Approved Space Plan, and shall be deemed given unless
Landlord shall disapprove the same by written notice to Tenant given within
five (5) business days after Landlord's receipt of a complete set of the
Working Drawings. Landlord's disapproval shall be based only upon Design
Problems(s) disclosed by such Working Drawings. If Landlord disapproves such
Working Drawings in the manner and within the time provided in this Paragraph
3(d), Landlord's notice of disapproval shall designate the specific changes
reasonably required to be made to the Working Drawings in order to correct
any Design Problem. Tenant shall make the changes necessary in order to
correct any such Design Problem and shall return the revised Working Drawings
to Landlord, which Landlord shall approve or disapprove within five (5)
business days after Landlord receives the revised Working Drawings. This
procedure shall be repeated until all of the Working Drawings are finally
approved by Landlord and written approval has been delivered to and received
by Tenant. The Working Drawings as finally approved pursuant to this
Paragraph 3(d) are herein referred to as the "Approved Working Drawings."
(e) PREPARATION AND APPROVAL OF ENGINEERING DRAWINGS. After the
Working Drawings are finally approved by Landlord, Tenant shall submit to
Landlord for Landlord's review and approval engineering drawings prepared by
the Engineer, showing complete mechanical, electrical, plumbing, HVAC,
telecommunication, and computer cabling plans ("Engineering Drawings"). The
Engineering Drawings may be submitted in one or more stages and at one or
more times.
Landlord shall approve the Engineering Drawings within five (5)
business days after receipt of a complete set of the same or designate by
notice given within such time period to Tenant the specific changes
reasonably required to be made to the Engineering Drawings in order to
correct any Design Problem, and shall return the Engineering Drawings to
Tenant. Tenant shall make the minimum changes necessary in order to correct
any such Design Problem and shall return the revised Engineering Drawings to
Landlord, which Landlord shall approve or disapprove within five (5) business
days after Landlord receives the revised Engineering Drawings. This procedure
shall be repeated until the Engineering Drawings are finally approved by
Landlord and written approval has been delivered to and received by Tenant.
The Engineering Drawings as finally approved pursuant to this Paragraph 3(e)
are herein referred to as the "Approved Engineering Drawings."
(f) INTEGRATION OF APPROVED WORKING DRAWINGS AND APPROVED
ENGINEERING DRAWINGS INTO FINAL PLANS. Promptly after Landlord has approved
the Approved Engineering Drawings, Tenant shall cause the Designer to
integrate the Approved Working Drawings with the Approved Engineering
Drawings (collectively, "Final Plans") and deliver the Final Plans to
Landlord. Landlord shall approve the Final Plans within three (3) business
days after receipt of a complete set of the same or designate by notice given
within such time period to Tenant the specific changes reasonably required to
be made to the Final Plans in order to correct any Design Problems and shall
return the Final Plans to Tenant. Tenant shall make the minimum changes
necessary in order to correct any such Design Problem and shall return the
revised Final Plan to Landlord, which Landlord shall approve or disapprove
within three (3) business days after Landlord receives the revised Final
Plans. This procedure shall be repeated until the Final Plans are finally
approved by Landlord and written approval has been delivered to and received
by Tenant. The Final Plans as finally approved pursuant to this Paragraph
3(f) are herein referred to as the "Approved Final Plans."
(g) GOVERNMENTAL APPROVALS. Promptly following approval of the
Approved Final Plans, Tenant shall apply for and obtain all governmental
approvals and permits required for Tenant to commence Tenants, Work.
Similarly, as and when required, Tenant shall obtain all additional
governmental permits and approvals necessary to continuation and completion
of Tenant's Work. All applications and other steps necessary to obtain such
approvals and permits shall be the sole responsibility of Tenant. However,
Landlord shall cooperate as reasonably requested from time to time without
requirement that Landlord incur any out of pocket costs or assume any
liabilities as a part of such cooperation.
4. CONTRACTOR, REVIEW OF PLANS AND CONSTRUCTION OF TENANT'S WORK.
(a) SELECTION OF CONTRACTOR. Tenant shall select a contractor
("Contractor"), subject to the approval of Landlord in writing. Such
approval shall not be unreasonably withheld so long as such
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Contractor has all required state and local licenses and has reasonable
experience with projects of the size and scope of Tenant's Work. For the
purposes of this provision, Tenant may submit for approval by Landlord up
to five (5) general contractors so that Tenant may obtain from such general
contractors competitive bids for Tenant's Work. Each such Contractor shall
be subject to approval in accordance with the standards set forth in this
Paragraph 4(a). All subcontractors shall be as selected by Tenant and its
Contractor, and as reasonably approved by Landlord.
Tenant may enter into a construction contract with the Contractor
at a mutually agreed upon price, or, at Tenant's election, in the exercise of
its sole discretion, Contractor shall be selected by Tenant pursuant to
competitive bidding. In either case, the construction contract shall provide
for progress payments.
(b) LANDLORD'S REVIEW RESPONSIBILITIES. Tenant agrees and
understands that the review of all plans pursuant to this Agreement by
Landlord is solely to protect the interests of Landlord in the Building and
the Premises, and Landlord shall not be responsible for the correctness or
accuracy of any such plans or compliance of such plans with applicable Laws.
(c) ACTUAL REVIEW COSTS. Tenant shall reimburse to Landlord
Landlord's actual and documented costs incurred in approving the Space Plan,
the Working Drawings and the Engineering Drawings. Tenant shall not pay to
Landlord any fee for profit, overhead or general conditions in connection
with the construction of Tenant's Work.
(d) CONSTRUCTION OF TENANT'S WORK. Promptly following the issuance
of all governmental approvals of Tenant's Work required for Tenant to
commence the same, Tenant shall commence Tenant's Work and shall thereafter
diligently pursue Tenant's Work to completion. Tenant's Work shall
substantially comply with the Approved Final Plans, all applicable
requirements for all governmental authorities having jurisdiction of Tenant's
Work and all applicable provisions of the Lease.
In performing Tenant's Work, Tenant, its Contractor and all
subcontractors shall access the Building and Premises from the doors and
entrances designated by Landlord. In no event shall there be any construction
traffic relating to the performance of Tenant's Work through the ground floor
lobby of the Building.
All Tenant's Work shall comply with all rules and regulations
adopted by Landlord for the safety of persons and property in and about the
Project, for the care and cleanliness of the Project and for the preservation
of the normal operations of the Project and its occupants, including but not
limited to rules and regulations regulating the usage of the Building
elevators and loading docks, the usage of staging areas outside of the
Premises and the hours during which operations involving noise, dust and
odors may be performed. Will respect to all such matters, Tenant and its
Contractor shall comply with all directions of Landlord's construction
manager.
Within three (3) business days following Substantial Completion of
Tenant's Work, Tenant's Contractor and Landlord's construction manager shall
conduct a walk-through of the Premises and compile a "punch-list" of items to
be completed, corrected or replaced. Within twenty (20) days after such
walk-through, Tenant shall cause all matters on such punch-list to be
completed, corrected or replaced as applicable.
5. TENANT'S WORK. The term "Tenant's Work" shall mean all improvements
shown in the approved Final Plans as integrated by the Designer, and, to the
extent specified in the Approved Final Plans, all signage, freestanding
workstations, built-ins, related cabinets, reception desks, conference room
tables to the extent specified in the mill work or comparable contracts, all
telecommunication equipment and related wiring, and all carpets and floor
coverings, but, except as provided above, Tenant's Work shall not include any
personal property of Tenant. In connection with the foregoing, it is
understood and agreed that Landlord shall have no construction obligation
whatsoever with respect to the Premises.
6. DELIVERY. Promptly after execution and delivery of the Lease by
Landlord and by Tenant, Landlord shall deliver to Tenant possession of the
Premises in its "as-is" condition.
7. PAYMENT FOR TENANT'S WORK. Tenant shall be solely responsible to
pay for all costs of design and construction of Tenant's Work.
8. CHANGE ORDERS. In the event that Tenant requests any changes to the
Approved Space Plan, Approved Working Drawings, Approved Engineering
Drawings or Approved Final Plans, Landlord shall not unreasonably withhold
its consent to any such changes, and shall grant its consent to such
changes within five (5) business days after Landlord's receipt of a set
thereof or portion thereof clearly indicating the changes requested,
provided the changes do not create a Design Problem. If such changes
increase the cost of constructing the Tenant's Work, Tenant shall pay
Contractor the increased costs, on a monthly basis according to the
invoices for the items relating to the changes provided by Contractor.
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9. BUILDING STANDARD ITEMS. Tenant shall integrate Landlord's Building
Standard items in the Tenant Work. Tenant may substitute for such Building
Standard items of equal or higher quality at Tenant's election. All such
items shall be subject to the approval process provided for in this
Agreement.
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EXHIBIT "C"
RULES AND REGULATIONS
1. The sidewalks, entrances, lobby, passages, courts, elevators,
vestibules, stairways, corridors and halls of the Building and Project
shall not be obstructed or used for any purpose other than ingress and
egress. The halls, passages, entrances, lobby, elevators, stairways,
balconies and roof are not for the use of the general public, and Landlord
shall in all cases retain the right to control and prevent access thereto
by all persons whose presence, in the judgment of Landlord, shall be
prejudicial to the safety, character, reputation and interests of the
Project and its tenants, provided that nothing herein contained shall be
construed to prevent such access to persons with whom Tenant normally deals
only for the purpose of conducting its business on the Premises (such as
clients, customers, office suppliers and equipment vendors, and the like)
unless such persons are engaged in illegal activities in the Project.
Neither Tenant nor any employee of Tenant shall go upon the roof of the
Building without the prior written consent of Landlord.
2. No awnings or other projections shall be attached to the outside
walls of the Building. No curtains, blinds, shades or screens shall be
attached to or hung in, or used in connection with, any window or door of the
Premises other than Landlord's standard drapes. All electric ceiling fixtures
hung in offices or spaces along the perimeter of the Building must be
fluorescent, of a quality, type, design and bulb color approved by Landlord.
Neither the interior nor the exterior of any windows shall be coated or
otherwise sunscreened without the written consent of Landlord. No hanging
planters, television sets or other objects shall be attached to or suspended
from the ceiling by any tenant without the prior written consent of Landlord.
3. Except as provided in Paragraph 30 of the Lease, no sign,
advertisement, notice or handbill shall be exhibited, distributed, painted
or affixed by Tenant on, about or from any part of the Premises, the
Building or the Project without the prior written consent of Landlord. If
Landlord shall have given such consent at the time, whether before or
after the execution of the Lease, such consent shall in no way operate as a
waiver or release of any of the provisions hereof or of the Lease, and
shall be deemed to relate only to the particular sign, advertisement or
notice so consented to by Landlord and shall not be construed as dispensing
with the necessity of obtaining the specific written consent of Landlord
with respect to each and every such sign, advertisement or notice other
than the particular sign, advertisement or notice, as the case may be, so
consented to Landlord. In the event of the violation of the foregoing by
Tenant, Landlord may remove or stop same without any liability, and may
charge the expense incurred in such removal or stoppage to Tenant. Interior
signs on doors and directory tablets shall be inscribed, painted or
affixed for Tenant by Landlord at Tenant's expense, and shall be of a size,
color, material and style acceptable to Landlord. The directory tablet will
be provided exclusively for the display of the names and locations of
tenants only and Landlord reserves the right to exclude any other names
therefrom. Nothing may be placed on the exterior of corridor walls or
corridor doors other than Landlord's standard lettering.
4. The sashes, sash doors, skylights, windows and doors that reflect or
admit light and air into hills, passageways or other public places in the
Building shall not be covered or obstructed by Tenant, nor shall any bottles,
parcels or other articles be placed on the windowsills. Tenant shall see that
the windows, transoms and doors of the Premises are closed and securely
locked before leaving the Building and must observe strict care not to leave
windows open 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. Tenant shall cooperate with Landlord in obtaining
maximum effectiveness or the cooling system by closing blinds when the sun's
rays fall directly on the windows of the Premises. Tenant shall not tamper
with or change the setting of any thermostats or temperature control valves
installed by Landlord. All lights in Tenant's premises shall be turned off at
night and on weekends and holidays when such premises are not in use.
5. The toilet rooms, water and wash closets and other plumbing fixtures
shall not be used for any purpose other than those for which they were
constructed, and no sweepings, rubbish, rags, or other substances shall be
thrown therein. All damages resulting from any misuse of the fixtures shall
be borne by the tenant who, or whose subtenants, assignees or any of whose
servants, employees, agents, visitors or licensees shall have caused the same.
6. Tenant shall not mark, paint, drill into, or in any way deface any
part of the Premises, the Building or the Project. No boring, cutting or
stringing of wires or laying of linoleum or other similar floor coverings or
painting or wood staining of fixtures or equipment shall be permitted, except
with the prior written consent of Landlord and only as Landlord may direct.
The location of telephone boxes, call boxes and other equipment affixed to
any premises shall be subject to Landlord's approval.
7. No bicycles, vehicles, birds or animals of any kind, other than those
assisting handicapped persons, shall be brought into or kept in or about
the Premises, and no cooking shall be done or permitted by Tenant in the
Premises, except that the preparation of coffee, tea, hot chocolate and
similar items for Tenant and its employees shall be permitted provided
power shall not exceed that amount which can be provided by a 30 amp
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circuit. Tenant shall not cause or permit any unusual or objectionable
odors to be produced or permeate from its Premises.
8. The premises shall not be used for manufacturing or for the storage of
merchandise except as such storage may be incidental to the permitted use of
the Premises. Tenant shall not occupy or permit any portion of the Premises
to be occupied as an office for a public stenographer or typist, or for the
manufacture or sale of liquor, narcotics, or tobacco (including a cigarette
vending machine for use by Tenant's employees) in any form, or as a medical
office, or as a barber or manicure shop, or as an employment bureau without
the express prior written consent of Landlord. Tenant shall not engage or pay
any employees on the Premises except those actually working for Tenant on
the Premises nor advertise for laborers giving an address at the Premises.
The Premises shall not be used for lodging or sleeping or for any immoral or
illegal purposes.
9. 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, unusual noise, or in any other
way. Tenant shall not throw anything out of doors, windows or skylights or
down the passageways.
10. No Tenant, or subtenant or assignee of Tenant, if any, nor any of
their servants, employees, agents, visitors or licensees shall at any time
bring or keep upon any premises any inflammable, combustible or explosive
fluid, chemical or substance.
11. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by Tenant, nor shall any changes be made in existing
locks or the mechanisms thereof. Tenant must, upon the termination of its
tenancy, restore to Landlord all keys to stores, offices, and toilet rooms,
either furnished to or otherwise procured by Tenant, and in the event of the
loss of keys so furnished, Tenant shall pay to Landlord the cost of replacing
the same or of changing the lock or locks opened by any lost key if Landlord
shall deem it necessary to make such changes.
12. All removals, and the carrying in or out of any safes, freight,
furniture, and bulky matter of any description must take place during the
hours which Landlord shall determine from time to time, and shall not be done
without the express written consent of Landlord. The moving of safes and
other fixtures and bulky matter of any kind must be done upon previous notice
to the manager of the Building and under such person's supervision, and the
persons employed by Tenant for such work must be acceptable to Landlord.
Landlord reserves the right to inspect all safes, freight and other bulky
articles to be brought into the Building and to exclude from the Building all
safes, freight and other bulky articles which violated any of these Rules and
Regulations or the Lease. Landlord reserves the right to prescribe the weight
and position of all safes, which must be placed upon supports approved by
Landlord to distribute the weight. No tenant shall place a load upon any
floor which exceeds the load per square foot which such floor was designed to
carry and which is allowed by law. Tenant shall be responsible for all
damages occasioned by its movement into or out of the Building of any item
described in this paragraph. All safes, freight and other bulky articles
shall be taken into and removed from the Premises solely on the freight
elevator of the Building and the freight loading and unloading areas adjacent
thereto.
13. Tenant shall not purchase spring water, ice, towels, janitorial or
maintenance or other like services from any person or persons not approved by
Landlord and only at hours and under regulations fixed by Landlord.
14. Landlord shall have the right to prohibit any advertising by Tenant
which, in Landlord's opinion, tends to impair the reputation of the Building
or the Project or the desirability of the Project as an office location.
Upon written notice from Landlord, Tenant shall refrain from or discontinue
such advertising.
15. Landlord reserves the right to exclude from the Building from 6:00
p.m. to 8:00 a.m. on weekdays, after 12:00 noon on Saturdays and at all hours
on Sunday and legal holidays all persons who are not known to the Building
personnel and who do not present a pass to the Building approved by Landlord.
Landlord will furnish passes to persons for whom Tenant requests the same in
writing. Tenant shall be responsible for all persons for whom it requests
passes and shall be liable to Landlord for all acts of such persons. Landlord
shall in no case be liable for damages for any error with regard to the
admission to or exclusion from the Building of any person. In case of an
invasion, mob riot, public excitement or other circumstances rendering such
action advisable in Landlord's opinion, Landlord reserves the right without
any abatement of rent to require all persons to vacate the Building and to
prevent access to the Building during the continuance of the same for the
safety of Tenant and the protection of the Building and the property in the
Building, and no such action by Landlord shall entitle Tenant to any
abatement of rent. Tenant shall observe all security regulations issued by
Landlord and shall comply with all instructions and/or directions of Building
personnel.
16. Any persons employed by any tenant to do janitorial work shall, while
in the Building and outside of the Premises, be subject to and under the
control and direction of the manager of the Building (but not as an
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agent or servant of such manager or of Landlord), and such tenant shall be
responsible for all acts of such persons.
17. All doors opening onto public corridors shall be kept closed, except
when in use for ingress and egress. Tenant shall not prop open or block open
entrance doors to the Building, service doors to the Building or elevator
doors.
18. The requirements of tenants will be attended to only upon application
to the Office of the Building. Employees of Landlord shall not perform any
work outside of their regular duties except under special instructions from
Landlord.
19. Canvassing, soliciting and peddling in the Building and Project are
prohibited and Tenant shall report any such activity to Landlord and
otherwise cooperate to prevent the same.
20. All office equipment of any electrical or mechanical nature shall be
placed by Tenant in the Premises in settings approved by Landlord to absorb
or prevent any vibration, noise and annoyance.
21. No air conditioning unit or other similar apparatus shall be
installed or used by Tenant without the written consent of Landlord.
22. There shall not be used in any space, or in the elevators and public
halls of the Building, either by Tenant or others, any hand trucks except
those equipped with rubber tires and rubber side guards.
23. No vending machine or machines of any description shall be
installed, maintained or operated upon the Premises without the prior written
consent of Landlord.
24. The scheduling of any tenant move-ins shall be subject to the
reasonable discretion of Landlord.
25. If Tenant desires fiber optic, telephone or telegraph connections,
Landlord will direct electricians as to where and how the wires are to be
introduced. No boring or cutting for wires or otherwise shall be made without
directions from Landlord.
26. The term "personal goods or services vendors" as used herein means
persons who periodically enter the Building for the purpose of selling
goods or services to Tenant, other than goods or services which are used
by Tenant only for the purpose of conducting its business on the Premises.
"Personal goods or services" include, but are not limited to, food items,
drinking water and other beverages, food, barbering services and
shoeshining services. Landlord reserves the right to prohibit personal
goods and services vendors from access to the Building except upon such
reasonable terms and conditions, including but not limited to the payment
of a reasonable fee and provision for insurance coverage, as are related to
the safety, care and cleanliness of the Building, the preservation of good
order therein, and the relief of any financial or other burden on Landlord
occasioned by the presence of such vendors or the sale by them of personal
goods or services to Tenant or its employees. If necessary for the
accomplishment of these purposes, Landlord may exclude a particular vendor
entirely or limit the number of vendors who may be present at any one time
in the Building.
27. It shall be the responsibility of each tenant to provide its
employees with keys to its premises. Landlord will under no circumstances
open any premises for any tenant or its employees.
28. Smoking or carrying a lighted cigar, cigarette or pipe anywhere in
the interior of the Building is prohibited. Smoking is also prohibited in the
common areas of the Project, except for those specific areas designated in
writing by Landlord. The location of such areas shall be determined by
Landlord in its sole discretion. Landlord hereby reserves the right from time
to time to designate substitute smoking areas within the common areas in its
sole discretion.
29. No waiver of any rule or regulation by Landlord shall be effective
unless expressed in writing and signed by Landlord. Landlord may waive any
one or more of these rules for the benefit of a particular tenant or tenants,
but no such waiver by Landlord shall be construed as a waiver of such rules
in favor of any other tenant or tenants, nor prevent Landlord from thereafter
enforcing any such rules against any or all tenants of the Building.
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EXHIBIT "D"
TENANT'S CERTIFICATE
Two Town Center Associates
3315 Fairview Road
Costa Mesa, CA 92626
Attn: General Partner
Gentlemen:
The undersigned does hereby state, declare, represent and warrant as
follows:
1. The undersigned tenant ("Tenant") has entered into a certain lease
dated ________________________, 19__ (the "Lease") with Two Town Center
Associates, a joint venture ("Landlord"). The Lease covers certain premises
commonly known as Suite __, ________________________, Costa Mesa, CA 92626
(the "Building") and more particularly described in the Lease (the
"Premises").
2. The Lease is in full force and effect and has not been modified,
amended, supplemented or changed, except as set forth, if at all, on Exhibit
"A" attached hereto and all provisions of the Lease and the modifications,
amendments, supplements or changes set forth on Exhibit "A" attached hereto,
if any, are hereby ratified by Tenant. If no amendments are described on
Exhibit "A," then Tenant certifies that there are no amendments,
modifications, supplements or changes to the Lease. Such Lease and any
amendments described on Exhibit "A" constitute the entire agreement between
Landlord and Tenant as to the leasing of the Premises.
3. The commencement date of the Lease was ___________________, 19___
(the "Commencement Date"). Basic Annual Rent and Additional Rent in the full
amounts required by the Lease are payable from the Commencement Date except
as set forth, if at all, on Exhibit "A." Basic Annual Rent and Additional
Rent have been paid through ________________.
4. Tenant has accepted possession of the Premises and is now in
occupancy thereof.
5. The terms of the Lease to be performed by Landlord through the date
hereof have been fully satisfied, including without limitation, all
improvement work to be performed by Landlord with respect to the Premises.
Tenant acknowledges that such work has been completed in all respects.
Landlord has fulfilled all of its duties of an inducement nature, and all
required contributions by Landlord to Tenant on account of improvements by
Tenant to the Premises have been paid and received.
6. As of this date there are no defaults by Landlord pursuant to the
Lease. Tenant has no defenses with respect to its obligations under the
Lease and claims no setoff or counterclaim against Landlord except as set
forth in Exhibit "B" if any.
7. Basic Annual Rent and Additional Rent have not been paid in advance
of the due dates therefor except as set forth, if at all, on Exhibit "A." A
security deposit in the amount of $____________ is required by the Lease and
has been deposited with Landlord. Basic Annual Rent and Additional Rent due
through the date hereof have been paid in full except as set forth, if at
all, on Exhibit "A."
8. Tenant has not assigned its interest in the Lease or sublet the
Premises or any portion thereof except as set forth, if at all, on Exhibit
"A."
9. Tenant is not in violation of any of its obligations nor in breach of
any of its covenants concerning the use of hazardous substances as provided
for in the Lease.
10. Tenant acknowledges that the Lease is now subject to or may in the
future become subject to an assignment of Landlord's interest therein to
Landlord's lender with respect to the Building ("Lender"). In connection
with such assignment, Tenant acknowledges and agrees that:
(a) Lender may rely upon the statements contained in this
Certificate to the same extent as if this Certificate were addressed to
such Lender.
(b) No amendments, modifications, supplements or changes to the
Lease shall be effective without the written consent of such Lender.
(c) Upon receipt of written notice from the Lender, Tenant agrees
to make all payments of Basic Annual Rent and Additional Rent thereafter
coming due to Lender.
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(d) Tenant shall, in writing, notify Lender of any defaults by
Landlord pursuant to the Lease which would entitle Tenant to cancel the
Lease or to abate the rent payable thereunder. Such notice to Lender
shall be given at the same time as notice is given to Landlord.
Dated: _______, 199__
TENANT:
------------------------------------
By
---------------------------------
Title
------------------------------
By
--------------------------------
Title
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EXHIBIT "A"
1. Amendments, modifications, supplements to Lease:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(If None, so state)
2. Rent Abatement:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(If None, so state)
3. Prepaid Rent:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(If None, so state)
4. Rent in Default:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(If None, so state)
5. Assignments and sublettings:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(If None, so state)
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EXHIBIT "E"
PARKING AGREEMENT
Subject to the parking entitlements, if any, set forth in the lease to
which this Parking Agreement is attached (the "Lease") and subject to
availability, and further subject to compliance with the following Rules and
Regulations, so long as the Lease remains in effect and subject to
availability, Tenant or employees of Tenant shall be entitled to purchase up
to thirty-four (34) parking contracts for spaces in the Project Parking
Structure in an amount as determined by Landlord. The Project Parking
Structure is depicted on Exhibit "A-3." All or part of any unreserved or
unassigned parking spaces may be assigned to, made available to, or reserved
by Landlord for other tenants or users of the Project, if Landlord determines
that such action is necessary for orderly and efficient parking. Tenant shall
pay a charge for the use of such parking contracts at the monthly rental
rates of $100.00 for reserved parking contracts and $60.00 per month for
unreserved parking contracts. Tenant may validate visitor parking by such
method(s) as Landlord or Landlord's parking operator may approve, at the
validation rate from time to time generally applicable to visitor parking.
Landlord expressly reserves the right to redesignate or modify any portion of
the Project Parking Structure for other uses or to any extent.
The parking spaces hereunder shall be provided on an unreserved
"first-come, first-served" basis. Tenant acknowledges that Landlord has or
may arrange for the Project Parking Structure to be operated by an
independent contractor, not affiliated with Landlord. In such event, Tenant
acknowledges that Landlord shall have no liability for claims arising through
acts or omissions of such independent contractor. Landlord shall have no
liability whatsoever for any damage to property or any other items located in
the Project Parking Structure, nor for any personal injuries or death arising
out of any matter relating to the Project Parking Structure, and in all
events, Tenant agrees to look first to its insurance carrier and to require
that Tenant's employees look to their respective insurance carriers for
payment of any losses sustained in connection with any use of the Project
Parking Structure. Tenant hereby waives on behalf of its insurance carriers
all rights of subrogation against Landlord or Landlord's agents.
All persons utilizing the Project Parking Structure shall comply with this
Parking Agreement, including any parker identification system(s) established
by Landlord's parking operator. The following Rules and Regulations are in
effect until Landlord notifies Tenant of any change. Landlord reserves the
right to modify and/or adopt such other reasonable and non-discriminatory
rules and regulations for the Project Parking Structure as it deems
necessary. Landlord may refuse to permit any person who violates this Parking
Agreement to park in the Project Parking Structure. Any violation of this
Parking Agreement shall subject the violator's car to removal from the
Project Parking Structure at the violator's expense. Upon the termination of
any person's parking privileges under this Parking Agreement, Tenant shall
cause all parker identification devices supplied to such person by Landlord
to be returned to Landlord.
RULES AND REGULATIONS
1. Project Parking Structure hours will be from 6:00 a.m. to 2:30 a.m.
2. Cars must be parked entirely within the stall lines painted on the
floor.
3. All directional signs and arrows must be observed.
4. The speed limit shall be 5 miles per hour.
5. Parking is prohibited:
(a) in areas not striped for parking,
(b) in aisles,
(c) where "no parking" signs are posted,
(d) on ramps,
(e) in parking spaces marked as "reserved" for tenants other than Tenant,
(f) in cross hatched areas, or
(g) in such other areas as may be designated by Landlord or Landlord's
parking operator.
6. Parking stickers or any other device or form of identification supplied
by Landlord shall remain the property of Landlord. Such parking
identification devices must be displayed as requested and may not be
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mutilated in any manner. The serial number of the parking identification
device may not be obliterated. Devices are not transferable and any device
in the possession of an unauthorized holder will be void. There will be a
replacement charge payable by Tenant or a person designated by Tenant equal
to the amount posted from time to time by Landlord for loss of any parking
sticker.
7. The monthly charge for rental of a parking space shall be payable in
advance on or prior to the first day of each month. Failure to do so will
automatically cancel parking privileges and a late charge at the rate
charged by Landlord from time to time shall be due. No deductions or
allowances from the monthly charge will be made for days a parker does not
use the parking space rented by him or her.
8. Landlord's parking operator and its employees are not authorized to make
or allow any exceptions to these Rules and Regulations.
9. Every parker is required to park and lock his or her own car. All
responsibility for damage to cars or persons is assumed by the parker.
10. Loss or theft of parking identification devices from automobiles shall
be reported to the Landlord's parking operator immediately, and a lost or
stolen report must be filed by the customer at that time. Any parking
identification device reported lost or stolen found on any unauthorized car
will be confiscated and the illegal holder will be subject to prosecution.
Lost or stolen devices found by a parker must be reported to Landlord's
parking operator immediately to avoid confusion.
11. No more than one vehicle may be parked in any one parking space.
Washing, waxing, cleaning or servicing of any vehicle by a parker and/or
his or her agents is prohibited.
12. Landlord and Landlord's parking operator reserve the right to refuse
the sale of monthly stickers or other parking identification devices to
any person who willfully refuses to comply with these Rules and Regulations
and all applicable city, state or federal ordinances, laws or agreements.
13. Tenant shall acquaint all persons to whom Tenant assigns parking spaces
with these Rules and Regulations.
14. Notwithstanding anything in this Parking Agreement to the contrary,
persons who desire to rent parking spaces in the Project Parking Structure
shall be required to pay a $25.00 deposit for each magnetic parking card
issued to them by Landlord. Such deposit shall be paid at the time the
parking card is issued. Such deposit shall be forfeited if the parking
card is lost. Such deposit shall be returned, without interest, at the
time each such person ceases utilizing the parking space provided by
Landlord upon surrender of such person's parking card. Landlord reserves
the right to charge an amount in excess of the $25.00 deposit to replace
lost parking cards, if such increase becomes necessary in Landlord's
reasonable judgment to prevent creation of a so-called "black market" in
parking cards. Landlord shall post notices of any such increase(s).
15. Handicapped and visitor stalls shall be used only by handicapped
persons or visitors, as applicable.
16. In the event that, from time to time, the Project Parking Structure is
renovated or replaced, in whole or in part, Landlord shall have the right
to reasonably relocate Tenant's parking privileges to other parking
facilities within the vicinity of the Project on a temporary basis.
17. Parking on any driveways, access roads, turn-arounds and curbsides
located throughout the Project and the common areas is strictly prohibited.
Landlord shall have the right to cause any vehicles which are parked or
otherwise left unattended in such areas to be towed away at the vehicle
owner's expense.
2
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THE OFFICES OF SOUTH COAST PLAZA
ORANGE COUNTY'S CENTRAL BUSINESS DISTRICT
May 6, 1997
COSTA MESA MASTER LEASE AGREEMENT
Mr. Chad Steelberg
IMGIS Corporation
611 Anton Boulevard, Suite 400
Costa Mesa, Ca 92626
RE: RENT COMMENCEMENT
Dear Mr. Steelberg:
In accordance with Paragraph 1 of your Lease with Two Town Center Associates,
we would like to confirm your premises were tendered to you on January 6,
1997. Your Rent Commencement Date is March 1, 1997, and your Lease
Commencement Date is March 1, 1997. This letter will also confirm the initial
Lease Expiration Date of February 28, 1999.
The rentable area of your suite premises for purposes of the Lease is 10,219
square feet as actually measured. The initial annual minimum rent at the rate
of $13.00 per square foot and all other appropriate charges will be based on
that rentable area. Landlord acknowledges receipt of $100,000.00 in prepaid
Basic Annual Rent.
In accordance with Paragraph 3; ADDITIONAL RENT, of your Lease we hereby
provide you with a written estimate of the operating expenses and your
proportionate share thereof for the calendar year 1997.
In accordance with Paragraph 17 (c); ESTOPPEL CERTIFICATES, please indicate
your agreement by executing and returning a copy of the accompanying Tenant's
Certificate and copy of this letter within ten (10) days from this date.
Very truly yours,
/s/ Stanley D. Taeger
Stanley D. Taeger
Director, Office Property Management
ACCEPTED BY:
-------------------------------
IMGIS, Corporation
-------------------------------
Title
-------------------------------
Date
/mb
Enclosure
cc: N. Sherman, Ranch/Master File
C. Hernandez, Ranch/Lease Administrator
Tenant File
695 Town Center Drive - Suite 600 - Costa Mesa, California 92626
(714) 435-2100 - Fax (714) 668-0972
<PAGE>
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO LEASE (the "Amendment") is made and entered
into as of the 18th day of February, 1999 by and between FIFTH STREET
PROPERTIES, LLC, a Delaware limited liability company ("Landlord"), and IMGIS,
Inc. (dba AdForce, Inc.), a California corporation ("Tenant"), with respect
to the following:
RECITALS
A. Landlord's predecessor in interest and Tenant entered into a
certain written lease dated December 20, 1996 (the "Original Lease"), as
amended by that certain First Amendment to Lease dated February 18, 1998 (the
"First Amendment"). The Original Lease and the First Amendment are
collectively referred to as the "Lease". The Lease covers certain premises
commonly known as Suites 400 and 475 (the "Premises"), 611 Anton Boulevard
(the "Building"), Costa Mesa, California.
B. Pursuant to the terms hereof, Landlord and Tenant desire to extend
the term of the Original Lease and to expand the Premises to include Suites
450 and 550 (hereinafter individually referred to by suite number and
collectively referred to as the "Additional Premises"), which Additional
Premises consists of 5,505 square feet of Rentable Area in the aggregate.
Suite 450 consists of 1,212 square feet of Rentable Area and Suite 550
consists of 4,293 square feet of Rentable Area. The Additional Premises shall
be approximately as depicted on Exhibit "A" attached to this Amendment.
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 Original Lease. The term of the Lease with
respect to Suite 450 shall commence on March 1, 1999 (the "Suite 450
Effective Date"). The term of the Lease with respect to Suite 550 shall have
a target commencement date of April 15, 1999 but shall have an actual
commencement date, subject to the provisions of Exhibit "B", on the earlier of
(i) Substantial Completion of Landlord's work pursuant to Exhibit "B", (ii)
the date upon which Landlord would have completed Landlord's work but for
delays in construction caused by Tenant or (iii) upon such date as Tenant
takes possession of and commences use of Suite 550 for the conduct of its
normal business operations, (the "Suite 550 Effective Date"). Within thirty
(30) days following the date of commencement of the term for Suite 550,
Landlord and Tenant shall execute a supplemental agreement, in letter form,
setting forth the Suite 550 Effective Date. Notwithstanding the foregoing,
failure of Tenant to execute such supplemental agreement shall
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not affect Landlord's determination of the Suite 550 Effective Date in
accordance with this Amendment.
(b) If Tenant delays Landlord in the construction of Suite 550
pursuant to Exhibit "B", Landlord shall tender Suite 550 to Tenant upon
written notice stating that, except for such delays caused by Tenant, Suite
550 will be or would have been ready for occupancy on the date specified in
such notice. The date set forth in such notice shall be the Suite 550
Effective Date, regardless of whether Tenant takes possession of Suite 550 on
such date.
(c) The target commencement date stated in Paragraph 1(a) above,
is an estimated date by which Landlord's work will be completed as provided
in Exhibit "B". If Landlord is unable to tender possession of Suite 550 on
that 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. In the event
that Landlord delivers Suite 550 after April 15, 1999, the term of the Lease
as to all space shall be extended one (1) day for each day of such delay in
delivery such that the term for all space is a full five (5) years following
the Suite 550 Effective Date.
(d) Landlord's sole construction obligation under this Amendment
is set forth in Exhibit "B" and Landlord shall have no other obligation to
otherwise modify or prepare any of the Additional Premises for occupancy by
Tenant. Landlord and Tenant acknowledge that Landlord shall use diligent
efforts to commence and complete such construction of Suite 550 as promptly
as practicable.
(e) The term of the Lease shall be extended for forty-five (45)
days so as to expire on April 14, 2004. The term as to the Additional
Premises shall be co-terminus with the Premises and shall expire on April 14,
2004. There shall be no option to further extend the term of the Lease.
(f) Tenant's security deposit shall be increased by $17,051.28
payable concurrently with Tenant's execution and delivery of this Amendment
to Landlord.
2. RENT. Rent shall be as follows:
(a) From the Suite 450 Effective Date until termination, Basic
Annual Rent for Suite 450 shall be at the rate of $25.00 per square foot of
Rentable Area (approximately $2.08 per square foot per month). Therefore,
Basic Annual Rent for Suite 450 during such period shall be $30,300.00
($2,525.00 per month).
(b) From the Suite 550 Effective Date until termination, Basic
Annual Rent for Suite 550 shall be at the rate of $25.00 per square foot of
Rentable Area (approximately $2.08 per square foot per month). Therefore,
Basic Annual Rent for Suite 550 during such period shall be $107,325.00
($8,943.75 per month).
(c) In addition, Tenant shall continue to pay all Additional Rent
provided for in the Original Lease. Pursuant to the provision of Exhibit
"A-4" of the Original Lease, Landlord has caused the Building and the Project
to be remeasured utilizing Stevenson's Systems, Inc., an independent
contractor ("Stevenson"). Stevenson has determined the building to be 299,263
square feet of Rentable Area and the Project to be 720,633 square feet of
Rentable Area. Therefore, commencing on January 1, 1999, to and until the
Effective Date, Additional Rent shall be based upon the Rentable Area of
Premises, or 12,857 square feet and utilizing the Building Expense
Percentage of 4.5223% and Project Expense Percentage of 1.8780%. From the
Suite 450 Effective Date until the
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Suite 550 Effective Date, Additional Rent shall be based upon the Rentable
Area of the Premises and Suite 450, or 14,069 square feet and utilizing the
Building Expense Percentage of 4.9486% and the Project Expense Percentage of
2.0551%. From the Suite 550 Effective Date until expiration of the term,
Additional Rent shall be based upon the Rentable Area of the Premises and the
Additional Premises or 18,362 square feet and utilizing the Building Expense
Percentage of 6.4587% and the Project Expense Percentage of 2.6821%.
(d) For the period following the original expiration date of the
Original Lease (February 28, 2004), Basic Annual Rent for the original
Premises shall be increased to the same rate as then applicable for the
Additional Premises.
3. IMPROVEMENTS TO ADDITIONAL PREMISES.
(a) Landlord shall deliver Suite 450 in its then existing "AS-IS"
condition on or about February 1, 1999. Landlord shall have no obligation
with respect to any improvement or modification of such space and Tenant
shall be responsible for any such modifications which shall be undertaken in
full compliance with the terms and conditions of the Original Lease.
(b) Prior to delivery of Suite 550 to Tenant, Landlord shall
improve the space pursuant to the provisions of Exhibit "B" attached hereto
and made a part hereof.
4. TERMS AND CONDITIONS FOR THE ADDITIONAL PREMISES. From and after
the Suite 450 Effective Date and the Suite 550 Effective Date, respectively,
Tenant shall hold and occupy Suite 450 and Suite 550 upon all of the terms
and conditions of the Original Lease as amended by this Amendment and, in the
event of any inconsistency between the Original Lease, the First Amendment
and this Amendment, the provisions of this Amendment shall control.
5. MODIFICATIONS TO ORIGINAL LEASE.
(a) Notwithstanding the provisions of Paragraph 6(c) of the
Original Lease to the contrary, Tenant may make cosmetic alterations to the
Premises, as expanded, without securing Landlord's prior written consent
provided: (i) such modifications shall cost not more than $10,000 during any
calendar year of the term; (ii) such modifications are in the nature of
normal and usual office improvements; and (iii) such modifications do not
affect any of the mechanical electrical or plumbing systems of the Building and
are not visible from the exterior of the Building. Further, in cases where
Landlord's consent is required, Landlord shall advise Tenant at the time of
such consent whether or not Landlord will require removal of such improvement
at expiration of the term.
(b) Notwithstanding anything in Paragraph 14 of the Original Lease
to the contrary, in the event that Tenant is notified by Landlord of the fact
that within twelve (12) months of any damage or destruction of the Premises,
as expanded, and/or the Building or any part thereof so as to preclude
Tenant's use of the Premises, Tenant cannot be given reasonable use of, and
access to, a fully repaired and restored Premises and Building (except for
minor "punch-list" items which will be repaired promptly thereafter), and the
utilities and services pertaining to the Building and the Premises, as
expanded, all suitable for the efficient conduct of Tenant's business
therefrom, then Tenant may elect to exercise a right to terminate the Lease
upon ten (10) days written notice sent to Landlord at any time within a
period of thirty (30) days following Tenant's receipt of Landlord's notice as
specified above. If Tenant gives timely notice of termination as provided
above, this Lease shall terminate thirty (30) days after Landlord's receipt of
Tenant's notice of termination.
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(c) Notwithstanding the provisions of Paragraph 16(d) of the
Original Lease, any profits realized by Tenant in connection with such
transaction shall be handled in accordance with the provisions hereof. As a
condition to Landlord's consent to any assignment or sublease, Landlord and
Tenant shall equally share any quote "profits" which may result from such
assignment or sublease. For purposes herein, "profits" shall mean the "rent"
or "consideration" (as such terms are defined in Paragraph 16(d) of the
Original Lease) received from the assignee or subleasee during the sublease
term or on account of the assignment, less: (i) the gross revenue paid to
Landlord by Tenant during the period of the sublease term or during the
assignment; (ii) any brokers commissions paid in connection with such
transaction.
(d) Notwithstanding the provisions of Paragraph 26(a)(ii) of the
Original Lease to the contrary, the Premises, as expanded, shall be
considered "abandoned" only if Tenant is absent from such Premises, as
expanded, for five (5) days or longer and Tenant is otherwise in default
under the Lease.
(e) Notwithstanding the provisions of Paragraph 27 of the Original
Lease to the contrary, as to the Additional Premises only, and only for the
first sixty (60) days of any such holdover of all or any portion of the
Additional Premises, the holdover rental rate shall be one hundred fifty
percent (150%) of the Basic Annual Rent and Additional Rent than in effect.
Thereafter, the holdover rates shall be as provided in Paragraph 27 of the
Original Lease.
(f) With respect to Paragraph 44 of the Original Lease, it is
understood and agreed that Tenant may disclose the Lease to the United States
Securities and Exchange Commission and as may thereafter be required in
connection with Tenant offering its stock for sale to the public.
6. BROKERS. Except for Landlord's agent South Coast Plaza, 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.
7. 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.
8. 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 Original Lease or First Amendment, as applicable.
9. LEASE IN EFFECT. Landlord and Tenant acknowledge and agree that
the Original Lease, as amended by the First Amendment and this Amendment, is
in full force and effect in accordance with its terms.
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<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
Second Amendment to Lease as of the day of actual receipt by Landlord.
FIFTH STREET PROPERTIES, LLC, IMGIS CORPORATION (dba AdForce, Inc.),
a Delaware limited liability company a California corporation
By: CWP Capital Management, LLC By: /s/ [ILLEGIBLE]
a Delaware limited liability company ---------------------------------
Title: EVP & CFO
------------------------------
By: /s/ [ILLEGIBLE]
------------------------
Its: CFO By: /s/ [ILLEGIBLE]
-------------------- --------------------------------
Title: VP/GC
By: /s/ Alison M. Garcia -----------------------------
------------------------
"TENANT"
Its: SVP
-------------------
"LANDLORD"
APPROVED AS TO FORM
PILLSBURY MADISON & SUTRO LLP
BY: /s/ [ILLEGIBLE]
-------------------------
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<PAGE>
EXHIBIT "A"
FLOOR PLAN OF ADDITIONAL PREMISES
[FLOOR PLAN]
FLOOR 5
Comerica Bank Tower
811 Anton Blvd.
Costa Mesa, CA
[FLOOR PLAN]
EXHIBIT "A" FLOOR 4
Comerica Bank Tower
<PAGE>
EXHIBIT "B"
WORK LETTER
In connection with the Amendment to which this Work Letter is attached
(the "Amendment"), Landlord and Tenant hereby agree to the terms and
conditions set forth in this Work Letter relating to the construction of the
tenant improvements in Suite 550 (the "Tenant Improvements"). This Work
Letter is essentially organized chronologically and addresses the issues of
the construction of Suite 550, in sequence, as such issues will arise during
the actual construction of Suite 550. All capitalized terms used but not
defined herein shall have the meanings given such terms in the Lease.
SECTION 1.
CONSTRUCTION DRAWINGS FOR SUITE 550
Landlord and Tenant have mutually approved (i) a space plan for Suite 550
(the "Space Plan") and (ii) the notes and specifications set forth in such
space plan (collectively, the "Approved Space Plan"). Within three (3) days
of the date of execution of this Amendment by Tenant, Tenant shall cooperate
in good faith with Landlord's architects and engineers to supply such
information necessary to allow the Landlord's architects and engineers to
complete the architectural and engineering drawings for Suite 550, and the
final architectural working drawings in a form which is in compliance with
ADA (including any special requirements as a result of Tenant's
employer-employee obligations under ADA, and complete to allow subcontractors
to bid on the work and to obtain all applicable permits and in a manner
consistent with the Approved Space Plan (collectively, the "Approved Working
Drawings"). Landlord shall construct, at Landlord's cost, the Tenant
Improvements pursuant to the Approved Working Drawings, provided, however, in
no event shall Landlord's obligation for the payment of Tenant Improvements
exceed $90,550.00. In connection with the Tenant Improvements, it is
understood and agreed that Landlord's obligation for the payment of costs,
subject to the maximum, shall be limited to costs to design, engineer and
construct Suite 550 including all professional service fees, labor and
materials relative to the installation of permanent improvements in Suite 550
including architectural fees and contractor fees. Tenant shall make no
changes or modifications to the Approved Space Plan or to the Approved
Working Drawings without the prior written consent of Landlord, which consent
may be withheld in Landlord's reasonable discretion if such change or
modification would delay, directly or indirectly, Substantial Completion (as
such term is defined in Section 2, below) of construction of the Tenant
Improvements, would be inconsistent with the Approved Space Plan or would
increase the cost of designing or constructing the Tenant Improvements when
compared to the cost incurred by Landlord in using the quality of the "Building
Standard Items" described on Schedule "1" attached hereto to the extent
depicted on the Approved Space Plan or is otherwise inconsistent with ADA. Any
such increased cost or costs in excess of Landlord's maximum obligation,
shall be paid by Tenant to Landlord within five (5) days after Landlord's
written request for payment.
SECTION 2.
SUBSTANTIAL COMPLETION
The term "Substantial Completion" means that Landlord has completed the
Tenant Improvements and other work that it is obligated to perform pursuant
to this Work Letter, and that this work shall be deemed complete,
notwithstanding the fact that minor details of construction, mechanical
adjustments
<PAGE>
or decorations which do not materially interfere with Tenant's use of Suite
550 remain to be performed (items normally referred to as "Punch-List
Items"). Suite 550 shall be deemed to have achieved Substantial Completion
even though Tenant's furniture, telephones, telexes, telecopiers, photocopy
machines, computers and other business machines or equipment have not been
installed, the purchase and installation of which shall be Tenant's sole
responsibility.
Tenant shall notify Landlord and Contractor within three (3) business
days after Substantial Completion of Suite 550 and in any event prior to
Tenant's occupancy of Suite 550, of any Punch-List Items which need to be
completed or corrected, and Landlord shall cause such Punch-List Items to be
completed or corrected within a reasonable time thereafter.
SECTION 3.
CONTRACTOR'S WARRANTIES AND GUARANTIES
Landlord will upon completion of the Tenant Improvements and after
Tenant's acceptance of Suite 550 assign to Tenant all warranties and
guaranties by the contractor who constructs the Tenant Improvements (the
"Contractor") relating to the Tenant Improvements, and Tenant hereby waives
all claims against Landlord relating to, or arising out of the construction
of, the Tenant Improvements. Such warranties and guaranties of Contractor
shall guarantee that the Tenant Improvements shall be free from defects in
workmanship and materials for a period of not less than one (1) year from
date of completion thereof, and Contractor shall be responsible for the
replacement and repair, without additional charge, of the Tenant Improvements
that shall become defective within one (1) year after Substantial Completion
of Suite 550. The Contractor shall be selected by Landlord.
SECTION 4.
COMPLETION OF THE TENANT IMPROVEMENTS:
COMMENCEMENT DATE
Consistent with the provisions set forth in Paragraph 1 of the
Amendment, if there shall be a delay or there are delays in the Substantial
Completion of Suite 550 as a direct, indirect, partial, or total result of:
(a) Tenant's failure to timely approve any matter requiring Tenant's
approval;
(b) A breach by Tenant of the terms of this Work Letter, this
Amendment or the Original Lease;
(c) Tenant's request for changes in the Approved Space Plan or
Approved Working Drawings;
(d) Tenant's requirement for materials, components, finishes or
improvements which are not available in a commercially reasonable time given
the anticipated date of Substantial Completion of Suite 550, as set forth in
the Amendment, or which are different than Landlord's Building Standard Items;
(e) Any other acts or omissions of Tenant, or its agents, or employees;
2
<PAGE>
then, notwithstanding anything to the contrary set forth in the Amendment or
this Work Letter and regardless of the actual date of the Substantial
Completion of Suite 550, the Suite 550 Effective Date shall be deemed to be
the date the Suite 550 Effective Date would have occurred if no Tenant delay
or delays, as set forth above, had occurred.
SECTION 5.
MISCELLANEOUS
5.1 TENANT'S ENTRY INTO SUITE 550 PRIOR TO SUBSTANTIAL COMPLETION.
Provided that Tenant and its agents do not interfere with Contractor's work
in the Building and Suite 550, Contractor shall allow Tenant access to Suite
550 prior to the Substantial Completion of Suite 550 (but if such access is
to be prior to the issuance of a certificate of occupancy of the Building by
the City of Costa Mesa, then such access shall be only as allowed by the City
of Costa Mesa) for the purpose of Tenant installing overstandard equipment or
fixtures (including Tenant's data and telephone equipment) in Suite 550.
Prior to Tenant's entry into Suite 550 as permitted by the terms of this
Section 5.1, Tenant shall submit a schedule to Landlord and Contractor, for
their approval, which schedule shall detail the timing and purpose of
Tenant's entry. Tenant shall hold Landlord harmless from and indemnify,
protect and defend Landlord against any loss or damage to the Building or
Suite 550 and against injury to any persons caused by Tenant's actions
pursuant to this Section 5.1.
5.2 FREIGHT ELEVATORS. Landlord shall, consistent with its
obligations to other tenants of the Building, and subject to the needs of
Landlord with respect to any construction or alteration of the Base, Shell
and Core of the Building, make the freight elevator reasonably available to
Tenant in connection with initial decorating, furnishing and moving into
Suite 550.
5.3 TENANT'S REPRESENTATIVE. Tenant has designated Nadine Franczyk as
its sole representative with respect to the matters set forth in this Work
Letter, who, until further notice to Landlord, shall have full authority and
responsibility to act on behalf of the Tenant as required in this Work Letter.
5.4 LANDLORD'S REPRESENTATIVE. Landlord has designated Bob Goodwin as
its sole representative with respect to the matters set forth in this Work
Letter, who, until further notice to Tenant, shall have full authority and
responsibility to act on behalf of the Landlord as required in this Work
Letter.
5.5 INSURANCE REQUIREMENTS. All of Tenant's agents shall carry excess
liability and Products and Completed Operation Coverage insurance, each in
amounts not less than $500,000 per incident, $1,000,000 in aggregate, and in
form and with companies as are required to be carried by Tenant as set forth
in Paragraph 20 of the Original Lease, and the policies therefor shall insure
Landlord and Tenant, as their interests may appear, as well as the Contractor,
and shall name as additional insureds Landlord and all mortgagees of the
Building. Tenant's agents shall maintain the foregoing insurance coverage in
force until the Tenant Improvements are fully completed, except for Products
and Completed Operation Coverage insurance, which is to be maintained for ten
(10) years following completion of Contractor's work and acceptance by
Landlord and Tenant. All insurance maintained by Tenant's agents shall
preclude subrogation claims by the insurer against any one insured
thereunder. Such insurance shall provide that it is primary insurance as
respects the Landlord and that any other insurance maintained by Landlord is
excess and not contributing with the insurance required hereunder.
3
<PAGE>
5.6 TIME OF THE ESSENCE IN THIS WORK LETTER. Unless otherwise
indicated, all references herein to a "number of days" shall mean and refer
to calendar days. In such instances where Tenant is required to approve or
deliver an item, if no written notice of approval is given or the item is not
delivered within the stated time period, at Landlord's sole option, at the
end of such period the item shall automatically be deemed approved or
delivered by Tenant and the next succeeding time period shall commence.
5.7 TENANT'S LEASE DEFAULT. Notwithstanding any provision to the
contrary contained in this Amendment, if an event of default as described in
Paragraph 26 of the Original Lease, or a default by Tenant under this Amendment
or this Work Letter, has occurred at any time on or before the Substantial
Completion of Suite 550, then (i) in addition to all other rights and remedies
granted to Landlord pursuant to the Original Lease, as amended, Landlord shall
have the right to cause Contractor to cease the construction of Suite 550 (in
which case, Tenant shall be responsible for any delay in the Substantial
Completion of Suite 550 covered by such work stoppage as set forth in Section 4
of this Work Letter), any and all other obligations of Landlord under the terms
of this Work Letter shall be forgiven until such time as such default is cured
pursuant to the terms of the Lease.
4
<PAGE>
SCHEDULE "1"
BUILDING STANDARD ITEMS
(1) PARTITIONS. 2-1/2", .25 G.A metal studs @ 24" on center with
one layer of 5/8", type "x" gypsum wallboard each side.
(2) DOORS. Solid core oak doors.
(3) DOOR FRAMES. Painted aluminum door frames with locksets and
with hinges painted to match.
(4) PAINT. Two coats latex flat paint in colors to be selected by
Tenant from the Building Standard selection, with not more than two (2) colors
to be in any one room or office.
(5) ACOUSTICAL CEILING. Suspended 2'x2' regular acoustical ceiling
with fissured tiles throughout the Premises, except in passenger and service
elevator lobby areas, and public restrooms, where Landlord may choose to
specify other types of materials.
(6) LIGHT FIXTURES. 2'x4' four (4) tube 40-watt miser recessed
fluorescent return air lighting fixtures with acrylic prismatic lenses.
(7) EXIT SIGN/LIGHT. Per code.
(8) FIRE SPRINKLERS. Pendant type head with chrome finish per code.
(9) FIRE EXTINGUISHER CABINETS. Potter-Roemer, Inc., firehose
cabinet flush mounted (paint to match adjacent surface), #7020-1-F-VB, bronze
glass, vertical black lettering recessed 9" x 24" x 5-1/4", extinguisher
#3005, 5 lbs.
(10) LIFE SAFETY SPEAKERS. Per base building architectural
specifications.
(11) HVAC. The HVAC system is variable volume system.
(12) CARPET. Carpeting in elevator lobbies and common corridors on
all multiple-tenancy office floors in color and type as selected by Landlord;
carpeting within office space as required and selected by Tenant from
Building Standard selection.
(13) DRAPERIES. Draperies on all exterior office windows in color and
type as selected by Landlord.
<PAGE>
ADFORCE-TM- SERVICE AGREEMENT 24/7 Media Agreement
- --------------------------------------------------------------------------------
This Service Agreement ("Agreement") is entered into as of January 1, 1999 (the
"Effective Date") between 24/7 Media, Inc., a Delaware corporation with its
principal executive offices at 1250 Broadway, New York, New York 10001-3701
("24/7 Media"), and Imgis, Inc., d/b/a "AdForce," a California corporation with
offices at 10590 North Tantau Avenue, Cupertino, CA 95014 ("AdForce").
1. ADFORCE SERVICE DEFINITION. The AdForce service is an Internet advertising
administration system that will allow 24/7 Media to manage advertising
across its network of multiple Web sites. As part of the AdForce service,
AdForce will provide 24/7 Media the AdForce client application ("Client"),
through which 24/7 Media will be able to (a) generate ad tags, (b) schedule
advertising to run in the online environments in which 24/7 Media places
those ad tags, and (c) generate reports on such advertising. In addition,
AdForce will maintain an AdForce server complex from which AdForce will
electronically deliver advertising scheduled by 24/7 Media to the online
environments containing the ad tags placed by 24/7 Media. 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 other third party chosen by AdForce.
2. ADFORCE SERVICE. (a) GENERALLY. The AdForce service includes the
targeting features and reports listed in Exhibit A. AdForce will use best
efforts to accommodate 24/7 Media's custom report requests; any custom
reports agreed to by both parties will be developed by AdForce at the rate
set forth on Exhibit A. Features added to the AdForce service in the
future (e.g. demographic targeting, behavior tracking) may be included
without charge in the AdForce service, or in AdForce's sole discretion, be
subject to additional fees. The AdForce services include the functionality
described in Section 1 and Exhibit A, plus telephone client services
support from the hours of 6 a.m. to 6 p.m., Pacific Standard Time,
Monday-Friday, excluding major holidays. AdForce will also maintain 24 x 7
technical service support via phone, cell phone or pager. Pricing for the
AdForce service is detailed in Exhibit A. AdForce will exercise all
commercially reasonable efforts at all times to correct errors in the
Client and in software used to operate the AdForce server complex.
(b) CERTAIN TECHNICAL AND INTEGRATION SUPPORT. (i) AdForce
shall participate when reasonably requested, in technical meetings with
24/7 Media staff, and shall furnish 24/7 Media within ninety (90) days from
the Effective Date a production monitoring page and access to AdForce's
customer issues tracking system (excluding in either case metrics or issues
unique to non-24/7 Media customers or campaigns). (ii) AdForce will use
commercially reasonable efforts to design and implement, at 24/7 Media's
request and at 24/7 Media's expense on a time and materials basis, an
interface to access 24/7 Media's Profilz database to enable 24/7 Media, on
an exclusive basis, to deliver targeted advertising to its customers.
Promptly following execution of this Agreement, and at 24/7 Media's
request, AdForce and 24/7 Media personnel will develop a plan and budget
for such development, and determine any incremental pricing to be charged
by AdForce for ad management and delivery on such new service. AdForce
shall not, however, be precluded in any way from developing its own
targeting advertising products or from cooperating with third parties on
other advertising services or products, whether targeted or otherwise.
(iii) AdForce is presently delivering advertisements on behalf of 24/7
Media using a combination of 24/7 Media ad tags and AdForce ad tags.
AdForce agrees to cooperate with 24/7 Media in good faith to convert any
existing AdForce ad tags to 24/7 Media ad tags, and that 24/7 Media may use
the AdForce system to generate 24/7 Media ad tags for all future 24/7 Media
campaigns.
(c) CAPACITY. Provided 24/7 Media provides AdForce the
impression forecasts referenced in Section 3 below, and that 24/7 Media
meets its guarantee (or compensates AdForce for impression deliveries short
of the guarantee) provided in Section 3 below, AdForce covenants and
warrants it will have the capacity to serve properly on behalf of 24/7
Media the impression volumes requested by 24/7 Media in its impression
forecasts.
3. 24/7 MEDIA OBLIGATIONS. 24/7 Media agrees to implement 24/7 Media ad tags
using the process described in the AdForce User Guide and Help
documentation. Should the average file size of 24/7 Media's advertisements
exceed [*] kilobytes, as reasonably determined by AdForce on a monthly
basis, 24/7 Media agrees to pay the incremental fee listed in Exhibit A to
compensate for AdForce's higher bandwidth costs. 24/7 Media agrees to
provide AdForce quarterly volume forecasts (with expected monthly volumes)
of Impressions to be delivered using the AdForce service; these forecasts
will be provided no later than thirty (30) days prior to the beginning of
each calendar quarter. Finally, 24/7 Media agrees that during the Term
(as defined in Exhibit A below) hereof, 24/7 Media will manage and deliver
through the AdForce service not less than [*] percent ([*]%) of the
impressions anticipated in its quarterly forecasts; if, for any reason
other than AdForce's default, 24/7 Media fails to deliver this guaranteed
amount, 24/7 Media will pay to AdForce the difference between [*] of the
guaranteed amount and the amount actually served, multiplied by the
applicable CPM rate set forth on Exhibit A.
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SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
4. OWNERSHIP/LIMITATIONS ON USE. Subject to the terms and conditions of this
Agreement, 24/7 Media will have the right to use the Client in its offices
solely for purposes of using the AdForce service. AdForce shall at all
times have sole and exclusive ownership of all right, title and interest in
and to such Client and the AdForce service as a whole, any enhancements
thereto and in any materials and data AdForce provides to 24/7 Media.
Notwithstanding anything contained elsewhere in this Agreement, the parties
acknowledge that 24/7 Media owns the domain name www.247media.com and that
this ownership shall survive the termination of this Agreement. 24/7 Media
may not copy, modify, alter, sell, distribute or sublicense the Client 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
Client, nor authorize or contract with third parties to do the same.
5. DATA RIGHTS. All data AdForce collects or stores in managing and delivering
ads for 24/7 Media which specifically pertain to 24/7 Media or its
customers and is used for designing, scheduling or administering campaigns,
generating reports and generating future media plans, including information
about sites in the media plan, impression limits, ad costs, creatives,
campaign results, click-through rates or transaction rates (collectively
"Campaign Data"), shall be owned by and is proprietary and confidential to
24/7 Media. Accordingly, AdForce may not use such Campaign Data for any
purpose where such data can be specifically associated with the identity of
24/7 Media or its clients; provided, however, that AdForce may use such
Campaign Data for reporting where such information is aggregated with
information from other AdForce customers and/or not specifically
identifiable as 24/7 Media information. Further, 24/7 Media shall own all
data collected or stored as a side effect of serving or tracking ads that
is not Campaign Data ("Clickstream Data"). However, AdForce can use
Clickstream Data for any purposes that do not expose Campaign Data to any
third party, and will not be required to store such information for more
than twelve (12) months. 24/7 Media may request at any time during the
term of the Term Sheet, or any renewal term, to receive copies of
Clickstream Data from AdForce. AdForce will supply such data at the
following rates: $[*] per month for files delivered daily, $[*] per
month for files delivered monthly for the preceding month, and $[*] for
files generated in the preceding 12 months (provided 24/7 Media makes the
request within thirty (30) days of the end of such year).
6. CONFIDENTIALITY. Any 24/7 Media passwords to AdForce, AdForce user guides,
the AdForce Client, and the AdForce "help" documentation, whether on-line
or in printed form, are confidential and proprietary to AdForce. As
indicated above, all Campaign Data is proprietary and confidential to 24/7
Media. 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.
7. INDEMNIFICATION. (a) 24/7 MEDIA. Subject to subsection (b), 24/7 Media
shall indemnify and hold harmless AdForce from any liability and damages
and costs (including reasonable costs and attorneys' fees) arising out of
or relating to advertising placed by 24/7 Media using the AdForce service,
including, without limitation, failure of the AdForce service or the
Client, content, libel, invasion of privacy, and rights of publicity;
provided: (i) AdForce promptly notifies 24/7 Media of such claims; (ii)
24/7 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) AdForce renders all assistance required.
(b) ADFORCE. AdForce shall indemnify and hold harmless 24/7
Media from any third party claims and liabilities for infringement arising
out of or relating to 24/7 Media's use of the Client pursuant to this
Agreement, provided that: (i) 24/7 Media promptly notifies AdForce of such
claims; (ii) AdForce 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) 24/7 Media renders all assistance required. If an
injunction is entered against 24/7 Media's use of the Client, AdForce will,
at its option, (A) obtain a license permitting such use, (B) modify the
Client to avoid the infringement, or (C) if it cannot reasonably do either
of the foregoing, terminate 24/7 Media's access to the Client and this
Agreement.
8. WARRANTY. 24/7 Media warrants that it is free to enter into this Agreement
and that this Agreement constitutes the valid and binding obligation of
24/7 Media, enforceable in accordance with its terms. AdForce warrants that
it is free to enter into and perform this Agreement and, except for events
beyond AdForce's control, including but not limited to Internet service
disruptions or access outages and other events of force majeure, (a) the
AdForce service will conform in all material respects to the functionality
described in Sections 1 and 2; (b) AdForce 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 United States federal or state intellectual
property rights of any third party.
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SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
Y2K. AdForce warrants to 24/7 that without any requirement for any
human intervention whatsoever (i) the overall operation, functions and
performance of the AdForce system will employ in connection with its
obligations under this Agreement (the "AdForce System") will be unaffected
in any way by any date data, date setting, date value, date input or other
date related data and any combination thereof (collectively with records
using such data, the "DATE DATA"), whether falling on, after or before
September 9, 1999, December 31, 1999 or January 1, 2000 (collectively, the
"MILLENNIUM DATES"); (ii) the AdForce System will correctly and accurately,
without human intervention, store, define, merge, archive, display,
recognize, return, manage, extract, support, calculate, compare,
manipulate, interpret, sort, accept, sequence, tag, present and conduct any
other operation or process on, any Date Data, will not abnormally end as a
result of Date Data, will not result in or cause logical or mathematical
errors or inconsistencies in any user-interface functionalities or
otherwise, and will move backwards and forwards across Date Data without
error relating to or occasioned by Date Data; and (iii) the AdForce System
shall correctly accommodate same century and multi-century formulas in data
calculations, shall process two digit century Date Data and the fields
assigned special values in a manner that correctly resolves any ambiguities
as to intended century date and shall correctly reflect each century in
Date Data values and Date Data interface values, and the AdForce System
does and will have the ability to properly interface with internal and
external applications or systems of third parties with whom AdForce
exchanges data electronically, including vendors, suppliers, customers,
banks and governmental agencies. AdForce warrants to 24/7 that the AdForce
System shall conform to the warranties in this SECTION from and at all
times during the term of this Agreement, before, on or after a Millennium
Date, regardless of whether 24/7 uses the AdForce System on, before or
after a Millennium Date.
EXCEPT AS SPECIFIED IN THIS SECTION 8, ADFORCE 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.
9. LIABILITY. EXCEPT IN CASES OF WILLFUL MISCONDUCT, NEITHER PARTY WILL BE
LIABLE FOR CONSEQUENTIAL, INCIDENTAL, SPECIAL OR EXEMPLARY DAMAGES, EVEN IF
IT HAS BEEN WARNED OF THE POSSIBILITY OF SUCH DAMAGES.
10. TERMINATION. The term of this Agreement is as described in Exhibit A.
Either party may terminate this Agreement in the event that the other party
ceases to do business, or undergoes a bankruptcy or insolvency proceeding,
or an assignment for the benefit of creditors. Upon the expiration or
termination of this Agreement for any reason, the parties will use best
efforts to effect an orderly transition of 24/7 Media to another ad serving
solution, and each party will return all Confidential Information of the
other party in its possession. All accrued payment obligations of 24/7
Media shall survive expiration or termination of the Agreement, as shall
the parties' rights and obligations under Sections 4 through 9, Sections 11
through 13, and Sections 15 and 16.
11. 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 (a) by operation of law, or (b) to any
entity acquiring substantially all of assignor's assets. 24/7 Media
specifically consents to AdForce's March/April 1999 reincorporation into
Delaware.
12. PAYMENT TERMS. 24/7 Media shall pay to AdForce the dollar amounts
determined from the pricing schedule set forth in Exhibit A within [*]
([*]) days from date of invoice. All payments to AdForce 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.
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 New York 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.
14. SERVICE GUARANTEES. 24/7 Media may demand "make-goods," (free ad
deliveries for ads not delivered during down times exceeding the allowable
amounts) for: (i) failure of ad delivery to maintain [*]% up time,
calculated on a
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<PAGE>
calendar monthly basis, for four (4) consecutive calendar months; (ii)
failure of the AdForce administration system to maintain [*]% up time,
excluding reasonable scheduled downtime and events beyond AdForce's
reasonable control, calculated on a calendar monthly basis, for four (4)
consecutive calendar months; (iii) failure to maintain average AdForce ad
selector internal response time for ad delivery at equal to or less than
[*] ([*]) milliseconds, calculated on a calendar monthly basis, for four
(4) consecutive months; (iv) persistent documented failure of AdForce's
customer support to 24/7 Media over four (4) consecutive calendar months;
and (v) AdForce's failure to provide technical support for any period in
excess of [*] ([*]) consecutive business days.
15. NON-SOLICITATION. For a period commencing on the date hereof and
terminating [*] ([*]) months after the end of the Term, neither party may
solicit employees of the other, nor hire any employees or ex-employees of
the other within sixty (60) days following termination of employment with
the other party. Further, during the Term hereof, AdForce agrees not to
solicit Web sites in the 24/7 network for any purpose, including the
providing of ad serving services or for purchasing registration or other
data, without the written consent of 24/7 Media.
16. DISPUTE RESOLUTION. Any controversy or claim arising out of or relating to
this Agreement, or the breach hereof, shall be settled exclusively by
arbitration, and neither party shall under any circumstance cease
performance of its obligations under the Agreement notwithstanding any
alleged breach by the other. Such arbitration shall be conducted before a
single arbitrator in accordance with the Commercial Arbitration Rules of
the American Arbitration Association then in effect. The arbitration shall
take place in Palo Alto, California, if commenced by 24/7 Media and in New
York, New York, if commenced by AdForce. Judgment may be entered on the
arbitrator's award in any court having jurisdiction, and the parties
irrevocably consent to the jurisdiction of the California and New York
courts for that purpose. The parties waive personal service in connection
with any such arbitration; any process or other papers under this provision
may be served outside California or New York by registered mail, return
receipt requested, or by personal service, provided a reasonable time for
appearance or response is allowed. The decision of the arbitrator shall be
final and binding on the parties. The parties shall equally divide all
costs of the American Arbitration Association and the arbitrator. Each
party shall bear its own legal fees in any dispute. The arbitrator may
grant injunctive or other relief.
17. INTERNATIONAL SUPPORT. AdForce is presently serving ads for 24/7 Media
Europe Ltd. out of its data center in California pursuant to a contract
with Euroserve Media GmbH. , AdForce will make every commercially
reasonable effort to ensure adequate support of 24/7 Media in Europe.
AdForce shall supplys such services under direct contract with 24/7 Media
Europe Ltd. and shall provide such services on a most favored nation basis
for contracts entered into for ad delivery in Europe.
18. PUBLICITY AdForce and 24/7 agree to consult with one another prior to
making any disclosures, publicly or privately, about this Agreement.
AdForce and 24/7 agree that neither party shall issue a press release
announcing this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of January 1,
1999 (the "Effective Date").
By: /s/ Accepted: /s/
------------------------- -----------------------------
Print Name: C. Andrew Johns Name: Rex S. Jackson
-------------------- -----------------------------
Title: EVP & CFO Title: VP/GC
-------------------- -----------------------------
Company: 24/7 Media, Inc. Imgis, Inc., d/b/a "AdForce"
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REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
EXHIBIT A
REPORTING AND TARGETING
REPORTS AVAILABLE - The following reports are currently available in the
AdForce service:
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>
ALL OTHER REPORTS CURRENTLY PROVIDED BY ADFORCE TO 24/7 MEDIA.
ADFORCE TARGETING CAPABILITIES - The ADFORCE 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 of
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 domain types.
- SERVICE PROVIDER - Different campaigns can be delivered to visitors
with different ISPs.
- TELEPHONE AREA CODE - Different ads can be delivered to visitors in
different area codes.
- SIC CODE - Different ads 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 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 search
word or phrase.
- SITE DATA - Ads can be targeted on the basis of a site's data (i.e.
with registered users).
Page 5 of 6
<PAGE>
- 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.
TERM; LEVEL OF SERVICE. The initial term ("Term") shall commence on the
Effective Date and end on the fifth (5th) anniversary of such date;
provided, however, that at any time 24/7 Media may terminate this Agreement
for any reason, or for no reason, by giving AdForce three (3) months prior
written notice of its election to terminate. 24/7 Media may renew this
Agreement for subsequent one (1) year terms by giving written notice to
AdForce within ninety (90) days from expiration of the Term, or any renewal
term.
24/7 Media agrees to pay AdForce for all Impressions delivered through the
AdForce service after the Effective Date at the applicable rate set forth
below, which shall be subject to change upon renewal of this Agreement.
<TABLE>
<CAPTION>
ADFORCE SERVICE
----------------------------------------------
<S> <C>
Campaign Management Scheduling
Features Delivery
Inventory Forecast
Reporting
Targeting
----------------------------------------------
Auditing Free monthly audit
</TABLE>
-------------------------------------------------------------
CPMs for Ad Delivery
-------------------------------------------------------------
1/1/99-3/31/99: all ads, [*]
-------------------------------------------------------------
On or after 4/1/99: first [*] ads, [*]
-------------------------------------------------------------
Remainder of term: [*]
-------------------------------------------------------------
- - Beginning April 1, 1999: Buttons (ad size limit [*] kilobytes) will be
$[*] CPM. House ads and unpaid ads that are redirected will be $[*]
CPM, subject to a maximum cap of [*] percent ([*]%) of volume in any
given month; any excess will be billed at $[*] CPM. Unpaid ads that
are served directly will be $[*] CPM, subject to a maximum cap of [*]
percent ([*]%) of volume in any given month; any excess will be billed
at $[*] CPM.
- - AdForce pricing and fees for processing and delivering demographically
targeted advertising via TARGETFORCE or for AdForce's TRACKFORCE product
are not included in the above pricing and will be covered in a separate
agreement.
- - AdForce will use commercially reasonable efforts to accommodate 24/7
Media's requests for custom reports. If the parties agree to one or more
custom reports, AdForce shall develop such report(s) at the rate of $[*]
per hour, plus direct out-of-pocket expenses. Should 24/7 Media make a
request for any such custom work, AdForce shall first prepare a written
quote for such work for 24/7 Media's review and approval. There may also
be additional charges for other reports that AdForce adds to its service in
the future.
- - At 24/7 Media's request, AdForce will supply on-site training to 24/7 Media
personnel at the rate of $[*] per day, plus reasonable travel and
out-of-pocket expenses.
- - An additional $[*] per thousand Impressions will be applied for each [*]
kilobytes (or fraction thereof) that the average size of advertisements
placed by 24/7 Media through the AdForce service in a calendar month
exceeds [*] kilobytes.
Page 6 of 6
[*] 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>
ADFORCE-TM- SERVICE AGREEMENT 24/7 Media Agreement
- --------------------------------------------------------------------------------
<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.
CONFIDENTIAL
EXHIBIT 10.27
LICENSE AGREEMENT
By and Between
NETSCAPE COMMUNICATIONS CORPORATION
and
IMGIS, INC.
Dated as of February 1, 1999
<PAGE>
CONFIDENTIAL
LICENSE AGREEMENT
This LICENSE AGREEMENT (the "Agreement") is entered into as of
February 1, 1999 (the "Effective Date") by and between Netscape
Communications Corporation, a Delaware corporation having its principal
office at 501 East Middlefield Road, Mountain View, California 94043
("NETSCAPE"), and IMGIS, INC., a California corporation doing business as
"AdForce" and having its principal office at 10101 N. DeAnza Boulevard, Suite
210, Cupertino, California 95014 ("ADFORCE").
WITNESSETH:
WHEREAS, the parties hereto wish to provide the terms and conditions
under which ADFORCE will supply NETSCAPE Ad Serving Services (as defined
below) for the term provided herein; and
WHEREAS, NETSCAPE desires to obtain, and ADFORCE is willing to grant
to NETSCAPE at the times and on the specific conditions stated herein, a
worldwide, perpetual and nonexclusive license to use, and to serve interactive
advertisements using, ADFORCE's 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 "BANNER EXCHANGE" means the NETSCAPE advertising program which
offers companies the opportunity to promote their site, which site may or may
not have a NETSCAPE domain name, by contributing impressions into a banner
exchange network
<PAGE>
CONFIDENTIAL
that would in turn give such site the right to impressions on other sites
within that banner exchange network. Typically, such sites receive one
impression on the banner exchange network for every two they give, with the
balance available for the banner exchange network to sell to advertisers. The
program is targeted at small sites with low-value inventory which are not
candidates for the AdForce Service and, therefore, noncompetitive with
ADFORCE. Examples of banner exchange networks include LinkExchange, SmartAge
and Hyperbanner.
1.4 "NETSCAPE AFFILIATE" means any Affiliate of NETSCAPE, where the
term "control" for purposes of Section 1.2 means the direct or indirect
ownership or control by NETSCAPE 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 a NETSCAPE
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 a
NETSCAPE Affiliate if and when such percentage equity interest is further
reduced for any reason other than as a result of dilution.
1.5 "COVERED NETSCAPE PARTNER SITE PAGES" means the interactive site
pages of a NETSCAPE Partner provided that: (a) such site pages are marketed
or promoted, and intended to be accessible, to Netcenter visitors only,
meaning links to such Site Pages are available only through Netcenter and not
from the Partner site; and (b) NETSCAPE or a NETSCAPE Affiliate has the right
to serve and to sell the advertising inventory for such site.
1.6 "NETSCAPE NETCENTER" means the United States, English language
NETSCAPE brand online website and information service, including future
modifications to, implementations of and successors of such service.
1.7 "NETSCAPE NETWORK" means: (a) NETSCAPE Netcenter, (b) any other
domestic U.S. online product or service owned or operated by NETSCAPE,
excluding mere links to Third Party products or services that are accessible
through distribution channels other than NETSCAPE Netcenter 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 NETSCAPE Affiliates; and (c) any other product or service
distributed under the brand name of NETSCAPE other than under a mere
trademark license of such brand name, provided that NETSCAPE contributes
substantially to the creation or development of such product or service; (d)
Banner Exchange NETSCAPE Partner site; and (e) Covered NETSCAPE Partner Site
Pages.
1.8 "NETSCAPE PARTNER" means any Person with which NETSCAPE or a
NETSCAPE Affiliate has a joint venture, partnership or other contractual
relationship for
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CONFIDENTIAL
the purposes of commerce, advertising, online access, or the provision by such
Person of content or information for the NETSCAPE Network.
1.9 "DATA AGREEMENT MATERIAL BREACH" has the meaning set forth in
Section 14.2.2 below.
1.10 "DEMOGRAPHIC DATA" has the meaning set forth in the Demographic
Data Agreement.
1.11 "DEMOGRAPHIC DATA AGREEMENT" means the Demographic Data
Agreement between NETSCAPE and ADFORCE, should the parties elect to proceed
with such and agreement.
1.12 "DEPLOYMENT DATE" has the meaning set forth in Section 3.2 below.
1.13 "DEVELOPMENT SERVICES" has the meaning set forth in Section 5.1
below.
1.14 "FULLY BURDENED COSTS" of ADFORCE Personnel in the provision of
Services hereunder means, for each ADFORCE Personnel providing any Services
to NETSCAPE, an amount equal to the sum of the following:
(a) (i) If such Personnel is an employee of ADFORCE, the wages
and benefits payable by ADFORCE to such employee multiplied
by the percentage of time spent by such employee in the
provision of such Services to NETSCAPE relative to the
total amount of time spent by such employee in his or her
employment with ADFORCE, 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
ADFORCE, the fees (excluding out-of-pocket expenses paid to
such contractor) payable to such contractor by ADFORCE
multiplied by the percentage of time spent by such
contractor in the provision of such Services to NETSCAPE
relative to the total amount of time spent by such contractor
in the provision of services to ADFORCE, as measured on a
daily basis and charged on an hourly basis, which amount
shall in no event exceed $100 per hour; plus
(b) ADFORCE's direct out-of-pocket costs in the provision by
such Personnel of such Services to NETSCAPE but only to the
extent that NETSCAPE is not otherwise obligated hereunder to
provide reimbursement to ADFORCE for such direct costs; plus
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<PAGE>
CONFIDENTIAL
(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 (3) years following the
Effective Date hereof to reflect any applicable increase or decrease in the
cost of living.
1.15 "ADFORCE SYSTEM" means any software owned and/or used by, and/or
licensed to, ADFORCE that enables operators of interactive sites and
interactive advertisers to schedule, monitor, serve, traffic and/or target
interactive advertising, including the system used by ADFORCE to provide
services under the AdForce service mark and any related or successor system.
1.16 "IMPLEMENTATION DATE" means the date as of which NETSCAPE first
provides Demographic Data (as defined in the Demographic Data Agreement) to
ADFORCE.
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" shall have the meaning to be set
forth in the Demographic Data Agreement. In addition, for purposes of this
Agreement, NETSCAPE shall be deemed to "Materially Limit or Prohibit" the use
by ADFORCE 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 NETSCAPE) 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 NETSCAPE or ADFORCE, and "PARTIES" means NETSCAPE and
ADFORCE.
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
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<PAGE>
CONFIDENTIAL
(including any Improvements) is capable of, for NETSCAPE's own internal
purposes or for or on behalf of any of the NETSCAPE Network.
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 ADFORCE pursuant to this
Agreement, including Ad Serving Services, Development Services and
Technical Support Services.
1.25 "SOFTWARE" means software included in the Technology.
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, ADFORCE 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 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 ADFORCE's needs, where ADFORCE
does not have the right to provide such software to NETSCAPE)), 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 ADFORCE 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 ADFORCE as a "work made for hire" for a
Third Party that is not an Affiliate of ADFORCE. For purposes of the
foregoing definition, an "Affiliate" of ADFORCE means any Affiliate of
ADFORCE where the term "control" means the direct or indirect ownership or
control by ADFORCE 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
ADFORCE in connection with the provision of Development Services.
5
<PAGE>
CONFIDENTIAL
ARTICLE 2
GRANT OF LICENSE
2.1 LICENSE GRANT.
(a) Subject to the terms and conditions hereof, and effective upon
completion by NETSCAPE of its pending merger (the "AOL Merger") with a
wholly-owned subsidiary of America Online, Inc., ADFORCE grants to NETSCAPE
a perpetual, worldwide, nonexclusive, nontransferable (except as set forth in
Section 15.12 below), royalty-free license under all of ADFORCE's 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
ADFORCE has the right to provide to NETSCAPE only upon payment of a fee to
the Third Party, solely for the Permitted Purposes. If for any reason the AOL
Merger is affirmatively canceled or does not otherwise occur within six (6)
months from the date hereof, then the license grants set forth herein and the
provisions set forth in Articles 3 and 4.1 and 4.2 below shall be null and
void, and NETSCAPE shall have no license rights whatsoever to the Technology.
In such event, within sixty (60) days from the earlier of (i) the date the
AOL Merger is affirmatively canceled or (ii) August 1, 1999, NETSCAPE and
ADFORCE will enter into a source code escrow agreement in form and substance
mutually acceptable to the parties. Under such agreement, ADFORCE will
deposit the source and object code for the Technology into an escrow with a
third party escrow company acceptable to the Parties. Such source code escrow
agreement will provide for the release of the source and object code to
NETSCAPE if ADFORCE ceases to do business, undergoes a bankruptcy or
insolvency proceeding, makes an assignment for the benefit of creditors or
experiences similar occurrences. In the event of a critical failure as
described in Section 4.3 below, such source code escrow agreement will
provide for the temporary release of the source and object code to NETSCAPE
for the duration of such critical failure. If ADFORCE breaches this
Agreement, the source code escrow agreement will provide for the release of
the source and object code to NETSCAPE, which NETSCAPE will then be able to
use for a period of one year from the date of such breach, after which period
NETSCAPE shall have no further rights of use. For purposes of this section
only, in order to be in breach of the Performance Metrics of Exhibit A,
ADFORCE must be in breach of at least 2 of the 4 Performance Metrics
described in Exhibit A, including at least one of either Exhibit A, Section
7(A) or 7(B).
(b) Subject to subsection 2.1(a) above, if any Technology consists
of commercially available Third Party software that ADFORCE has the right to
provide to NETSCAPE only upon payment of a fee to the Third Party, NETSCAPE
may, by written notice to ADFORCE and payment of such fee, require ADFORCE to
grant to NETSCAPE 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 (but only to the extent of ADFORCE's rights in such
Technology).
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<PAGE>
CONFIDENTIAL
(c) The Parties agree that neither the licenses to be granted in
this Section 2.1 nor any other provisions of this Agreement impose or shall
be construed to impose any obligation upon NETSCAPE to use or otherwise
practice the Technology. ADFORCE agrees that it shall not bring any action in
law or equity, or any other judicial or nonjudicial proceeding, against
NETSCAPE asserting that the use by NETSCAPE of any patent rights claiming the
Technology that are now or hereafter owned by or licensed to ADFORCE or any
other Technology infringes or otherwise violates any patent, copyright, trade
secret or other proprietary rights of ADFORCE.
2.2 EXERCISE OF RIGHTS. Following effectiveness of the licenses to be
granted herein pursuant to Section 2.1(a) above, NETSCAPE 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.
Notwithstanding the foregoing, any proposed exercise by NETSCAPE of such
rights shall be subject to the provisions of Section 15.2 below. Except as
set forth in Section 6.1 below, nothing in this Agreement shall obligate
NETSCAPE to use the Technology or to use a designated server or site in
connection with such Technology.
2.3 USE OF PERSONNEL. NETSCAPE 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.
ARTICLE 3
DELIVERY
3.1 INITIAL DELIVERY. Provided the license becomes effective per
Section 2.1(a) above, within forty-five (45) days after the effective date of
the AOL Merger, ADFORCE shall deliver to NETSCAPE: (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 ADFORCE and NETSCAPE.
3.2 DELIVERY OF IMPROVEMENTS AND OTHER TECHNOLOGY.
(a) Provided the license becomes effective per Section 2.1(a)
above, ADFORCE 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) Provided the license becomes effective per Section 2.1(a)
above, at such times as reasonably requested by NETSCAPE, ADFORCE shall
provide NETSCAPE with any Improvements made by or on behalf of ADFORCE and
any other Technology
7
<PAGE>
CONFIDENTIAL
requested by NETSCAPE that is existing and not then in the possession of
NETSCAPE. In addition, provided the license becomes effective per Section
2.1(a) above and commencing no later than forty-five (45) days after such
time that NETSCAPE determines to deploy the Technology in whole or in part
(the "Deployment Date"), ADFORCE shall provide to NETSCAPE on a quarterly
basis the then current version of the source code for the Software and shall
provide to NETSCAPE 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 NETSCAPE (including
electronically), along with the applicable documentation related to such
Improvement.
(c) Provided the license becomes effective per Section 2.1(a)
above, ADFORCE shall provide all Improvements and other Technology, other
than Improvements provided in the provision of Development Services, to
NETSCAPE without any additional charge or fee. Notwithstanding the foregoing,
(i) if the license becomes effective under Section 2.1(a) above, but the
Parties have not executed a Demographic Data Agreement, or (ii) if the
license becomes effective under Section 2.1(a) above and the Parties have
executed a Demographic Data Agreement but NETSCAPE ceases to be in compliance
with all of its material obligations under the Demographic Data Agreement or
Materially Limits or Prohibits the use by ADFORCE of Demographic Data, and
NETSCAPE desires to continue receiving Improvements from ADFORCE, then
NETSCAPE shall pay to ADFORCE on an annual basis a reasonable update fee to
be agreed upon by the Parties for all Improvements developed for so long as
NETSCAPE is not in compliance with all of its material obligations under the
Demographic Data Agreement or Materially Limits or Prohibits the use by
ADFORCE of Demographic Data; provided that such fee shall not exceed (i)
ADFORCE's customary update fees for such Improvements in arm's length
transactions with its licensees, if ADFORCE 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 than ADFORCE's cost of providing such
Improvements, if ADFORCE does not then license the Technology to Third
Parties.
(d) Provided the license becomes effective per Section 2.1(a) above,
at NETSCAPE's request, ADFORCE shall identify to NETSCAPE, and provide
NETSCAPE reasonable information and assistance in furtherance of NETSCAPE's
efforts to acquire, at NETSCAPE's own expense, commercially available Third
Party software licensed to ADFORCE for use in connection with the Technology
and not sublicensed to NETSCAPE under Section 2.1(a) or (b) above.
ARTICLE 4
TECHNICAL SUPPORT SERVICES
4.1 SCOPE OF SERVICES.
(a) Provided the license becomes effective per Section 2.1(a)
above, during the term of this Agreement ADFORCE shall provide to NETSCAPE, at
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NETSCAPE'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 NETSCAPE, without
the aid of ADFORCE or any other Person, to develop, enhance and maintain the
Technology (including the source code for the Software) for use by NETSCAPE
to the same extent as ADFORCE.
(b) Commencing no later than forty-five (45) days after the
Deployment Date, the Technical Support Services, if required hereunder, shall
include, without limitation: (i) the regular provision by ADFORCE of
qualified Personnel able to resolve problems in the operation of the
Technology on-site at NETSCAPE's data centers in Silicon Valley; and (ii) the
provision by ADFORCE of telephone access twenty-four (24) hours a day, seven
(7) 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) Subject to subsection 4.2(b) below, provided that at the time
any Technical Support Services are requested by NETSCAPE or are to be
performed by ADFORCE hereunder, NETSCAPE is in compliance with all of its
material obligations under a validly executed Demographic Data Agreement and
does not Materially Limit or Prohibit the use by ADFORCE of Demographic Data,
ADFORCE shall provide the Technical Support Services requested by NETSCAPE
for no additional consideration other than reimbursement of the Fully
Burdened Costs of the provision by ADFORCE Personnel of such Technical
Support Services.
(b) If, at any time prior to July 15, 1999 any Technical Support
Services are requested to be performed by ADFORCE hereunder and (i) the
parties have not executed a Demographic Data Agreement, or (ii) the
Implementation Date has not yet occurred under a validly executed Demographic
Data Agreement, then NETSCAPE shall pay to ADFORCE the Fully Burdened Costs
of the provision by ADFORCE Personnel of such Technical Support Services plus
[*] ([*]%) of such costs. If, at any time on or after July 15, 1999 any
Technical Support Services are required to be performed by ADFORCE hereunder
and (i) the parties have not executed a Demographic Data Agreement, or (ii)
the Implementation Date has not yet occurred under a validly executed
Demographic Data Agreement, then NETSCAPE shall pay to ADFORCE the Fully
Burdened Costs of the provision by ADFORCE Personnel of such Technical
Support Services plus [*] percent ([*]%) of such costs.
(c) If, following the occurrence of the Implementation Date under
a validly executed Demographic Data Agreement, at the time any Technical
Support Services are requested to be performed by ADFORCE hereunder, NETSCAPE
is not in compliance with all of its material obligations under the
Demographic Data Agreement or Materially Limits or Prohibits the use by
ADFORCE of Demographic Data, then
9
[*] 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>
CONFIDENTIAL
NETSCAPE shall pay to ADFORCE the Fully Burdened Costs of the provision by
ADFORCE Personnel of such Technical Support Services plus [*] percent ([*]%)
of such costs.
4.3 WARRANTY. If the Technology or Services as described in Exhibit A
fail to conform to or perform in accordance with the technical or user
documentation provided by ADFORCE (other than as a result of operator error,
accident, or misuse or alteration of the Technology by a Person not under
ADFORCE's 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 ADFORCE, at
its expense and without any payment by NETSCAPE 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 NETSCAPE reasonably deems critical to its
business, ADFORCE shall provide at least a temporary
workaround or fix within two (2) hours of receiving notice of
such failure or breach and shall cure such failure or breach
within three (3) business days of receiving notice of such
failure or breach; and
(b) For any other failure or breach that is not a "critical"
problem, ADFORCE shall provide at least a temporary workaround
or fix within three (3) business days of receiving notice of
such failure or breach and shall cure such failure or breach
within fifteen (15) days after receiving notice of such
failure or breach.
Without limiting the generality of the foregoing, ADFORCE agrees, by way of
example, that it shall not be unreasonable for NETSCAPE 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
NETSCAPE of any obligation to any advertiser on the NETSCAPE Network.
ARTICLE 5
DEVELOPMENT SERVICES
5.1 SCOPE OF SERVICES. At NETSCAPE's written request, ADFORCE
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 NETSCAPE's needs (collectively, "Development Services"). Notwithstanding
the foregoing, NETSCAPE shall have no obligation to request or to use
Development Services of ADFORCE and may undertake
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TO THE OMITTED PORTIONS.
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similar work itself or through independent contractors other than ADFORCE,
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 to be performed by ADFORCE hereunder, NETSCAPE is in compliance
with all of its material obligations under a validly executed Demographic
Data Agreement and does not Materially Limit or Prohibit the use by ADFORCE
of Demographic Data, ADFORCE shall provide the Development Services requested
by NETSCAPE for no additional consideration other than reimbursement of the
Fully Burdened Costs of the provision by ADFORCE Personnel of such
Development Services.
(b) If, at any time prior to July 15, 1999 any Development
Services are requested to be performed by ADFORCE hereunder and (i) the
parties have not executed a Demographic Data Agreement, or (ii) the
Implementation Date has not yet occurred under a validly executed Demographic
Data Agreement, then NETSCAPE shall pay to ADFORCE the Fully Burdened Costs
of the provision by ADFORCE Personnel of such Development Services plus [*]
percent ([*]%) of such costs. If, at any time on or after July 15, 1999 any
Development Services are required to be performed by ADFORCE hereunder and
(i) the parties have not executed a Demographic Data Agreement, or (ii) the
Implementation Date has not yet occurred under a validly executed Demographic
Data Agreement, then NETSCAPE shall pay to ADFORCE the Fully Burdened Costs
of the provision by ADFORCE Personnel of such Development Services plus [*]
percent ([*]%) of such costs.
(c) If, following the occurrence of the Implementation Date
under a validly executed Demographic Data Agreement, at the time any
Development Services ARE requested to be performed by ADFORCE, NETSCAPE is
not in compliance with all of its material obligations under the Demographic
Data Agreement or Materially Limits or Prohibits the use by ADFORCE of
Demographic Data, then NETSCAPE shall pay to ADFORCE the Fully Burdened Costs
of the provision by ADFORCE Personnel of such Development Services plus [*]
percent ([*]%) of such costs.
5.3 ORIGINAL WORK. Any Work Products either shall be the original
work of ADFORCE and its Personnel or shall be items licensed by Third Parties
that ADFORCE has the right to provide to NETSCAPE and that ADFORCE identifies
as such to NETSCAPE in writing. ADFORCE shall not disclose to NETSCAPE, or
induce NETSCAPE 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 ADFORCE has the right to provide
to NETSCAPE.
5.4 WORK FOR HIRE.
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(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 ADFORCE 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," ADFORCE hereby
irrevocably assigns to NETSCAPE, and agrees that NETSCAPE 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 extent that ADFORCE provides Development Services in support
of any modification of the Technology, NETSCAPE hereby grants to ADFORCE 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 NETSCAPE's prior written approval. In the event that ADFORCE
desires to integrate such modification in the Technology and obtains
NETSCAPE's approval thereto, then ADFORCE shall reimburse NETSCAPE for any
payment made by NETSCAPE for such Development Services, or waive such payment
by NETSCAPE, in consideration for the grant of such license to ADFORCE.
ADFORCE 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) ADFORCE 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 ADFORCE all rights and authority necessary
to effectuate the provisions of this Section 5.4. ADFORCE shall provide
copies of these agreements to NETSCAPE upon NETSCAPE's request.
(d) To the extent that ADFORCE delivers to NETSCAPE 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, if NETSCAPE 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 ADFORCE (in contrast to merely correcting what are
colloquially known as "bugs" in such Software or making any other minor
modification to an existing feature or function) then: (a) ADFORCE shall not
be obligated to provide Development Services or Technical Support Services
for such Improvement; and (b) in the event that NETSCAPE does not request, or
ADFORCE does
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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 NETSCAPE's version of the Technology containing such
Improvement.
ARTICLE 6
AD SERVING SERVICES
6.1 SCOPE OF SERVICES. From the Effective Date through November 22,
1999 (the "initial Ad Serving Services Term"), ADFORCE shall provide to
NETSCAPE interactive advertisement serving, trafficking, targeting and
related services (collectively, "Ad Serving Services") for NETSCAPE
Netcenter, and such other parts of the NETSCAPE Network as NETSCAPE shall
reasonably request. The terms for such Ad Serving Services shall be as attached
hereto in Exhibits A and B and as set forth below.
6.2 FEES FOR AD SERVING SERVICES.
(a) Provided that, at the time any Ad Serving Services are to be
performed by ADFORCE, NETSCAPE is in compliance with all of its material
obligations under a validly executed Demographic Data Agreement and does not
Materially Limit or Prohibit the use by ADFORCE of Demographic Data, ADFORCE
shall provide the Ad Serving Services requested by NETSCAPE for no additional
consideration other than reimbursement of the Fully Burdened Costs of the
provision by ADFORCE Personnel of such Ad Serving Services; provided,
however, that in the event that ADFORCE agrees to provide any Ad Serving
Services to any Third Party that is similarly situated to NETSCAPE at a rate
that is more favorable to such Third Party than the consideration payable
by NETSCAPE under this subpart (a), then ADFORCE shall provide the Ad Serving
Services requested by NETSCAPE at such Third Party's rate.
(b) If, at any time prior to July 15, 1999 any Ad Serving Services
are required to be performed by ADFORCE hereunder and (i) the parties have
not executed a Demographic Data Agreement, or (ii) the Implementation Date
has not yet occurred under a validly executed Demographic Data Agreement,
then NETSCAPE shall pay to ADFORCE the Fully Burdened Costs of the provision
by ADFORCE Personnel of such Ad Serving Services plus [*] percent ([*]%) of
such costs. If, at any time on or after July 15, 1999 any Ad Serving Services
are required to be performed by ADFORCE hereunder and (i) the parties have
not executed a Demographic Data Agreement, or (ii) the Implementation Date
has not yet occurred under a validly executed Demographic Data Agreement,
then NETSCAPE shall pay to ADFORCE the Fully Burdened Costs of the provision
by ADFORCE Personnel of such Ad Serving Services plus [*] percent ([*]%) of
such costs.
(c) If, following the occurrence of the Implementation Date under
a validly executed Demographic Data Agreement, at the time any Ad Serving
Services are to be performed by ADFORCE, NETSCAPE is not in compliance with
all of its material
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TO THE OMITTED PORTIONS.
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obligations under the Demographic Data Agreement or Materially Limits or
Prohibits the use by ADFORCE of Demographic Data, then NETSCAPE shall pay to
ADFORCE the Fully Burdened Costs of the provision by ADFORCE Personnel of such
Ad Serving Services plus [*] percent ([*]%) of such costs.
6.3 REIMBURSEMENT FOR AD SERVING SERVICES. In addition to the fees for Ad
Serving Services provided for in Section 6.2 above, NETSCAPE shall reimburse the
following costs incurred by ADFORCE in the provision of Ad Serving Services
requested by NETSCAPE for the purposes set forth in Section 6.1 above, and, at
NETSCAPE'S option, NETSCAPE shall provide financing for such costs on mutually
agreeable terms, but in any event on terms no less favorable than such terms are
commercially available to entities similarly situated.
(a) Reimbursement for ADFORCE's incremental costs for any
modification of the AdForce System required to meet NETSCAPE'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 NETSCAPE's needs;
(b) Reimbursement for ADFORCE'S incremental costs for any additional
equipment that ADFORCE must purchase or lease solely to meet
NETSCAPE's needs for the provision of Ad Serving Services for so
long as necessary to meet NETSCAPE's needs; and
(c) Reimbursement for any additional incremental bandwith costs
incurred by ADFORCE solely in connection with the provision of Ad
Serving Services to NETSCAPE.
6.4 APPLICATION OF FEE METHODOLOGY. Attached hereto as Exhibit B is the
Parties' agreed upon pricing for the Ad Serving Services for the Initial Ad
Services Term per the provisions of Sections 6.2 and 6.3 above.
ARTICLE 7
NETSCAPE MARKETING EFFORTS
7.1 NETSCAPE MARKETING EFFORTS. NETSCAPE shall use commercially
reasonable efforts to encourage NETSCAPE Partners (but NETSCAPE shall not be
obligated to actively solicit NETSCAPE Partners) to use the AdForce System for
the serving and management of Internet advertisements, subject to agreement
between ADFORCE and such NETSCAPE Partners on the terms and conditions of such
use.
7.2 COMMISSIONS. If, as a result of marketing efforts by NETSCAPE, a
NETSCAPE Partner or any other Person enters into an agreement with ADFORCE to
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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utilize the AdForce System, then, provided that, as of the time that ADFORCE
enters into such agreement with such NETSCAPE Partner or other Person, the
Parties have executed a Demographic Data Agreement, NETSCAPE is in compliance
with all of its material obligations thereunder and does not Materially Limit or
Prohibit the use by ADFORCE of Demographic Data, ADFORCE shall pay to NETSCAPE
on a quarterly basis the following commissions on the gross amount of the
consideration charged by ADFORCE to such NETSCAPE Partner or other Person for
use of the ADFORCE AdForce System:
(a) For the first year of such agreement, the greater of 4% and the
highest percentage commission granted by ADFORCE at such time to
any employee or agent of ADFORCE or to any Third Party for
similar marketing or sales efforts; and
(b) For each succeeding year of such agreement, the greater of 2% and
the highest percentage commission granted by ADFORCE at such
time to any employee or agent of ADFORCE or to any Third Party
for similar marketing or sales efforts.
7.3 COMMISSION SHARING. Notwithstanding the provisions of Section 7.2
above, if NETSCAPE and any employee or agent of ADFORCE or any other Third Party
claims commissions with respect to the same Person (and such Person has not
entered into an agreement with ADFORCE solely as a result of NETSCAPE marketing
efforts), ADFORCE shall not be required to pay total commissions to NETSCAPE and
such Third Party in excess of the amount specified in Section 7.2 and ADFORCE
may apportion the applicable commission specified in Section 7.2 between
NETSCAPE and the Third Party in such manner as ADFORCE determines in good faith
to be equitable.
ARTICLE 8
INTENTIONALLY OMITTED
ARTICLE 9
PAYMENT PROVISIONS
9.1 PAYMENT PROCEDURES.
(a) Unless otherwise agreed to in writing by the Parties, all
payments due by NETSCAPE for the provision of Services by ADFORCE hereunder
shall be due and payable thirty (30) days after the receipt by NETSCAPE of a
proper invoice therefor from ADFORCE, which invoice shall include such detail
and supporting documentation as NETSCAPE may reasonably request. Notwithstanding
the foregoing, NETSCAPE agrees to pay to ADFORCE the amount set forth in Exhibit
B within [*] ([*]) days from the
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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Effective Date, which represents a prepayment of the estimated fees for Ad
Serving Services for the Initial Ad Serving Services Term ("Prepayment").
The Prepayment shall be credited against the Ad Serving Service fees accruing
under this Agreement during the Initial Term, which ADFORCE shall calculate
monthly in accordance with Exhibits B and C and submit to NETSCAPE for its
review and approval. For each $[*] of fees due up to the Prepayment, $[*]
shall be credited against the Prepayment. Upon exhaustion of the Prepayment,
ADFORCE shall invoice NETSCAPE monthly in arrears for the Ad Serving Services
provided to NETSCAPE based on the rates for such Services as set forth in
Exhibit B.
Each month and coincident with the impression forecast NETSCAPE will provide per
Exhibit A, Section 1(C), the Parties will review the estimates that form the
basis of the prepayment described in Exhibit B and discuss any adjustments to
the forecast, principally the impression forecast and the headcount forecast.
Unless the parties mutually agree otherwise, if the changes to the forecasts in
Exhibit C are estimated to have a sum total impact greater than [*]% on the fees
(as measured against the prior adjustment to fees), the Parties will make a
mutually agreed to adjustment in the fees going forward.
On or before August 1, 1999, the Parties will evaluate if there is a significant
change in the payment forecast for the remainder of the term. If there is a
significant decline in the forecast (greater than [*]%), ADFORCE will make an
adjusting refund at that time, including interest on the amount of the refund
equal to the lower of (i) the prime rate on August 1, 1999 or (ii) the maximum
amount permitted by law.
If Netscape opts to deploy ADFORCE's Banner Exchange technology to provide a
Banner Exchange to NETSCAPE Banner Exchange Partner sites outside of NETSCAPE
Netcenter or NETSCAPE Affiliates, NETSCAPE may do so solely on a "barter" basis
as described in the Banner Exchange definition above. For ads served by
NETSCAPE to such external sites, NETSCAPE will make additional payments to
ADFORCE based on a CPM rate equal to 50% of NETSCAPE's imputed CPM at the end of
the Initial Term or a $0.04 CPM, whichever is higher, provided that the rate
shall never exceed the lowest CPM rate ADFORCE is offering other banner exchange
customers. NETSCAPE shall make these payments for as long as it requests the
delivery of improvements to ADFORCE's Banner Exchange technology or a minimum of
two years after NETSCAPE first deploys ADFORCE's Banner Exchange technology,
whichever is greater.
(b) Unless otherwise agreed to in writing by the Parties: (i) all
payments due by ADFORCE under Article 7 in connection with ADFORCE's entrance
into an agreement for use of the AdForce System with an NETSCAPE Partner or
other Person as a result of NETSCAPE marketing efforts shall be paid to
NETSCAPE within [*] ([*]) days after the end of the calendar quarter during
which such agreement is entered into and within [*] ([*]) days after the end
of each succeeding calendar quarter thereafter.
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TO THE OMITTED PORTIONS.
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(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 thirty days after written notice of past due
amount, 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 received 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) ADFORCE 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 NETSCAPE, including any Improvements.
9.5 BOOKS AND RECORDS. ADFORCE shall keep full, true and accurate books
of account containing all particulars and reasonable supporting documentation,
in connection with the provision of Services hereunder and the determination of
any amounts payable to NETSCAPE under Article 7. All such books of account and
reasonable supporting documentation shall be located at the principal place of
business of ADFORCE and shall be open for inspection by NETSCAPE or any
independent certified public accountant retained by NETSCAPE, at a time mutually
acceptable to the Parties during normal business hours but no more frequently
than once each calendar year for three years
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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 NETSCAPE
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 NETSCAPE under this
Agreement, ADFORCE shall pay or refund to NETSCAPE the amount of such
discrepancy as well as the reasonable cost of such inspection promptly following
ADFORCE's receipt from NETSCAPE 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;
(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.
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10.2 ADDITIONAL REPRESENTATIONS AND WARRANTIES OF ADFORCE. ADFORCE
further represents and warrants to NETSCAPE 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 ADFORCE, any Work Products and
NETSCAPE'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 ADFORCES's knowledge, the
Technology does not, and any Improvements provided by
ADFORCE, any Work Products and NETSCAPE'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 ADFORCE's knowledge,
there is no action, suit, proceeding, arbitration or claim
threatened, concerning the Technology;
(d) NO LIENS OR ENCUMBRANCES. The Technology is free from any
security interests and other liens and encumbrances of Third
Parties arising from the actions or inaction of ADFORCE;
(e) NO UNAUTHORIZED CODE. The Technology does not, and any
Improvements provided by ADFORCE 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 automatically with the passage of time or
under the control of any Person other than NETSCAPE. To the
best of ADFORCE's knowledge, the Technology does not, and any
Improvements provided by ADFORCE 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
ADFORCE covenants that, prior to or at the time of the
delivery of any Technology (including any Improvement),
ADFORCE shall test the Technology using a current version of
a reputable "antivirus" program and remove any such
unauthorized codes; and
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(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. NETSCAPE shall not be liable to ADFORCE, any of its
Affiliates or any other Person for, and ADFORCE shall indemnify and hold
harmless NETSCAPE and all NETSCAPE Affiliates, and their respective
directors, officers, employees and agents (collectively, the "NETSCAPE
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 NETSCAPE, or by ADFORCE to NETSCAPE's specifications if ADFORCE
could not reasonably have conformed to such specifications while avoiding the
infringement; or (b) the presence of ADFORCE's employees or agents on the
premises of NETSCAPE or an NETSCAPE Affiliate (except those Losses that
result solely from the gross negligence or willful misconduct of NETSCAPE or
a NETSCAPE Affiliate), including, but not limited to, Losses resulting from
injuries to ADFORCE's Personnel and Losses resulting from injuries caused by
ADFORCE's Personnel.
11.2 PROCEDURE. Any NETSCAPE Indemnitee shall notify ADFORCE 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 ADFORCE of an indemnifiable claim
or cause of action shall not relieve ADFORCE of its obligation to provide
indemnification hereunder, except to the extent that such failure prejudices
ADFORCE's ability to defend or settle such claim or cause of action. ADFORCE
shall assume, at its cost and expense, the sole defense of such claim or cause
of action through counsel selected by ADFORCE and reasonably acceptable to
NETSCAPE, except that in the case of a conflict of interest between ADFORCE
and NETSCAPE, ADFORCE shall, at ADFORCE's cost and expense, provide separate
counsel for NETSCAPE selected by NETSCAPE. ADFORCE shall maintain control of
such defense, including any decision as to settlement; provided that, in the
event that
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ADFORCE does not maintain control of such defense on a timely basis, then,
without prejudice to any other rights and remedies available to NETSCAPE
under this Agreement, NETSCAPE may take over such defense with counsel of its
choosing, at ADFORCE's cost and expense. NETSCAPE may, at its option and
expense, participate in ADFORCE's defense, and if NETSCAPE so participates,
the Parties shall cooperate with one another in such defense. ADFORCE shall
bear the total costs of any court award or any settlement of such claim or
cause of action approved by ADFORCE and all other costs, fees and expenses
related to the resolution thereof (including reasonable attorneys' fees,
except for attorneys' fees for which NETSCAPE is responsible in the event
that NETSCAPE participates in ADFORCE's defense of such claim or cause of
action).
11.3 ABATEMENT OF INFRINGEMENT. If ADFORCE reasonably believes it
necessary to do so to minimize its liability under Section 11.1 above,
ADFORCE may, at its expense, procure the right for NETSCAPE 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
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 NETSCAPE and ADFORCE (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 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.
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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).
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.
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(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.
14.1.1 TECHNOLOGY LICENSE TERM. Provided the license grant to
NETSCAPE pursuant to Section 2.1(a) becomes effective, this Agreement with
respect to such Technology license grant and related provisions herein shall
commence as of the Effective Date and, unless terminated in accordance with
the provisions of Section 14.2 below, shall remain in full force and effect
without expiration.
14.1.2 TECHNOLOGY LICENSE GRANTED BY DEFAULT TERM. If the license
grant to NETSCAPE does not become effective pursuant to Section 2.1(a) but
Netscape obtains access to ADFORCE's source and object code as a result of
ADFORCE's default hereunder as described in such Section 2.1 (a), then this
Agreement with respect to such license grant and related provisions herein
shall commence as of the Effective Date and remain in full force and effect
through the date NETSCAPE's one-year right to use said source and object code
expires.
14.1.3 AD SERVING SERVICES TERM. The term of this Agreement with
respect to the Ad Serving Services and related provisions herein shall
commence as of the Effective Date and remain in full force and effect through
November 22, 1999. If both Parties assent in writing prior to the expiration
of this Agreement, this Agreement with respect to such Ad Serving Services
will renew on the same terms and conditions for an additional one year period.
14.2 TERMINATION.
14.2.1 TERMINATION RIGHTS OF NETSCAPE. NETSCAPE shall have the
right to terminate this Agreement in the event of the breach by ADFORCE of,
or the failure of ADFORCE to perform, any of its material obligations
hereunder and the failure to remedy such breach or nonperformance with sixty
(60) days following the receipt of written notice of such breach or
nonperformance from NETSCAPE. Such termination shall be immediately effective
upon the receipt by ADFORCE of written notice of termination from NETSCAPE.
On expiration or termination of this Agreement for any reason, the parties
agree to work in good faith to ensure a smooth transition of the Service and
Technology (if applicable) to NETSCAPE within 60 days of such termination or
expiration date.
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14.2.2 TERMINATION RIGHTS OF ADFORCE. ADFORCE shall have the right
to terminate this Agreement in the event of:
(a) The breach by NETSCAPE of, or the failure of NETSCAPE
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 sixty
(60) days following the receipt of written notice of
such breach or nonperformance from ADFORCE; or
(b) A "Data Agreement Material Breach" by NETSCAPE. For
purposes of this Agreement, a "Data Agreement Material
Breach" means the breach by NETSCAPE of, or the
failure of NETSCAPE to perform, any of its material
obligations under the Demographic Data Agreement, the
failure of NETSCAPE to remedy such breach or
nonperformance within sixty (60) days following the
receipt of written notice of such breach or
nonperformance from ADFORCE, 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 NETSCAPE
of written notice of termination from ADFORCE.
14.2.3 ADFORCE RIGHT TO DISCONTINUE SERVICES. ADFORCE 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 NETSCAPE, but shall not have the right to terminate this
Agreement or the licenses granted pursuant to Section 2.1(a) above, if
effective, in the event of the material breach by NETSCAPE of its obligation
hereunder to reimburse or pay ADFORCE for any Services and the failure to
remedy such breach within sixty (60) days following the receipt of written
notice of such breach from ADFORCE. Such discontinuation of Services shall be
immediately effective upon the receipt by NETSCAPE of written notice of
discontinuation from ADFORCE. On expiration or termination of this Agreement
for any reason, the parties agree to work in good faith to ensure a smooth
transition of the Service and Technology (if applicable) to NETSCAPE within
60 days of such termination or expiration date.
14.3 EFFECT OF TERMINATION. Provided the license grant to NETSCAPE
under Section 2.1(a) becomes effective, and notwithstanding anything herein
to the contrary, in the event of the termination of this Agreement other than
upon the breach by NETSCAPE of any of its material obligations under Article
2 or Article 13 and the failure to remedy
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such breach within the time period set forth in Section 14.2.2 above,
NETSCAPE shall have the right, for a period of one year following
termination, to continue to exercise all license rights granted to it under
Section 2.1 above on all the same terms in effect pursuant to this Agreement
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, ADFORCE shall in no event be entitled to enjoin or
seek to enjoin any exercise by NETSCAPE of the rights set forth in this
Section 14.3, and ADFORCE 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 NETSCAPE that would adversely affect
the exercise by NETSCAPE of its rights under this Section 14.3.
14.4 RETURN OF CONFIDENTIAL INFORMATION. Within thirty (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 ADFORCE granted in Section 5.4;
(c) The right of NETSCAPE to inspect the books and records
of ADFORCE 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.
ARTICLE 15
MISCELLANEOUS
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15.1 ELECTRONIC REPOSSESSION. In no event shall ADFORCE
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 thirty (30) days
following the execution of this Agreement and on a quarterly basis
thereafter, NETSCAPE shall engage in discussions with ADFORCE concerning
NETSCAPE's deployment of the Technology and shall endeavor to provide ADFORCE
with non-binding, 180 day forecasts of the Services that NETSCAPE intends to
request from ADFORCE hereunder. Within forty-five (45) days after the
Deployment Date, the Parties shall execute a more detailed development,
support and maintenance agreement with respect to ADFORCE's obligations to
provide development, support and maintenance for the Technology, including,
without limitation, ADFORCE's obligations for the delivery of Improvements
and other Technology, ADFORCE's obligations to provide Development Services
and Technical Services, and ADFORCE's 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 ADFORCE, the acquisition by a Third Party of all or substantially all
of the assets of ADFORCE, or the consummation of a merger, consolidation or
similar corporate transaction of ADFORCE with or into a Third Party where the
voting securities of ADFORCE 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. NETSCAPE'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 NETSCAPE 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.
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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 State of California 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 State of California 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 State of California
and of any United States federal court sitting in the State of California 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 California 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):
If to NETSCAPE:
Netscape Communications Corporation
501 East Middlefield Road
Mountain View, CA 94043
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Telephone: (650)937-2669
Telefax: (650)937-5543
Attention: Mike Homer, Executive Vice President
Copy to:
Netscape Communications Corporation
501 East Middlefield Road
Mountain View, CA 94043
Telephone: (650)937-2764
Telefax: (650)528-4123
Attention: General Counsel
If to ADFORCE:
ADFORCE, Inc.
10101 N. DeAnza Boulevard
Suite 210
Cupertino, CA 95014
Telephone: (408)873-3680
Telefax: (408)873-3690
Attention: Charles W. Berger
cc: General Counsel
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 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,
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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) NETSCAPE may assign any of its
rights or obligations hereunder to America Online, Inc. or a wholly-owned
subsidiary of NETSCAPE without ADFORCES's 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 Confidential Non-Disclosure Agreement between the Parties
dated as of January 1, 1999, and attached hereto as Exhibit D, 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.
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
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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 ADFORCE in
connection with any offering of securities of ADFORCE, 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 ADFORCE, ADFORCE shall provide
in advance to NETSCAPE 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 NETSCAPE (except that ADFORCE
may file this Agreement as an exhibit to its registration statement if it
would constitute a "material agreement" under applicable law or regulation
and ADFORCE shall use its reasonable best efforts to obtain confidential
treatment of the portions of this Agreement that meet the SEC qualifications
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for confidential treatment if so requested by NETSCAPE). The confidentiality
obligations of this Section 15.20 would apply, inter alia, to any disclosure
by ADFORCE of this Agreement or of any provisions of this Agreement to any
customer or potential customer of ADFORCE 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").
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.
NETSCAPE COMMUNICATIONS CORPORATION
REVIEWED BY By: /s/ Mike Homer
NETSCAPE LEGAL ---------------------------
Mike Homer
INITIAL /s/ [ILLEGIBLE] 3/10/99 Executive Vice President
------------------------
IMGIS, INC.
By: /s/ Charles W. Berger
------------------------------------
Charles W. Berger
Chairman and Chief Executive Officer
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EXHIBIT A
AD SERVING SERVICES
1. ADFORCE AD SERVING SERVICES.
A. ADFORCE SERVICE DEFINITION. The AdForce service ("AdForce Service")
is a proprietary Internet advertising administration system that will allow
NETSCAPE to manage advertising on its Internet properties. As part of the
AdForce Service, ADFORCE will provide NETSCAPE the ADFORCE "client"
("Client"), which NETSCAPE will use to (i) generate ad tags, (ii) schedule
advertising to run in the online environments in which NETSCAPE places those
ad tags, and (iii) generate reports on such advertising. In addition, ADFORCE
will maintain a centralized ADFORCE server complex from which ADFORCE will
electronically deliver advertising scheduled by NETSCAPE to the online
environments containing the ad tags placed by NETSCAPE. 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 of comparable reputation chosen by ADFORCE. The
AdForce Service includes the targeting features and a suite of standard
reports available in the ADFORCE system listed below.
B. THE ADFORCE SERVICE. The AdForce Service includes the functionality
described in Section 1.A. above and as described below, with telephone client
services support from the hours of 6 a.m. to 6 p.m., Pacific Standard Time,
Monday-Friday, excluding major holidays. ADFORCE will also maintain 24 x 7
level technical service support via phone, cell phone or pager. In addition,
ADFORCE will provide up to four (4) days of account management support on
site at NETSCAPE each calendar month at [*]; unused days will not carry
over to subsequent calendar months. NETSCAPE may select the days and must
provide ADFORCE five (5) business days advance notice. Any additional days of
on-site training or support will be at a cost of $[*] per day. The twelve
(12) days of monthly on-site account support to be provided by ADFORCE will
not include training for major ADFORCE releases, which will be provided to
NETSCAPE separately at no cost.
C. CERTAIN NETSCAPE OBLIGATIONS. NETSCAPE agrees to implement the ad
tags per the ADFORCE User Guide and Help documentation, and to use the
ADFORCE Client to schedule advertising it wishes ADFORCE to serve onto
NETSCAPE's Web sites. NETSCAPE confirms its commitment to use the AdForce
Service and Technology to serve not less than ninety percent (90%) of the ad
Impressions NETSCAPE controls on its NETSCAPE Netcenter online property, as
measured beginning April 15, 1999. However, if ADFORCE fails for any period
of time to meet its obligations under Sections 3.2, 4.3, 5.1, or 10.2 of the
Agreement or Section 7 of Exhibit A, then NETSCAPE may at its option reduce
its percentage commitment to a level NETSCAPE deems necessary until such time
as ADFORCE has come back into compliance. NETSCAPE agrees to provide ADFORCE
monthly volume forecasts of Impressions to be delivered using the AdForce
Service; these forecasts will be provided no later than three (3) days prior
to the beginning of each calendar month. NETSCAPE shall indemnify and hold
harmless ADFORCE from any liability and damages and costs (including
reasonable costs and attorney's fees) arising out of or relating to
advertising placed by NETSCAPE using the AdForce Service, including, without
limitation, content, libel, invasion of privacy, and rights of publicity.
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[*] 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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2. OWNERSHIP OF CLIENT AND LIMITATIONS ON USE. Subject to the terms and
conditions of this Agreement, NETSCAPE may use the Client on its premises
solely for purposes of using the AdForce Service. ADFORCE shall at all times
have sole and exclusive ownership of all right, title and interest in and to
such Client and the AdForce Service as a whole, any enhancements thereto
(except as provided in Section 2 above) and in any materials and data ADFORCE
provides to NETSCAPE. NETSCAPE may not copy, modify, alter, sell, distribute
or sublicense the Client, 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 Client, nor authorize or contract with third parties
to do the same.
3. CONFIDENTIALITY. All passwords to ADFORCE, ADFORCE user guides, the
ADFORCE Client, and the ADFORCE "help" documentation, whether on-line or in
printed form, are confidential and proprietary to ADFORCE. All account
information input into the AdForce Service by NETSCAPE or ADFORCE for
campaigns running on NETSCAPE Web sites, such as advertiser contacts, costs
and billing information, and any NETSCAPE campaign-specific reports generated
by the AdForce Service are confidential to NETSCAPE.
4. ADFORCE SYSTEM DATA. As set forth in Section 3 above, ADFORCE
acknowledges the confidentiality of the account information input into the
AdForce Service by NETSCAPE or ADFORCE for NETSCAPE campaigns and any
NETSCAPE campaign-specific reports generated by the AdForce Service. However,
during the course of delivering advertising to visitors to NETSCAPE's sites
or to any other site of any other ADFORCE customer, ADFORCE will collect and
maintain information necessary to target advertising on behalf of all its
customers, including NETSCAPE. This information includes, but is 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. ADFORCE will provide NETSCAPE
the ability to run any reports referenced on Exhibit A against such
information, ADFORCE and NETSCAPE both own all right, title and interest in
and to such information. Use of such information by either party shall at all
times comply with NETSCAPE's privacy policy, set forth at
http://home.netscape.com/legal_notices/privacy.html or at such other URL as
NETSCAPE may designate from time to time. ADFORCE shall have full freedom of
use of such information without need for accounting, however, such use shall
not expand beyond ADFORCE's actual use of such information as of the
Effective Date. Specifically, ADFORCE will provide to NETSCAPE on a weekly
basis the detailed HTTP server logs pertaining to user accesses on Netcenter.
The parties shall mutually agree to a procedure by which such logs will be
provided to NETSCAPE. Other logs may be requested with reasonable notice by
Netscape and such requests will not be unreasonably refused by ADFORCE.
Request for logs not generally provided by ADFORCE shall be subject to the
terms of Development Services as described in Article 5. All NETSCAPE requests
for system data will be on a prospective basis.
5. ADFORCE SERVICE DESCRIPTION
<TABLE>
<CAPTION>
-------------------------------------------
AdForce BASIC
-------------------------------------------
<S> <C>
Campaign Management Scheduling
Features Delivery
Inventory Forecast
Reporting
Targeting
-------------------------------------------
Auditing Free monthly audit
-------------------------------------------
</TABLE>
33
<PAGE>
CONFIDENTIAL
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>
NETSCAPE will have the right to receive all current and future reports that
are part of the standard reports made available to ADFORCE customers. Fees
for any additional reports added in the future and not included as part of the
standard reports made available to ADFORCE customers will be charged
according to the terms of Article 5.
6. TARGETING CAPABILITIES. The AdForce 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 of
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 domain types.
- - SERVICE PROVIDER - Different campaigns can be delivered to visitors with
different ISPs.
- - TELEPHONE AREA CODE - Different ads can be delivered to visitors in
different area codes.
- - SIC CODE - Different ads 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 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 search word
or phrase.
- - SITE DATA - Ads can be targeted on the basis of a site's data (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.
34
<PAGE>
CONFIDENTIAL
7. PERFORMANCE METRICS
The Parties will measure real-world performance using a standard vendor such
as Keynote, Inverse Networks or another service mutually agreed upon.
NETSCAPE will be liable for the cost of the auditing services, not to exceed
$[*]. The ADFORCE system must provide:
A. Average ad delivery availability: [*]%, measured each calendar month,
with no scheduled downtime. This metric also includes tracking functions
such as impressions and click through counting. If the AdForce Service
fails to meet this target level of performance, in addition to the
response times referenced in Section 4.3, ADFORCE will provide NETSCAPE a
"make good" on any ads which did not serve during any downtime in excess
of the required availability metric (for example, if ad delivery is down
[*]% of a given calendar month, then AdForce's make good shall apply
only to the [*]% excess over the required metric). Accordingly, AdForce
will serve free of charge a number of ads equal to twice the number of ads
not served during such excess downtime. Finally, failure by the AdForce
Service to meet this performance metric for any four consecutive months
shall, at NETSCAPE's option, constitute a breach of the Agreement.
B. Administration system availability: [*]%, less scheduled maintenance,
measured each calendar quarter, with no scheduled downtime during Pacific
Standard Time working hours (8 a.m.-6 p.m.). Maximum scheduled downtime in
any given work week shall be 4 hours; measure also excludes monthly
rebuilding of summary tables, provided they are executed only during
weekend hours. Includes order entry/administration and reporting. Finally,
failure by the AdForce Service to meet this performance metric for any four
consecutive months shall, at NETSCAPE's option, constitute a breach of the
Agreement.
C. Single http-ad server delivery latency of no more than [*] seconds. This
requirement will not apply at times when the Keynote Business 40 Benchmark
Page latency is greater than three times its weekly average. Schedule for
regular weekly measurements to be mutually agreed upon.
D. Multiple ad delivery (maximum 9 ad requests) latency of no more than [*]
seconds. This requirement will not apply at times when the Keynote Business
40 Benchmark Page latency is greater than three times its weekly average.
Schedule for regular weekly measurements to be mutually agreed upon.
35
[*] 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>
CONFIDENTIAL
EXHIBIT B
FEES AND PAYMENT SCHEDULE
The current estimated obligation by NETSCAPE for the Initial Ad Serving
Services Term of the Agreement is:
<TABLE>
<CAPTION>
FOR THE QUARTER BEGINNING: THE ESTIMATE IS:
<S> <C>
February 1, 1999 $[*]
May 1, 1999 $[*]
August 1, 1999 $[*]
November 1, 1999 $[*]*
----------
TOTAL: $[*]
</TABLE>
* The figure for the quarter beginning November 1, is a prorated amount based
on the 22 days from November 1, 1999 until the end of the Initial Ad Serving
Services Term.
NETSCAPE will pre-pay an amount equal to $[*], per Section 9.1.
Based on NETSCAPE's current impression forecast, this converts to an imputed
CPM rate as follows, and under no circumstances will NETSCAPE's CPM rate
exceed ADFORCE's own audited allocated CPM cost for the same period (defined
as ADFORCE's total cost of goods sold divided by ADFORCE's total
impressions), unless NETSCAPE chooses to increase ADFORCE's headcount
requirements:
<TABLE>
<CAPTION>
FOR THE QUARTER BEGINNING: THE CPM ESTIMATE IS:
<S> <C>
February 1, 1999 $[*]
May 1, 1999 $[*]
August 1, 1999 $[*]
November 1, 1999 $[*]
</TABLE>
ADFORCE may use its audited allocation accounting methodology to bill
NETSCAPE; however, this amount may not exceed the computation of direct
obligations contained in Exhibit C, after updating Exhibit C for actual
impressions, headcount and other calculations. Specifically, those updates
will be made in an electronic version of Exhibit C, and the maximum
obligation for any given quarter will be the sum of those calculations, which
are described below.
1. Actual impressions will be as measured and mutual agreed to by each party.
2. Headcount:
- - Estimates will be adjusted per Section 9.1. It is currently estimated
that there are 9 full-time-equivalents at ADFORCE working on the NETSCAPE
account. It is agreed that 6 of these headcount, covering operations and
account support, will not increase in number at any time. The three
remaining headcount will work on providing quality assurance for campaign
management, and this number could increase or decrease at NETSCAPE's
option, depending on how NETSCAPE organizes this work in the future.
- - The formula for calculating headcount costs will be: [Number of headcount]
multiplied by [$[*]] multiplied by [[*] if before July 15, [*] if after
July 15, 1999, or [*] if Section 6.2(a) controls]
36
[*] 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>
CONFIDENTIAL
3. Facilities costs will be calculated according to the following formula:
[Number of headcount in 1 above] multiplied by [$[*]] multiplied by
[[*] if before July 15, [*] if after July 15, 1999, or [*] if
Section 6.2(a) controls]
4. G&A will not change from Exhibit C, unless mutually agreed upon
5. Bandwidth will not change from Exhibit C, unless mutually agreed upon
6. Amortized capital, equipment and related costs will be based on Exhibit
C. Specifically, the formula for any given quarter in which NETSCAPE is
using the ADFORCE Ad Serving Service equals the sum of [the capital
depreciation for capital expenses in that same quarter] and [the capital
depreciation for capital expenses in any previous quarter in which NETSCAPE
used the ADFORCE Ad Serving Service where the depreciation schedule has not
expired].
(a) The initial calculations for any three-month quarter are:
(1) Small System units purchased in quarter = [[Average NETSCAPE
impressions served by ADFORCE per day] divided by [[*]]
multiplied by [[*]] less [the sum of the total number of Small
System units purchased in previous quarters]
(2) Small System units required in quarter = [Average NETSCAPE
impressions served by ADFORCE per day] divided by [[*]] multiplied
by [[*]]
(3) Cost of Small System purchased in quarter = [total small system
units purchased in the quarter] multiplied by [$[*]]
(4) PC units purchased in quarter = [Small System units purchased in
the quarter] divided by [[*]]
(5) Cost of PC's purchased in quarter = [PC units purchased in
quarter] multiplied by [$[*]]
(6) Square footage required for Infrastructure build-out in quarter
= [Small System units purchased in quarter] divided by [[*]] and
then multiplied by [[*]]
(7) Cost of Infrastructure build-out in quarter = [square footage
required for Infrastructure build-out in quarter] multiplied by
[$[*]]
(b) Summary calculations are:
(1) Capital expenses in the quarter = the sum of [5.a.3], [5.a.5]
and [5.a.7] above in the same quarter
(2) Depreciation for the capital expenses incurred in the quarter =
[5.b.1] divided by [[*]].
Not withstanding the foregoing, if less than a full quarter is completed the
maximum amount due will be prorated accordingly.
Not withstanding the foregoing, changes that may impact these actual
obligations include but are not limited to: NETSCAPE's assumption of
activities and operations that are provided by ADFORCE in the current
estimate, such as headcount, hardware, bandwidth, and facilities; and changes
to the impression forecast which impact these costs.
Specifically, unless the parties mutually agree otherwise, if NETSCAPE were
to assume any such activities and operations, NETSCAPE's obligation for the
subsequent periods would be reduced by a ratable amount in the
corresponding line item in Exhibit C, after adjusting for changes to Exhibit
C described above.
37
[*] 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>
CONFIDENTIAL
Unless the parties mutually agree otherwise, milestones regarding the timing
and adjustment of payments will be made per Section 9.1 of the Agreement.
38
<PAGE>
CONFIDENTIAL
EXHIBIT C
MODEL AND FORMULA FOR ADJUSTMENTS
FINAL
ADFORCE COST ESTIMATE - WITH CORRECTION TO SURCHARGES
<TABLE>
<CAPTION>
SURCHARGE QUARTER BEGINNING ON...
-------------------------------------------------------------------------------
OPERATING EXPENSES: Year 1 Year 2 2/1/99 5/1/99 8/1/99 11/1/99* Total
- ----------------------------------------------------------------------------------------------------------------------------------
Headcount (FTE) up to 7/15/1999 7/16/99 on [*] [*] [*] [*]
--------------------------- --- --- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Headcount Expense $[*] per/qtr [*]% [*]% $[*] $[*] $[*] $ [*]
-------------------------------------------------------------------------------------------------
G&A [*]% [*]% $[*] $[*] $[*] $ [*]
HW Depreciation [*]% [*]% $[*] $[*] $[*] $ [*]
Bandwith [*]% [*]% $[*] $[*] $[*] $ [*]
Facilities/IS Allocation $[*] per head [*]% [*]% $[*] $[*] $[*] $ [*]
-------------------------------------------------------------------------------------------------
Total Op Ex $[*] $[*] $[*] $ [*]
- ----------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses
(prorated to term) $[*] $[*] $[*] $ [*]
- ----------------------------------------------------------------------------------------------------------------------------------
CAPITAL EXPENSE ESTIMATE - DYNAMICALLY ADJUSTED BY IMPRESSION FORECAST
- ----------------------------------------------------------------------------------------------------------------------------------
Large Servers $[*] per unit
Capital Expense - Large Servers
Small Systems (Sun U2) $[*] per unit [*] [*] [*] [*]
CUMULATIVE SYSTEMS [*] [*] [*] [*]
Capital Expense - Small Servers $ [*] $ [*] $ [*] $ [*]
PC's $[*] per unit [*] [*] [*] [*]
Capital Expense - PC's $ [*] $ [*] $ [*] $ [*]
Infrastructure Build-out $[*] per sq. ft. [*] [*] [*] [*]
Capital Expense -
Infrastructure Build-out $ [*] $ [*] $ [*] $ [*]
- ----------------------------------------------------------------------------------------------------------------------------------
Total Capital Expense $ [*] $ [*] $ [*] $ [*]
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NETSCAPE IMPRESSION ESTIMATE - LAST UPDATED ON FEBRUARY 19
- ----------------------------------------------------------------------------------------------------------------------------------
QUARTER BEGINNING ON...
----------------------------------------------------------------------------------------
NOVEMBER QUARTER IS PRORATED TO TERM 2/1/99 5/1/99 8/1/99 11/1/99 Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sito Impressions [*] [*] [*] [*] [*]
BannerX Impressions - [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------------------------------
Total Impressions [*] [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------------------------------
Total Impressions Prorated to Term [*] [*] [*] [*] [*]
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CPMs IMPLIED BY ADFORCE COST ESTIMATE
- ----------------------------------------------------------------------------------------------------------------------------------
SURCHARGE QUARTER BEGINNING ON...
- ----------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES: up to 7/15/1999 7/16/99 on 2/1/99 5/1/99 8/1/99 11/1/99 Total
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Headcount Expense [*]% [*]% $[*] $[*] $[*] $[*]
G&A [*]% [*]% $[*] $[*] $[*] $[*]
HW Depreciation [*]% [*]% $[*] $[*] $[*] $[*]
Bandwith [*]% [*]% $[*] $[*] $[*] $[*]
Facilities/IS Allocation [*]% [*]% $[*] $[*] $[*] $[*]
- ----------------------------------------------------------------------------------------------------------------------------------
Total Op Ex $[*] $[*] $[*] $[*]
Total Operating Expenses $[*] $[*] $[*] $[*]
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
39
[*] 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>
CONFIDENTIAL
EXHIBIT D
MUTUAL CONFIDENTIAL DISCLOSURE AGREEMENT
This Mutual Confidential Disclosure Agreement ("Agreement") is entered into
between NETSCAPE Communications Corporation ("NETSCAPE") and IMGIS, INC, dba
ADFORCE ("Company"), and is effective as of the date of execution by NETSCAPE
("Effective Date"). Each party (the "Receiving Party") understands that the
other party (the "Disclosing Party") may disclose certain Confidential
Information (as defined in Section 1 below) under this Agreement. NETSCAPE
and Company agree as follows:
1. DEFINITION. "Confidential Information" shall mean (i) all information
disclosed in tangible form by the Disclosing Party and marked
"confidential" or "proprietary", and (ii) all information disclosed
orally or otherwise in intangible form by the Disclosing Party and
designated as confidential or proprietary at the time of disclosure.
Confidential Information may include, without limitation, computer
programs, code, algorithms, names and expertise of employees and
consultants, know-how, formulas, processes, ideas, inventions (whether
patentable or not), schematics and other technical, business, financial
and product development plans, forecasts, strategies and information.
2. PURPOSE. The Receiving Party shall use the Confidential Information only
for the following purposes:
a) To evaluate whether to enter into a contemplated business transaction;
and
b) if NETSCAPE and Company enter into such contemplated business
transaction, to fulfill each party's commitments under the agreement for
such business transaction.
3. CONFIDENTIALITY OBLIGATION. The Receiving Party agrees to protect the
Confidential Information by using the same degree of care, but not less
than a reasonable degree of care, to prevent the unauthorized use,
dissemination or publication of the Confidential Information as the
Receiving Party uses to protect its own confidential or proprietary
information of a like nature. The Receiving Party shall limit the use of
and access to the Disclosing Party's Confidential Information to the
Receiving Party's employees or independent contractors who need to know
such Confidential Information for the purposes set forth in Section 2
above and who have entered into binding obligations of confidentiality
substantially similar to the obligations set forth herein.
4. TERM. The Receiving Party's obligations to protect Confidential
Information hereunder shall expire 3 years from the date of each such
disclosure of Confidential Information, except when such Confidential
Information disclosed by the Disclosing Party is source code, in which
case the Receiving Party's obligations to protect such Confidential
Information shall be perpetual.
5. EXCLUSION. Confidential Information as defined in Section 1 above shall
not include Confidential Information that: (i) is or becomes a matter of
public knowledge through no fault of the Receiving Party; or (ii) was in
the Receiving Party's possession or known by it prior to receipt from the
Disclosing Party; or (iii) was rightfully disclosed to the Receiving
Party by another person without restriction; or (iv) is independently
developed by the Receiving Party without access to Disclosing Party's
Confidential Information. The Receiving Party may disclose Confidential
Information pursuant to any statutory or regulatory authority or court
<PAGE>
CONFIDENTIAL
order, provided the Disclosing Party is given prompt written notice of
such requirement and the scope of such disclosure is limited to the
extent possible.
6. INDEPENDENT DEVELOPMENT. The terms of confidentiality under this Agreement
shall not be construed to limit either party's right to independently
develop or acquire products without use of the other party's Confidential
Information. Further, Confidential Information as defined in Section 1
above shall not include the Residuals resulting from access to such
Confidential Information. The term "Residuals" means information in
intangible form which may be retained in the unaided memories of
Receiving Party's employees or independent contractors who have had
access to the information. An employee's or contractor's memory will be
considered to be unaided if the employee has not intentionally memorized
the Confidential Information for the purpose of retaining and
subsequently using or disclosing it. Neither party shall have any
obligation to limit or restrict the assignment of such persons or to pay
royalties for any work resulting from the use of Residuals. However, the
foregoing shall not be deemed to grant to either party a license under
the other party's copyrights or patents.
7. RETURN OF CONFIDENTIAL INFORMATION. Upon written request by the Disclosing
Party at any time, the Receiving Party shall: (i) turn over to the
Disclosing Party all Confidential Information of the Disclosing Party,
all documents or media containing the Confidential Information, and any
and all copies or extracts thereof, or (ii) destroy the Confidential
Information, and any and all copies or extracts thereof, and provide the
Disclosing Party with written certification of such destruction signed
by an authorized representative of the Receiving Party.
8. EQUITABLE RELIEF. The Receiving Party acknowledges and agrees that due to
the unique nature of the Disclosing Party's Confidential Information,
there may be no adequate remedy at law for any breach of its obligations.
The Receiving Party further acknowledges that any such breach may allow
the Receiving Party or third parties to unfairly compete with the
Disclosing Party resulting in irreparable harm to the Disclosing Party
and, therefore, that upon any such breach or any threat thereof, the
Disclosing Party shall be entitled to seek appropriate equitable relief
in addition to whatever remedies it may have at law. The Receiving Party
will notify the Disclosing Party in writing immediately upon the
occurrence of any such unauthorized release or other breach.
9. INTELLECTUAL PROPERTY RIGHTS. Neither party acquires any intellectual
property rights or any other rights under this Agreement or through any
disclosure hereunder, except the limited right to use the Confidential
Information in accordance with this Agreement.
10. WARRANTY. THE CONFIDENTIAL INFORMATION IS DISCLOSED UNDER THIS AGREEMENT
IS DELIVERED "AS IS," AND ALL REPRESENTATIONS OR WARRANTIES, WHETHER
EXPRESS OR IMPLIED, INCLUDING WARRANTIES OR CONDITIONS FOR FITNESS FOR A
PARTICULAR PURPOSE, MERCHANTABILITY, TITLE AND NONINFRINGEMENT, ARE
HEREBY DISCLAIMED.
11. NETSCAPE SUBSIDIARIES. NETSCAPE's wholly owned subsidiaries, by signing
this Agreement on behalf of NETSCAPE and returning a fully executed
original or copy to the NETSCAPE Legal Department, shall be entitled to
disclose NETSCAPE's Confidential Information and receive Company's
Confidential Information on a need to know basis only on behalf of
NETSCAPE under this Agreement, provided such subsidiaries comply with the
terms and conditions of this Agreement and further provided such
disclosures or receipt of
2
<PAGE>
CONFIDENTIAL
Confidential Information are governed by the terms and conditions of this
Agreement.
12. GENERAL. This Agreement supersedes all prior discussions and writings
with respect to the subject matter hereof, and constitutes the entire
agreement between the parties with respect to the subject matter hereof.
No waiver or modification of this Agreement will be binding upon either
party unless made in writing and signed by a duly authorized
representative of each party and no failure or delay in enforcing any
right will be deemed a waiver. The parties understand that nothing herein
requires either party to proceed with any proposed transaction or
relationship in connection with which Confidential Information may be
disclosed. In the event that any of the provisions of this Agreement
shall be held by a court or other tribunal of competent jurisdiction to
be unenforceable, the remaining portions hereof shall remain in full force
and effect. This Agreement shall be governed by the laws of the State of
California without regard to conflicts of laws provisions thereof and each
party submits to the jurisdiction and venue of any California State or
federal court generally serving the Santa Clara county area with respect to
the subject matter of this Agreement. The headings to the Sections of
this Agreement are included merely for reference and shall not affect the
meaning of the language included herein. If applicable, this Agreement
may be executed in counterparts or by facsimile, each of which shall be
deemed an original, and all of which together shall constitute one and
the same agreement. This Agreement is written in the English language
only, which language shall be controlling in all respects. Les parties
aux presentes confirment leur volonte que cette convention de meme que
tous les documents y compris tout avis qui s`y rattache, soient rediges
en language anglaise (translation: "The parties confirm that this
Agreement and all related documentation is and will be in the English
language.").
NETSCAPE COMMUNICATIONS COMPANY
CORPORATION
By: /s/ Mike Homer By: /s/ Charles W. Berg
--------------------------------- ---------------------------------
Name: Mike Homer Name: Charles W. Berg
---------------------------- -----------------------------
Print or Type Print or Type
Title: EVP, GM Netcenter Title: Chairman & CEO
-------------------------- -----------------------------
Date: January 1, 1999 Date: January 1, 1999
-------------------------- -----------------------------
Address: Address:
501 East Middlefield Road 10101 N. DeAnza Boulevard, Ste. 210
Mountain View, CA 94043 Cupertino, CA 95014
3
<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 April , 1999, with respect to
AdForce, Inc. and our report dated October 29, 1998 with respect to StarPoint
Software, Inc. in Amendment No. 1 to the Registration Statement (Form S-1 No.
333-73231) 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
April 14, 1999
